Money & the psychology of money
Sports teams that win games and tournaments could be assumed to be teams with the most skilled and talented players. But we have also seen the most talented sports teams lose games and tournaments. Winning is not just a function of skill, talent, and stamina. More often than not, the game is also in the head and heart. That is why teams need sports psychologists.
The game of money is no different. There is the psychology of money that is at play with every player. I have often said money follows the character of its owner. What that means is that money is directed by your head and your heart. By head I mean your knowledge. What you don’t know about money will hurt you. By heart I mean your emotions about money. The combination of these two, plus action, will determine your results.
Most people don’t think about money, but they feel about money. That means their money is directed by their emotions instead of their knowledge. When they have money they are too excited and are difficult to contain. When they have no money they are depressed and too difficult to direct. They act out of panic, borrowing other people’s money to deal with their panic, and then regretting their actions later.
For some people, when they have too much money, it has often been said, the money goes to their head. What that means is that it blocks their thinking, and they become prideful. They make wrong decisions that they will regret later.
The psychology of money plays in all facets of a person’s relationship with money. We can talk about the psychology of earning money. Some people are stuck with the beliefs that say, the only way to make money is through a job. They have tons of skills and talents, but they sit, waiting for someone to tell them what to do and pay them. If nobody gives them a job, they may suffer even though they are talented.
Others have a dysfunctional psychology of spending. When they have money, they feel compelled to spend it. They always see needs that cannot wait. Others have a very dysfunctional relationship with “other people’s money”, that is, debt. They are forever in debt. They psychologically feel incomplete without debt. They think the only way to solve any financial problem is through debt.
For most people, the most difficult psychology to develop is the psychology of investing and asset building. They work for decades and still have nothing to show for it. They are more fearful of investing because they think they will lose, but they are so entangled with debt, where they are certainly losing money. When you are in debt, you are guaranteed to lose money because you will pay interest.
When you invest, you may not be guaranteed of winning, but you are certainly not guaranteed to lose like when you are in debt. People have fear of investing but have no fear of going into debt. That is why they may even invest with borrowed money, which makes no sense at all. They have guaranteed to pay someone interest, but they have not been guaranteed to make a profit.
The psychology of money is one of the most important, and often neglected subjects in the game of money. You can be taught all the strategies in the world, but if your emotions are not balanced with your knowledge, you may lose your game even though you are talented and are earning a lot of money. At the end of the day, all that matters is a healthy balance sheet. A healthy balance sheet has more assets than liabilities. A healthy balance sheet has performing assets, that is, assets that make money for you. This of course takes time to develop.