Recently, I’ve been fascinated by various forums and blogs about personal finance … and the weird situations into which people get themselves.
There’s a large subset of people out there (arguably, the vast majority, actually) that don’t think about how to establish or grow their own financial base. They only think about the ways in which they can spend the money they can get. Those are two very different things! I’m convinced that this is not solely an issue of intelligence (because I know plenty of smart people that don’t think about investing), but, rather, of awareness as well.
Some portion of it has to do with the propensity for abstract thinking. To some people, numbers in a bank account don’t feel real. But a new gadget or a piece of clothing is as real as it gets!
Stated another way, it might be a manifestation of a cognitive bias known as “What You See Is All There Is”. The idea, in other words, that while it’s very obvious and familiar how to spend money on things you want (having had the concept of spending hammered into you by 24/7 advertising), it’s not very obvious at all how putting money into investments turns into a better outcome over time … especially with all of the uncertainty inherent in the stock market. So we go with the things we know, rather than the ones we don’t … even though the good advice about investments is out there and plain for all to see for those who are willing to look.
To the unobservant person, investing might even feel like gambling. After all … how do you look into a stock and see the “potential” behind it? It takes a lot of context to do that. It might as well be a coin flip. That’s probably why most investors will take a 50k gain off the table even when another 50-100k or much more is likely ahead. The ability to judge the potential of an investment just isn’t there for them, and even the abstract average gains that are superior on paper don’t look as good as a realized gain now.
I’m not sure I have the answers for whether investing your money is a better solution to life than taking regular vacations, eating out, and buying yourself a nice new car. But if you do all those things regularly, and yet you’ve never considered exactly what the right amount of money to invest in your retirement is and where it should be invested, ponder the concept that there are a plethora of other ways you can allocate your money besides just spending it.
Perceiving money as something only to be consumed is a trap. Everyone sort of “knows” that investing money is something that should be done, but I bet the vast majority of people don’t spend enough time on the flip side to make it a “real” option, mentally speaking. But it’s something that has to be done … seeing the growth potential behind your hard earned money will take you much farther in life.