Clearing a path to realise goals

December 22, 2021

Sometimes the biggest barrier between us and our goals is –ourselves. It happens when we have unhelpful financial behaviours or biases that we may not even be aware of, which popup and knock us off course.

So, it can be a good idea to take some time to examine your own responses to financial situations, and consider whether any of these common mindsets might be blocking your path to financial success.

Impulse spending

This is a common behaviour that can get in the way of your financial goals. You head out on your lunch break to get a coffee and pass a shop on your way back that’s selling a gadget you’ve been hanging out for but don’t really need…

If you’re often spending more than you expect to, it might be time to be more deliberate about your spending. With more of us loading our credit card details on to our phones and watches, it’s getting harder to leave the cards behind when you go out. But try to set a mental rule that you’ll sit and think about any purchase over a set amount for a few hours – or even overnight.

Investing FOMO

Many people will tell you that they are careful investors, who scrupulously examine the pros and cons of any investment before leaping in. They’ll say they buy at the low points of the market to get a good price, and sell when others are prepared to pay over the odds.

Except… that often doesn’t happen. Despite people’s best intentions, the so-called ‘fear of missing out’ (or FOMO) may still creep in. But the reality is, when it comes to investing, following the pack is usually not a good strategy, and neither is trying to time the market. Also, investors looking for the ‘next big thing’ may overlook other (perhaps more ‘obvious’) opportunities.

When you’re considering an investment, make sure you think about it objectively. If it was less popular, would you still think there was a good opportunity there?

Anchoring bias

Anchoring refers to people getting stuck on a piece of information and putting too much weight on it. You see a handbag that you like at the shops for $400 and decide it’s too expensive. Two weeks later, you’re back shopping and see it’s $200. Bargain, right? Well, maybe. But if your brain hadn’t had that anchor “value” point of $400, you might have thought that $200 was quite expensive.

When you’re making financial decisions, it’s important to check that you’re relying on the right information and have done your direct diligence.

Loss aversion

Unsurprisingly, people don’t like to lose money, but sometimes that risk aversity can cost them in lots of different ways. They may save their money in the bank rather than investing it because the concept of potential risks and returns is less appealing than the prospect of a reward now – even if the reward down the track from the investment might be greater.

Sometimes, investors stick with an investment much longer than they should because they would rather hang on and own something that is declining in value, even if it’s got much further to fall, than sell and crystallise the loss.

But on the other hand – it’s crucial to keep sight on the long term when the markets drop, rather than making an impulse decision (like switching KiwiSaver funds or divesting). Markets do move. As financial advisers, we can help you determine whether it’s time to change strategy or stay put.

Spending on convenience

When you have a busy life, it’s tempting to take shortcuts. But the extra cost of these can add up. Paying an extra $10 for an item to be delivered when you could drop by on your way home from work to pick it up, for example. Or buying your coffee on the way back from dropping the kids at school rather than making your own. The cost for each item can be small but over a week, there’s a cumulative effect.

Like to talk?

Whatever you’re trying to achieve, or whatever the behaviours you want to keep in check, we can help you get your financial life in order. Give us a call today.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.