The resolutions that can benefit everyone
Traditionally the start of the New Year is the time to put in place those all-important resolutions, classic examples being to lose weight, get fit, stop smoking, spend less, save more, start a new hobby, spend more time with the family and so on and such forth.
It is normally a good time to have a think about finances, more so because Christmas is often an expensive period for many families. So finding a new resolve towards a financial commitment of one sort or another might help alleviate, to some extent, the Christmas hangover.
Typical financial resolutions might involve setting up a new account to try and put more money into savings or investments; starting a pension; looking at ways of reducing tax; making more charitable gifts or finding ways to get a better return on your investments.
All laudable and realistic aims.
However we think there is one resolution we can suggest which everyone, regardless of age or wealth, can make which, if followed through, could have a profound effect on one’s finances, both short-term and long-term.
The resolution is this: learn everything and anything you can about the science that is commonly known as behavioural finance.
There are sometimes other names or titles applied to this but we will stick with behavioural finance.
In simple terms this is the field of finance which provides explanations around why people make the decisions they make (which are often bad or irrational ones), how judgements are formed and how market participants tick.
The topic covers many elements of everyday finances and investing. It includes understanding how risk is perceived and managed, how different investment opportunities are pursued or ignored, how ‘ordinary’ people think and react to common financial situations.
It explains why bad decisions are so often taken by otherwise rational and intelligent people.
Behavioural finance outlines the common biases which influence us, including, for example, anchoring and hindsight bias.
It shows how easy it is for any of us to get lured in to the wrong choices about our finances.
A great example would be the way most people think about losses on an investment, whereby our emotional attachment to the historic price we paid (or our starting sum) gets anchored in our mind and makes us yearn for the investment to, at least, get back to where we started. This is logically a nonsensical standpoint. In nearly all cases, where you started with an investment will be an irrelevance to your current best decision as to how you should now deal with it.
Your decision to stick with it or sell, should have no attachment to its original value.
Behavioural finance covers many, many situations and is a powerful subject to understand, because if you can get underneath the emotional drivers, the common misunderstanding of statistics and probability, the way to perceive and measure risk, the best ways to think about money, you can start to master the subject of your finances.
If you master the subject of your finances, you will – without a shadow of doubt – increase your wealth.
Therefore we suggest you resolve to learn as much as you can about behavioural finance and we would be delighted to help and support you if you would like us to do so.
This resolution is therefore both a relatively simple one to make (and keep), totally free of any cost and one that will not only serve you well during 2018 but forever and a day thereafter.
The Wealth Secret – Create, Build and Protect your Future the Penguin Way, to receive your complimentary copy of the Wealth Secret click http://bit.ly/Wealth-Secret and begin your financial journey.