In my previous article I talked about how I applied what I learned and what actions I took. I also spoke about the changes I made in my mindset. I’m going to go into a bit more detail about how small changes made a big impact in my life.
Changing your mindset is free…
If you think about it, it doesn’t cost you anything to change your mindset. But for so many of us it is difficult. Why? It is because the consequences of not taking action are so far in the future.
Think for a moment about a person who smokes. Most smokers you speak to, recognize that it is an unhealthy habit and they want to quit. Just not today. They know that they can get away with smoking for a long time before they have to pay the costs. So they put off quitting to the future. Unfortunately, they usually wait until it’s too late until they make a change.
Sadly, this was the case with my uncle. He fell ill from a smoking related disease. My uncle quit smoking that day but the damage was done. He passed away about a year later.
I have heard it said that a person needs three near death experiences before they will change their behavior. But most of them don’t survive the first two.
Don’t waste time!
So this is similar to people’s finances. When you are young you have plenty of time to save. So you put it off. 10, 20, 30 years. And then all of a sudden it is an emergency. Once you hit your 50s it’s almost too late. But some people wait until their 60s! Don’t be that guy.
So as I said, this was the challenge I faced. In my twenties, I saved money and then spent it. There would always be time later to change things. But fortunately, I changed my mindset in time to do something about it. This took time but I got there.
…keep listening to the message.
So how do you change your mindset? In my view the easiest way to do this is to keep listening to the message. What do I mean by that? I’ll give you an example.
How to change your mindset
Many years ago I suffered a serious back injury. I prolapsed three discs in my spine. The discs are a kind of fibrous joint that rests between the vertebrae in your back. They contain a soft gel like substance. A prolapse is when there is a tear or rupture in the disc causing the gel to bulge outwards which causes the disc to push against the nerves in your back. As you can imagine was very painful. Excruciating in fact.
The damage I suffered was permanent. I could no longer exercise at the intensity I had done in the past. In fact, while I was healing I couldn’t exercise at all. So I started putting on weight. I think about 20 pounds. This disturbed me so I started looking for ways I could lose weight without exercising. This meant changing my diet.
Making the change…
I started listening to podcasts on health and fitness. One of the ways they discussed to lose weight was to cut back on grains. Breakfast cereal, bread, pasta. I didn’t think I could do this. I loved these foods! But I kept listening to the message. I kept listening to the show and reading blog posts and books. Eventually the message began to resonate with me. What I thought was impossible gradually became easy. And now I have completely cut grains out of my diet and lost the weight.
So it was with investing. In my case I was surrounded by examples of investment both from my job and from my professional studies. I was constantly listening to the message. So while I made many mistakes I eventually made the changes to achieve a secure financial future.
What if you’re not an expert?
But what about you? Maybe you don’t work in investment. Or you don’t study investing. Maybe you don’t have the time. Well when I injured my back I wasn’t an expert in nutrition. I don’t have any degrees or certifications in that area. But I managed to lose the weight and achieve my goals without the decades of work and study that these people put in.
So all you need to do is keep listening to the message. Keep reading articles and books like these, listening to podcasts on the subject and speaking directly to the experts.
The Ghost of Christmas Future…
I mentioned that some people need three near death experiences to change their behavior. Well hopefully nothing like that will be required for you to change your investing behavior. But for some of my clients, when I show them their investment future this is a real shock for them. Its’s like they’ve had a visit from the Ghost of Christmas Future.
But fortunately, like Scrooge in A Christmas Carol there is time to change their ways. And it isn’t that people don’t want to plan for their future. It is that they don’t know exactly how much they need to invest. They don’t know how to invest or where to invest.
Small changes can have a big impact.
…if I didn’t act now I was going to be in trouble in the future.
As I said before, I had this problem but the first stage in resolving it was setting clear goals. Once I had determined how much I needed to retire and how much money I needed to put aside I had a clear path to move along. When I did this, it was only a small thing but it put everything into perspective. I could see clearly that if I didn’t act now I was going to be in trouble in the future.
