Episode 44: 7 Mentally Strong Financial Traits (Master Your Money Psychology!)
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On this episode of the personal finance podcast, we're going to talk about seven mentally strong financial traits. What's up everybody, and welcome to personal finance podcast. I'm your host, Andrew, founder of dollar after dollar.com. And today on the personal finance podcast, we're going to talk about seven mentally strong financial traits. And this is one of the most important things when it comes to your money because money is a mental game. And your psychology is everything when it comes to your money, because every decision that you make with your money matters significantly, in the long run in terms of your wealth building, in terms of how you purchase things, and in terms of your investing power, because if you can control the mental game of your money, if you can control yourself from overspending, if you can invest more money and stay calm, while investing, all of these things will add up to building wealth. And what most people just don't understand is that the mental game is the most important thing. Because if you have the mental game down, everything else just becomes action. And taking action, when you have the right mentality is a full blown force that nobody can stop. And that is why we need to talk about this. That is why you need to work on the psychology of money. There's a great book by Morgan housel. And if you haven't read it, it's called the psychology of money, it just came out last year, and I highly recommend you read it. Because what you're going to find out in that book is there's all different types of psychological problems that can come about, if you miss manage money, and it's all because of psychology. It's all because of your mentality. But people with mentally strong financial traits, those are the people that come out on top, those are the people that build true wealth. So we're gonna go through seven of these mentally strong financial traits. And if you lack in one of these areas, see how you can work on these areas. Because bringing up your psychology, bringing up your mentality towards your money is going to change everything about how you build wealth. So let's get into it. So the first one is mentally strong people understand the power of each decision, because each decision you make with your money creates a result. And the collection of those results, creates financial future for you and your family. So people who want to create wealth, they make small decisions each and every day, that propels them forward to reaching that goal. And understanding that no matter how small the sum of money is, it will grow much larger over time because of compound interest. So for example, let's say you just straight up save 20 bucks a week. So if you're spending 20 bucks a week on something, and you just straight up saved it over the course of 20 years, that's gonna amount about $20,700. So you're spending frivolously on something that costs 20 bucks a week. And you invest that $20 with an 8% average rate of return, which is what you get in an index fund, which is what the market gets, you would have $51,000 in 20 years, in 30 years, you'd have $130,000. And in 40 years, you'd have $305,000 how many things do you buy, say on Amazon for $20 a week that you really just don't care about, they don't bring you value, there's got to be a number of them. Most people have more than one I know I do an understanding that each one of those decisions, each one of those pieces of junk that you fill your home with, or each time you go out for drinks with your homies, it's going to add up in over the course of 40 years, it's going to add up significantly just with that small sum of money. Now hear me say this, because if the thing brings you value or the experience with your friends bring you value, then you should absolutely be spending the money on that you should absolutely spend money on things that bring you value, blow money on things that bring you value. But if it doesn't bring you value, then you need to reevaluate that decision. Because every decision you make today is going to have an impact on tomorrow. Every decision you make with your money today is going to have a major financial impact on tomorrow. And here's another way to think about it. With each thing you purchase. It's a trade off that you cannot buy another thing. So let's say for example, that you want to travel the world. And that's your big goal is you want to start traveling the world. Well each time you spend $20 on something that doesn't bring you value. You're taking away $20 from you traveling the world, it's a trade off. Or let's say you want to retire early, which I know a lot of people who listen to this podcast you a lot of people who listen to this podcast want to reach financial independence early, say in their late 30s, early 40s. If that's something that you're interested in, then making sure that every dollar is efficiently allocated towards your spending is extremely impactful because of the over the course of time. You could be Giving up and a significant sum in retirement. And if you want to retire early, you want to be able to live off as much money as possible. So stashing away as much money as you possibly can, allows you to do that. That's why so many people who reach fire financial independence so early are frugal weirdos. They're just flat out weirdos, they're saving 70% of their money biking around all over the place. It's because they understand this concept. And they just take it to the extreme. So realize this, every decision you make has a trade off, everything you do, has a major trade off. Number two, they remove emotion from the equation in personal finance and investing in finance, in general, emotions will absolutely kill you. If you're highly emotional with your decision making, you're going to have to work on that to be able to truly start investing. And this is why I recommend index funds to so many people. Because most people, the majority of people, I'd say 99.9% of people don't have the emotional fortitude to invest properly GameStop, for example, we just had a major run up on GameStop recently, and what's happening is a lot of people jump into a stock like that, as it starts to grow. And as it gets higher and higher and higher, and they jump in too late because their emotions start to flutter up and they want to get in the game. That's an emotional decision. But it's not a logical decision. Because the fact that GameStop is going up, it's a dying business, it does not make logical sense to even put money into that stock. So people are emotionally riding the wave up, instead of controlling their emotions and sticking to their plan. Let's say you want to invest in index funds for the long run, then the better decision would be to continue your plan. You don't care what the market does, you don't care what everybody else is doing, you're sticking to your plan that you set out to accomplish. The same goes for purchasing decisions. How many times if you walked out of a store after