The Psychology of Investing
We’ve been talking about saving money and trying to defeat your emotional urges to spend money while you can if you can.
But we’re just human aren’t we?
Chances are we would always be controlled by emotions. There’s always a chance emotion will get the better of you. No matter how many tips I give you, you’ll always buy something impulsively.
We can’t control our emotions. We’re not Buddhist monks. We’re consumers in a capitalistic, free-market, globally-integrated world!
We’re a bunch of people living beside GIANT MALLS!
Spending is about having control. When you have control over your money, money would control you. The money would manipulate you. That’s what money does.
So what’s investing got to do with this?
There are many kinds of investing, but let’s start with the fundamental psychological view of investing, so you would understand why it’s essential for you to just do it.
Did you know that there is a very profitable market available in the Philippines and the majority of our investors are foreigners? Foreigners who know that investing in private markets in the Philippines is a very lucrative venture for them.
Truly, investing is more fun in the Philippines.
Ironically, Filipinos remain to be the least country in Southeast Asia that are willing to invest.
We don’t invest because we tend to overlook the fact that investing is the one instrument that puts a stopper to our spending habits.
Investing takes the emotion out of the equation.
By this, we mean that investing does two things: it creates an objective commitment and takes away your control over the money in an agreed-upon period of time.
Let’s go back to our emotional spending habits.
As consumers, we’re naturally inclined to spend. Financial gurus you commonly read about would tell you that you can control this emotion. You can. If you have either a high level of discipline or if you’ve been pushed to the brink that you save money desperately.
So let’s be practical about it. Most of us do not have a high level of discipline and we don’t want to be in a situation where we’ve become desperate.
To save better, invest. Plain and simple.
By investing, you commit your savings to someone else (insurance, stocks, mutual funds, etc) over a period of time where you will not have control over it until its maturity date.
This way, there’s absolutely no chance for you to spend your money needlessly. In addition, you’re saving constructively because you’re letting your money earn money through interest rates.
A commonly-held misconception is that putting your money in a savings bank is investing. Aside from the fact that this makes less than a percentage of annual interest rates nowadays, savings bank does not wrest control over your money. You can withdraw money anytime you want. Savings banks are just like putting cash in your wallet, except it’s in the ATM.
When you have money in a savings bank, you’ll always remember how much money you’ve got in there.
Oh, there’s a sale in SM today. I think I can shred off some of my hard-earned money and buy something for myself
As long as you have money under your direct control, you’ll always be tempted. You’ll always come up with an excuse for spending it.
That’s why you have to invest. Invest to remove your control over your money and commit it to another financial instrument other than a savings bank.
After its maturity date, to stop yourself from spending the money you’ve earned from investing, invest some more.
So keep investing.
Your goal should be to have so much saved so that you can divide your money between those you can spend and those that you invest. Still, by that time, I think you’ve pretty much prioritized investing than spending.