- in Mindset
The Biggest Mistake You May Be Making With Your Finances–Without Ever Realizing It
I have been passionately interested in personal finance for a very long time. I know. It's kind of boring when a 22-year-old reads tons of books on investing, then gets a job at a financial institution at 23, and just keeps reading, investing, saving, and working at the puzzle of financial independence. Dry as paint. No drama.
But the good news is that you can benefit from this odd obsession that has lasted over 20 years now.
Over that time span, there is one mistake that I have seen repeated almost everywhere, by nearly everybody (including me). A mistake almost invisible to all of us. But before we get into the details, let me ask you a question.
Do you know anyone who relates to money and investing with a perfect perspective? I don't.
The entrepreneurs and athletes often have a great financial offense and earn like mad, but are plagued by a poor defense and end up broke. The professional classes work diligently, but have no perspective on entrepreneurship. They are too risk-averse. With just a bit more experience and risk tolerance, they could finish life with double or triple the wealth. Of course, others have not been taught to think strategically and end up as someone else's financial slave.....
Monkey See, Monkey Do….
None of us is perfect when it comes to finances, and this brings me to the core point of this post. Nearly all of us mirror our parents' attitudes and biases towards money. If your mom or dad happens to be a venture capitalist and created a billion-dollar fortune, good on you. Unless they spoil you rotten (a decent chance of that btw), you will probably channel their behaviors in your own life.
But let's get real. For most of us, our role models are not operating at the top of the economic food chain. They have blind spots, bad habits, even destructive attitudes towards money.
Let me give you an example from my own life. (Mom and Dad, if you read this, love you guys! All in all, you gave me mad skills about money. Consider this just a little nitpicking, and ignore this article!)
- My parents hoarded cash. They were highly risk-averse. They didn't really understand investing. So they just piled up cash. By the way, this was probably a direct result of their parents' experience in the Great Depression.
- When they did invest (which was rare), they bought CDs and bond--not stocks. Again, likely because their parents bought CDs and bonds back when the yields on bonds were meaningful.
- My parents were extremely debt averse. Overall, this is a fantastic approach to life, but it can hold you back if you have any interest in building a real estate portfolio.
- One of my parents had a bias against going to graduate school, somehow thinking that the upper echelons of education don't do real work. This bias is a double-edged sword in some ways, though, as it helped me avoid student loans.
- My parents tended to think that the normal career path should be one of steady employment rather than entrepreneurship. This unconscious attitude was built straight into my thinking. I was never exposed to entrepreneurs or even thought about it as a life path.
Don't Be A Chimp-like Chump
You know, it's a little scary, but we humans in some ways aren't so different from chimps and other mammals. We tend to mimic exactly what we see in our immediate environment.
So I ask you. How are you channeling parents values when it comes to money? How do you mirror your parent's attitude toward money?
Take a moment and think about your own parents' (and other family members) relationship to money. How have their patterns of behavior influenced you?
- Are you overly conservative with money?
- Do you spend like a drunken sailor?
- Do you bury your savings under a mattress?
- How much risk are you comfortable taking?
- Do you buy the same or similar crazy cars that your parents did?
- Do you have to buy a new car or you would feel like you look like a loser?
- Or maybe you think that the only way to get ahead is by being some nasty Wall Street raider (a common belief). So you stay stuck.
- Or you consider certain work beneath you.
In case it isn't obvious. This article is not meant to bash or criticize anyone's parents! Let's take it for granted that our families generally do the best they can. The question is simply--what were their blind spots?
So I ask you one last time. How are you mirroring your parents' attitude to money? If you like their approach and results, great. If not, it's time to educate yourself and start making micro-changes that push you in the direction of prosperity. Read on!
P.S. This post focused on finances, but I could have asked you the same questions about jobs and careers. How are your mirroring your parents' attitudes towards work and career?
That works in a good way too. My greatest generation parents were college educated and encouraged my brother and me to get good degrees in useful and high paying fields. They were savvy savers and investors and even though they did not make a lot of money they built a sizable estate by living frugally and investing well. They never borrowed a penny to buy cars or consumer goods and paid off the house mortgage early. They explained in detail their investing strategy and encouraged us to invest and save from the very start of our careers and also to donate generously at least 10% of our income. By following their advice both my brother and I have done even better than our parents and a great deal of the credit is due to the fact that we followed their good examples.
Steve, that’s awesome. You are a lucky gent–perhaps a bit like the hypothetical person in this post I mentioned whose parents were venture capitalists. But how much of your life still mirror’s that of your upbringing? I would encourage all of us–even those blessed with fantastic parents who were clued in about investing–to think about what skills weren’t developed, what habits we have that are unconscious, and how we can still push the boundaries even further (if we want). But sounds like you are a lucky soul. Nice.