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If we are honest with ourselves, achieving our future financial goals is more often influenced by personal psychology than by mathematical ability. If we are not making ends meet each month, not saving for retirement or we are swamped by debt, it probably has nothing to do with our inability to master the skills of addition or multiplication and everything to do with our personal psychology and the impact emotions have on the decisions we make when it comes to money.

Psychology of money

Why is it that we commonly think about saving as a sacrifice? By not saving are we not in fact sacrificing our future wellbeing?

Why is it that we often spend two or three times more on car payments than we save towards our retirement?

Why is it that when we are investing for our retirement in 25 years time we always want to know which asset class will perform best over the next 12 months?

Why is it that we are more inclined to buy into an investment that has doubled in value than we are to buy into one that has halved in value?

Why is it that we often have most of our committed saving & investments in cash when we know that it is the least likely asset class to beat inflation over the long term?

Why is it that we struggle to commit to even the most basic common sense elements of a financial plan- Is spending more income than we earn each month a mathematical or emotional deficiency?

I think it is fair to say that we are emotional beings and we require emotional intelligence to successfully manage our money.

Every financial decision has its roots in our personal psychology and emotions. From the car we drive, to the clothes we wear, to the house we live in, the holidays we take and even the school we want our kids to attend. Our personal psychology drives us to seek recognition and approval. Our society is consumer and status obsessed – we are because we have. Buying what we want now makes us feel like we are living life to full.

Unfortunately, the strong desire to be perceived as successful often comes at the expense of making good financial decisions. Somewhere deep down I believe that we all know this to be inherently true, yet we continue to plough on as we are, in the hope of a big windfall like the lottery or inheritance to tide us through – a strategy based on hope rather than reality.

We are also often fooled into thinking that money solves money issues. Frequently as peoples income grows so does their spending habits and cost of living. You earn more, you spend more or you can afford to service higher debt levels.

Understanding our psychology towards money and changing our behaviour is the most likely path to successfully solving our money issues.

Financial planning and life planning are essentially interdependent – they cannot be tackled separately. So when seeking to put together a financial plan I would encourage you spend a large proportion of your time focusing on your personal psychology and use that to identify what is really important to you, what you want to achieve in life and what you are going to need to do to get there.

Each of us is different and our own personal circumstances and backgrounds will dictate what motivates us and what we find most important to us in life. Our financial plans must reflect that.

A simple exercise to help you get started may be to imagine you visit your doctor, who tells you that you have only 5 to 10 years to live. You won’t ever feel sick, but you will have no notice of the moment of your death.

What will you do in the time you have remaining? Will you change your life-and how will you do it?

Under the above scenario I know that I would want to spend much more time with my family. I would want to watch my baby boy grow up and make sure he knows how much I love him. I would want to travel more with my wife and share more of what this beautiful country has to offer. I think I would probably focus more on the things I have in my life and less on the things I feel I don’t have.

Unfortunately the stark reality is that I would not be able to stop working to do these things. In fact I would have to double my efforts and focus my attention on securing a more stable financial footing for my young family for when I am no longer around. I would have to focus on securing the immediate needs of a basic roof over their heads, a source of income for their basic living costs and my little boy’s education. I can assure you I would care less about the car I drive, the clothes I wear or the address of the house I live in.

In fact it seems I should already be living my life this way… don’t you think?



If you have any questions or want further advice on how to structure your investments or improve your personal finances please contact us at



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