The rules about money are simple enough and have been echoed in many great books written about money management. In ‘The Richest Man in Babylon’ (1926), George Clason notes these:
- Start thy purse to fattening – in other words, pay yourself first, and add additional income streams, because securing a financial future means keeping some of your hard-earned money.
- Control thy expenditures – avoid unnecessary expenses created by instant gratification and lifestyle inflation. Learn to differentiate between needs and wants and budget for all purchases.
- Make thy gold multiply – money needs to work for us, and we can allow it to do this by making smart investments and using the compounding effect of interest.
- Guard thy treasures against loss – they say insure anything you cannot afford to lose. Property, income and so on, including life insurance for the benefit of those you leave behind. Even in investing, protecting against loss is essential as you work to understand your risk appetite. Maintaining a diversified portfolio also offers a measure of protection.
- Make of thy dwelling a profitable investment – whether renting or purchasing a property, make sure you run the numbers and choose wisely per your financial goals.
- ‘Insure’ (ensure) a future income – with research stating that only 6% of South Africans will retire comfortably, planning for a future income is a necessity. We are living longer.
- Increase thy ability to earn – you are the most important asset, and it is therefore wise to increase your value by learning new skills, improving your capabilities and trying out new experiences.
If it’s this simple and you have been doing it, then why aren’t you at the summit of financial freedom? Well, it’s a little thing called financial blind spots.
Financial blind spots are those areas we are either completely unaware of, or simply ignore – and they can sabotage our good money habits.
A couple of weeks ago, I decided I was ready for a new car. I had kept my current vehicle for four years, and I really just wanted to spoil myself. In all honesty, it was an emotional push I was feeling. I needed a pick-me-up.
I arrived at a high-end dealership at midday. The gates were closed. I pulled up to the gate, and the security guard asked if he could help me. I pulled a face and said: “Yes, you can sell me a car.”
He reluctantly opened the gate.
I parked in full view of the sales consultants, and walked in. I was ignored for a good five minutes. Maybe they thought I was a delivery lady ….
A sales rep eventually came up to me and asked what I was looking for.
I said a car. He nodded and gestured towards the poorly lit side of the showroom. I wanted to say no, the car I want is on the other side, but I kept it together and followed him. He showed me all their entry-level models. I looked at him and said: “That’s not what I want.”
His eyebrows shot up. He looked me up and down, and asked: “What is your budget, ma’am?”
Before I could respond he followed up with another question.
“Will you be trading in your current car?” he asked, looking towards my humble car parked outside.
“No,” I said. “I will not be trading it in.”
He said: “Right, you probably wouldn’t get much for it.”
That’s it. I was now annoyed; I felt undermined and disrespected. My ego had been bruised.
“My budget is R2 million,” I blurted out.
I do not have R2 million for a car, but excuse me, salesman – do not judge a book by its cover.
Many of us fall victim to our egos. We don’t want to be challenged, especially financially. My ego is my financial blind spot, and every time I feel it creep up on me, I refer back to the Richest Man in Babylon’s list of money rules.
The lesson here is that you have to be aware of your financial blind spots.
For others these may include:
Panic – Panicking so much about an aspect of your finances that you don’t do anything about the problem. Some people worry so much about debt, yet do nothing to try and take control of it
Putting an age against financial accomplishments – Most of us have a tick list of what we ‘should have’ achieved financially by a certain age. This can lead to poor judgement on the one hand, and a level of disappointment on the other, neither of which is helpful.
Overconfidence – Thinking you know everything about managing your finances and not seeking professional help. Many of us have tunnel vision when it comes to our finances. We suffer from biases in line with whatever we have been exposed to, and must deal with our individual money personalities at the time.
Procrastination – Many of us put things off for later, but doing this when it comes to saving and investing can be extremely damaging. The money you fail to save will disappear in a puff of unnecessary indulgences, such as a daily latte or expensive weekends away, and you will lose out on compound interest.
Faux financial security – Not securing your financial future today because your salary will come in again next month, means you are suffering from a false sense of security. What if it doesn’t? Will you have enough saved up to get you through a month or two, maybe three or more?
Financial blind spots can be hard to admit to. The old adage that ‘a man who is his own lawyer is a fool of a client’ speaks to this because the greatest challenge is not always knowledge, but objectivity.
Get a money buddy to help you identify your blind spots. Then stay objective, keep an open mind, and lastly, don’t shoot the messenger.