The Psychology Of Good And Bad Financial Choices.

As much as i hate to admit it, most of the choices we make are not based on logic.

The truth, according to research, is that most of the choices we make are based on emotion.

Now, if that’s the case, how do we protect ourselves from making bad choices?

I am not immune to making bad choices. When I look back o the poor choices I’ve made, the one thing I would learn how to do if I were able to do things over again is remove the emotion.

Sounds very easy.

But in real life, it can be pretty difficult to do.

In my opinion, one of the reasons it’s so hard to implement is that bad choices tend to feel good, while the best choice is usually boring and makes you feel like you’re depriving yourself.

For example, if you experience a financial windfall…buying a new car or taking a vacation may be at the top of what makes you feel the best.

However…the wise choice would be to pay off credit card debt, add money to your rainy day fund, and invest the rest.

Now to me, that sounds absolutely exhilarating. The idea of building my net worth tends to make me feel that way.

Here’s another example. If I have money to invest, my initial inclination is to buy shares in a shiny new company I don’t already own.

That may be the sexy choice.

But it’s not the best choice.

The best thing to do in that case is to add to anything I already own that’s a winner.

One of the most powerful investment tactics you can use is to add to your winners.

Investing is hard on your emotions, as well as your psyche.

However, the best decisions we can make are those that eliminate the emotion by simply doing what is the smartest.

 

My book, The Stock Market is For Everyone, is a short guide for the beginning, inexperienced investor that is easy to understand and can be put into action immediately.

Click the image of the book at left to be taken to its Amazon page.  (Disclosure: As a participant in the Amazon Services LLC Associates Program, I earn a small commission on each sale generated through these links.)

 

Advertisements

Leverage Your Financial Freedom!

Like many words in the English language, the term “leverage” has more than one meaning. It can be used to describe something good, as well as something potentially scary.

Leverage, while negotiating, means that you are negotiating from a position of strength. That’s the “something good”.

Leverage can also mean that you have a great deal of bad debt – because “leverage” is another word for debt. We don’t want that kind of leverage!

Leverage is not a word we use daily. But it’s more important than most people realize…and believe me, it can impact your life without you even realizing it.

In order to build wealth or become financially free, you need leverage. Creating leverage is an extraordinary thing. Why? Because it allows you to generate income without you directly having to do something.

Here are some examples of leverage:

1. Income generated from owning real estate.

2. Income generated from writing a book. Once you write a book, you can generate sales 24 hours a day, 365 days a year.

3. Income generated from a website, blog or YouTube channel. There are a good number of influencers that generate a substantial income from each of these sources of leverage. When you create content, you have the potential to make money from it while you’re sleeping!

4. If you work at, or invest in, a startup, you have a great deal of leverage. Your net worth can increase significantly when the company you work for or invested in goes public. People in this position usually become very wealthy literally overnight.

5. Buying and holding individual stocks is another great way to gain leverage. (It’s also, of course, my favorite.) When you buy shares in a company, you are putting the management team of that company to work for you. Over time, you will share in the company’s profits as well as the losses.

Here’s a real example of how leverage with stock works. If you invested $5000 in Starbucks (NASDAQ: SBUX) when it went public in 1993, and held it until today, your investment would have grown to over one million dollars. Over a 26-year period, you would have earned $40,000 a year of unrealized gains without lifting a finger.

That is leverage.

And that is why you must have leverage in order to generate wealth or financial freedom.

My book, The Stock Market is For Everyone, is a short guide for the beginning, inexperienced investor that is easy to understand and can be put into action immediately.

Click the image of the book at left to be taken to its Amazon page.  (Disclosure: As a participant in the Amazon Services LLC Associates Program, I earn a small commission on each sale generated through these links.)