you bought something and immediately just regretted buying that item, if you regret buying a buying decision, right when you walk out of the store 99.9% of the time, that's an emotional based decision. It's the entire premise of buyer's remorse is emotion. So learning to control these emotions, learning to have systems in place so that these emotions, when they're triggered, you just stick to your plan. Because that's how you truly control these emotions. You put together a plan, you put together a vesting plan, say, this is how I'm going to invest for the long run, this is what my results are going to be. And I'm going to stick to this plan, we're going to have an episode coming up on how to put together an investing plan because I think it's extremely important to really hone in and and keep these emotions in check. So that you're able to not just start to try to wide waves when when Bitcoin goes crazy, and you just try to ride that wave and you're getting into late, or when Dogecoin comes in and people hate flying up left and right. Or when game stops go flying or AMC, it doesn't matter what it is having that investing plan in place allows you to not try to jump that wave and make the right decision, which is staying calm, maintaining your plan, and making sure the numbers are correct. Before you jump in to a decision. This happens all the time with real estate investing. You see these real estate investors come in late to the game because they don't know how to run their numbers and they see a property they just want. And they buy a property too high. What happens is that property can't appreciate much, they don't have any cash flow. And all of a sudden, they're in a bind. And so they have to sell the property at a loss to people like me, who will stay in place and make sure I'm sticking to my plan. So this is why you have to maintain this plan. You can think of it the same thing. In the late 90s. There was a tech boom. And people thought Yahoo. Remember Yahoo, people thought Yahoo had infinite potential. And when they were buying up the stock, it would have had to have the revenues of the gross domestic product of the United States of America to actually make sense at buying at those prices. The buying frenzy was that crazy, but emotional investors just kept throwing money at Yahoo, just chucking it at Yahoo, it's a feeding frenzy. And the media kept pumping it up over and over and over again. And as we all know, Yahoo barely exists now they have Yahoo Finance was just a great website. But Yahoo is not what it used to be. And the by train did not last forever. A lot of people lost a lot of money. That's why they called it the tech bubble at the late in the late 90s. Because this is the types of things that were happening. And it was all based on emotions. So having an investing plan in place, making decisions on how you're going to purchase items and ensuring that you stick to that will keep those emotions in check. Number three, they are consistently persistent. See this money game is a long one. And understanding that this money game is a long one and maintaining your plan over the long haul is what's going to get you ahead because a lot of people live in the moment and they'll invest in something and they'll see it go up a couple bucks and they say this isn't working. Why am I even investing but over the long period of time as your money grows and as the snowball grows, you will see significant results and consistent people stick to their plan each and every day. They work out And if it doesn't work, then they tweak their plan. And in turn, that plan becomes successful because they're working and tweaking and working and tweaking. That is how you, you hit your goals. If you haven't listened to our episodes about goals that we had at the beginning of the year, go back and listen to those episodes, because I lay out a very specific plan on how you can hit your financial goals. Let's say for example, your goal is to retire with a million bucks. Now million bucks to me, is not enough money to retire. And we'll explain why. In a future episode. That just means you're living on $40,000 a year, I'd rather live in retirement on more than $40,000 a year. But let's just say for easy math, that your goal is to retire with $1 million. Well, if your plan lays out that you need to invest a certain amount every single month, you better be investing that amount every single month, because you have to be consistently persistent to hit numbers like that. You can't just say hey, I'm not going to invest these next couple months, I'm going to sit out because I don't feel like it. I'd rather buy cool toys or go on a shopping spree or whatever else you want to do, hey, you want to go ball ball out, but at the same time, understand that it's a trade off, and you're losing out on your long term plan. People who are wealthy don't do that. They're consistently persistent, they stick to the plan, and they make sure they get it done. Number four can't is not an option. setting out to achieve your dreams is an absolute characteristic of a mentally strong person. And fear is an emotion that can get in the way of this. Let's say for example, that the stock market takes a dip if you look at when the stock market takes a dip, a lot of people who don't know what they're doing, just start selling all of a sudden, well guess what, when the stock market takes a dip, stocks are on sale, everything's on sale, this is the time to buy, and you hear people say all the time, buy low, sell high, yet most people can't do it. And this is what happens when a lot of people start investing. And they run into a few roadblocks like a market dip. And they get paralyzed into inaction. Because they fear that they can't do it. And when you focus on fear of failure, you'll never achieve your financial goals. So what you do is so you understand that can't is an option, you can read about other people's failures in the financial market, that's a great way to learn because you can learn from failures, but they don't have to be your failures. And that's a famous quote that Warren Buffett use always talked about. That's why he reads so much, because he wanted to learn about people's failures and what not to do. So he didn't do those things, this is extremely important to understand. Because if you can learn from other people's failures, you're minimizing risk significantly, significantly minimizing risk and your experience level is going up by understanding the failure of others. And the more experience that you have, the more you understand, there's no can't, it's just continuing with their plan, pushing forward and making sure that you hit your goals, you're probably seeing a theme here, because with all of these, your plan is what's going to keep you grounded. And the plan that you have in place is what's going to allow you to get to the next level number five, they roll with the punches. So as we talked about, failure is absolutely inevitable. Every single person makes mistakes. I've made countless financial mistakes in my life. Let me give you one example, when I was a teenager, I