Money is a hugely important and emotionally charged element in our lives. It is human nature to make poor decisions about money. Four of the seven deadly sins (greed, pride, lust, envy) drive us towards poor money decisions.
- Greed and its corollary Fear of loss are the two motivations that are most commonly associated with money. Greed causes people to buy too much at market tops (real estate, stocks, gold etc.) and fear causes people to sell near market bottoms – selling out just when the values are the greatest and thereby locking in their losses.
- Pride drives people to want more than their neighbor. They want a Mercedes too or they want a grander house. Personally – I feel I deserve a low mileage 1966 Corvette Stingray convertible with a big block V8.
- Do you Lust for material goods or travel and entertainment? Tremendous wealth brings many options to indulge our fancy. Wealth equals power and more options for a mate.
- Envy is money related as well. People are envious of other people’s wealth, their home or car, their income or lifestyle and their spouse or lover.
All these emotional drivers are great at motivating people to make money. A teenager wants a car – first he has to get a job and make some money so he can afford a car. That same teenager wants to eventually marry the sexy spouse of their dreams and own a big house. Parents want their child to do well in high school school so they can go to a good college. College is the first major life ticket a person has to punch mostly on their own on the road to financial independence and success.
Oh Lord, won’t you buy me a Mercedes Benz?
My friends all drive Porsches, I must make amends. Janus Joplin “Mercedes Benz”
The financially successful spend a lifetime responding to these basic human motivations that are driven by the four deadly sins. It works great for learning to how to earn money. While these motivations are helpful in earning money, they are counterproductive and subversive when it comes to saving and investing. Leasing a Mercedes Benz with our first paycheck out of college will not help you save for your first house. Investing all of your savings in the discounted stock plan your employer offers at work is a great way to get rich so long as the stock keeps going up. It is also a sure fire way to go from the chauffeured executive suite to driving a taxis in retirement if your company is a Lucent, Nortel, Worldcomm or Lehman Brothers. We are practically hard wired to fail when it comes to saving and investing.
How to cope with our “subversive” money nature? Think of gradually learning and modifying your money behavior over time. Get a little better at saving each year. Think about what you want your life to look like in 10 years. That vision will motivate you to do the right thing on a daily basis. Learn to accept that there is no short cut to investing. Short cuts inevitably result in losses.
Do you have ice water in your veins when it comes to investing? Most of us need to work with a professional. They will create a plan and strategy for you to follow and help you stick to it. They are not emotionally connected to your money, they have years of training and years of experience with many people in many different environments. Find someone that you can trust and develop a relationship where they are free to tell you when you are acting from fear or greed. I believe you will feel calmer and have more time to spend with your loved ones.