It was sobering but motivating at the same time.
Overcoming the knowledge roadblock
The other thing that I dealt with was the lack of knowledge. I mentioned in my previous article that I had two degrees in finance and I also managed investments for the various banks that I worked for. But the investment concerns for a bank are very different to the concerns for an individual. Banks are focused on managing risk and making profits. Not only that, when you work for a bank you can’t see the big picture. You only see the deals that are in front of you. It is highly specific work.
I knew a lot about setting up huge $100 million real estate deals but very little about managing my own life. And I wasn’t alone here. Many of the other bankers were personally investing in real estate for themselves. This was regardless of whether it was appropriate for them or not. And they didn’t know whether these deals would make enough money to make it worthwhile or pay for their retirement.
Where to invest…
So the piece of knowledge that I was missing was what specific investments I needed to make. Where to invest and how to do it. But once I had clearly defined goals and a framework to work within I felt confident that I was making a good choice.
Overcoming fear
This in turn allowed me to deal with my fear of losses. For example, on many of these investments you have the small print that stipulates, investments can go up as well as down. This makes potential gains seem not worth taking the risk.
The market as a whole does ebb and flow but with my framework behind me I knew what I could invest in that isn’t going to disappear with the next economic collapse. I learned that if you used the principle of diversification and invested across various assets and markets you could protect yourself from losses. I discussed this principle at length in a previous article.
Maintain a long-term view…
Additionally, if you have a long time horizon this protects you from losses. This is because even though there are periodic crashes the market soon recovers. A long time horizon gives you plenty of time to recover from any short-term losses. You might define a long-term horizon as 20 years or more. So you can see why its important not to wait until right before retirement to begin investing.
Bonds are significantly less volatile than stocks.
But what if you don’t have 20 years? Well it’s not the end of the road. You will simply have to invest less in stocks and more in bonds. Bonds are significantly less volatile than stocks. Therefore, the chance that they will drop in value right before retirement is much less. Additionally, they provide a predictable stream of income.
There are other investment options but I will get into those in later articles.
Don’t be present focused
I mentioned my change in mindset. Previously my mindset was present focused. You might call this a debt-driven mindset. This is because not only was I not saving money I was also borrowing money to enjoy myself in the present. This has always been a challenge for me. I always believed I could make the money back. Since changing to a goals-driven mindset I think much more about the future. I look for ways to solve current problems without borrowing money. This is where accessible investments come in. Money that you’ve put aside so that you don’t have to use credit cards or tap into your retirement fund.
You might be thinking that a savings account at the bank is a good place to put this emergency fund. Putting your money into a bank account at negative 2% interest rates is really a bad idea. Some financial advisors suggest you buy bonds. I put my emergency fund into gold bullion. That’s worked well for me.
Achieving clarity
So after changing my mindset, identifying clear goals and chosen appropriate investments I have a real sense of clarity in my future. I feel secure knowing that everything will be OK. And you can too. You deserve to have a secure financial future as well. You may have mindset issues like I did. Or maybe you are just afraid of losing your money.
It may feel like investing is for the professionals and people like you are left behind because you don’t know the ins and outs to make your money work for you. As you get older the worry only increases. Perhaps you have a family so you feel that you need to ensure they have a secure financial future. Maybe it is important to you that you can maintain your lifestyle – also that your children and your wife can live comfortably.
You can do it too!
The good news is that you can achieve both of these goals. You simply need to follow the same steps that I have followed. Fortunately, you don’t need degrees in finance or to be working in banking to figure it out. I am here to take you by the hand and tell you where, how much and what return you can expect.
In my next article I will explain more about the investment framework that you can apply to yourself. I will break down the next steps for you. You will be able to get results immediately as long as you follow my instructions.
In the meantime, if you have any questions please leave them in the comments section and I’ll get right back to you.
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