started buying penny stocks because I thought that was the way to go. And it was probably the only stocks I could truly afford. And when I started buying penny stocks, I realized very quickly, this is one of the dumbest things that you can do. Because as I was buying penny stocks, I would lose a significant portion of my net worth in one day alone. So through those experiences of losing so much money in penny stocks as a teenager, I now will never buy a penny stock for the rest of my life. Because I understand that. But I'm rolling with the punches. I didn't stop investing, saying this can't be done. I picked the wrong strategy. I picked the wrong way to invest early in life. And understood going forward. I'm not gonna do that. Again. I'm rolling with the punches. I'm allowing myself to move forward, because I'm gonna take hits, but can you keep going is what what matters most. And I talked about this all the time with your budgeting if you overspend on your budget, most people quit. Most people quit budgeting when they overspend. Why would you do that I've never had a perfect month in my entire life with budgeting. But I just roll with the punches, go to the next month, allocate money where it needs to go and move on. You have to do this if you want to be mentally strong. And if you want to do it the right way, you brush it off, move on and never think about it again, except for as a learning experience. Take each one of these failures as learning experiences. Because if you don't, the failure is going to happen again. But letting the mistakes keep you down will never enable you to reach your financial goals. Number six, they aren't afraid to put in a little sweat. So having a strong financial mentality means you have to have a little bit of grit and you have to put in some work. Now what I'm trying to do is show you how to do it with minimal work. So a lot of people back in the day when they didn't have technologies like we have now things like personal capital, or automatic transfers, or things that I talked about all the time to make your financial life easier. They had to put in a little more work than to pay their bills and write the check and send it in the mail those types of things. But now, you have it easier than they did in our past in past generations. But you still have to put in a little bit of sweat to make sure that everything is running correctly. Now, this doesn't have to be much, it could be 20 minutes a week, 30 minutes a week. But you just got to put in the time to make sure everything is on track, the same thing goes for and this is where you really have to put in a little bit of sweat is increasing your income. Because increasing your income, as we know is the most important way to build wealth. Because as you increase your income, you could save more money. And as you can save more money, you are now putting those dollars to work by investing. And as those dollars start to work for you, the more dollars that start to work for you allow you to not have to work anymore. It works simply it's a simple equation. Most people don't understand how it works in practicality, but putting in the time to make sure that you can increase your income you may have to work nights, you may have to work weekends, I do it all the time, I have side hustles galore, and making sure that you do that so that you can put more money towards your investments, more money into your family more money, so you have time to spend with people. That's the goal. And putting in the work. Making sure you can hit those goals is absolutely critical. The last one number seven, they never stop learning. And as we talked about before, the greatest money mind of all time, Warren Buffett reads about 500 pages a day, we have an episode on this podcast, where I tell you how I read a book per week. It's a very simple system, go listen to that episode, if you haven't heard it, but understanding how to continuously learn and continuously hone your craft, whether it's at your job, so you can increase your income. Just listening to this podcast alone is fantastic. Because you're learning about personal finance, learning how to increase your net worth learning how to invest your money, so that you can get to the next level and build wealth and become a multi millionaire. Because that's what I want for each and every one of you guys, I want everyone who listens to this podcast become a multimillionaire. And if you do, what I'm telling you to do, that is very much in the cards for most people, because it is what many people have done before us and what many people are going to do in the future. And understanding that this money game to be simple. This money game can be something that you can learn. And once you learn, you implement it, you're going to build wealth, knowledge is such a powerful tool. And I've talked about this before, but there's a book called rich habits, it studies a number of millionaires. And what they found out in that book was that the majority of the millionaires that they surveyed and that they talked to read a minimum at least 30 minutes a day of nonfiction books to increase their knowledge. And the number was well above 90% of them. What does that tell you, because what learning does is it helps put the person who cares most about your life in charge. And that's you. Because you have the knowledge, you have the understanding, you have the wherewithal to move ahead. It's not your financial adviser. It's not your accountant, it's you, because you care most about your money. And so using advisors for things, when it makes sense is fine. But you still have to do the trust but verify method to make sure that they're doing the right thing for you. And so learning as much as you possibly can, allows you to avoid failures. It allows you to increase your income and allows you to build more wealth and make better decisions every single day. And that is why we want to never stop learning. So take these seven mentally strong financial traits into consideration. And if you're lacking in a couple of these areas, start to work on it, put your financial plan into place. And we'll have an episode coming up very soon on how to do that. But if you already have one in place, if you have an investing plan in place, then absolutely continue sticking to that plan. If you're gonna make small tweaks, make them slowly because you put that plan into place the beginning for a reason. And so sticking to your plan will allow you to reach your goals much faster than a person who just jumps around and never becomes an expert at anything. Thank you guys so much for listening. And if this is your first time listening, consider subscribing so you never miss an episode and share this episode with a friend and don't forget to leave a rating and review on iTunes as well because our goal is to bring as much value to you as possible. And we're trying to spread this message that money can buy freedom. That's what money is there to do is to buy more for you. So thank you again so much for listening and I hope you have a great day
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