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Check expert tips on how can one build a better mindset towards money.
Know how to create a money-making mindset
An investor’s relationship with money, the ability to manage his emotions, to face greed and fear without irrational reactions are the keys to successful investing.
For a majority of investors, the ‘returns gap’ is a major issue in their portfolios. The gap between how an investable asset class has performed versus the actual returns the investor sees in their portfolio is the returns gap.
Today, the vast amount of information available at the click of a button increases the tendency to constantly tinker with one’s long-term investments. This urge to time the market, shift to a higher-performing fund or redeem far too quickly because of global events compromises the ability to generate better returns or compounding.
This points to the simple fact that while investing is easy, wealth creation isn’t. The difference between the two is a strong mindset to remain invested despite market volatility.
Most people make the terrible mistake of thinking that getting a great tip or suggestion for a stock or fund will enable them to build wealth. The truth, as stated by the investment expert Nick Murry, “Wealth isn’t primarily determined by investment performance but by investor behaviour“
How Can One Build A Better Mindset Towards Money?
Rational expectations: Markets can be irrational therefore, it’s even more important for the investor to have rational thinking. True wealth takes time to be built. There are no shortcuts. Rational expectations lead to strong belief and understanding while also avoiding scams and traps.
Have a household budget: The key to financial hygiene starts with a clear understanding of your income & expenses. Small leaks can sink a big ship. Do the maths around your key financial ratios like debt to income ratio, surplus to savings ratio & reserve to surplus ratio. This would help you not only to manage your debt better but also contain impulsive spending. Saving first and spending later is a great money mindset to develop.
Identify key financial goals: Having clarity of purpose is critical for building a strong money mindset. Once you have identified your key goals they need to be prioritised and savings need to be allocated as per the priority of goals.
Collaborate with an expert for joint decision-making: Take the help of an expert. Someone who is willing to work with you to customise investing solutions as per your needs and can make joint decisions on how to achieve your goals. A trusted expert’s support and guidance are necessary to keep you in line with your objectives when markets are volatile. Experts should also be there for you to review your investments and goals if there are any material changes or life events.
Take informed risk: It’s important to beat inflation by a margin to build long-term wealth. The inability to understand the relationship between risk and reward can have a significant impact on your long-term goals. Risk can be reduced by investing systematically and by remaining invested over a long period. Volatility is guaranteed in the shorter duration when you invest in higher-risk asset classes like stocks and mutual funds. Compounding is the single biggest wealth creator and it only activates with time.
Focus on the process, not on the outcome: A strong investing process combined with expert advice gives an investor the resilience to create wealth. Great returns are an outcome of a robust investing process.
Benjamin Graham, one of the founding fathers of modern investing, famously said: “The investor’s chief problem, and even his worst enemy, is likely to be himself”.
-The author is Co-founder and CEO of FinEdge. Views expressed are personal.
Disclaimer: The views and investment tips by experts in this News18.com report are their own and not those of the website or its management. Readers are advised to check with certified experts before making any investment decisions.
