Sep 26, 2024  | Tags: psychology, wealth

Our insights

Creating wealth is not rocket science but it is littered with psychological barriers.

These psychological barriers are what separate the winners and losers of the money-making game.

The winners are the ones who hold their nerve and stay the course.

The losers succumb to their emotions and make knee-jerk reactions in response to market fluctuations.

These fluctuations or market forces are part and parcel of the game.

They exist largely because of the emotions of others in the same game, reacting to good and bad news around the world.

It’s human nature.

The trick is to become less human and more robotic when investing.

Humans are emotive creatures, shackled by the limbic system, the part of the brain that controls our emotions and behavioural responses.

American financial theorist and neurologist William J. Bernstein told Bloomberg in 2021: “To the extent you succeed in finance, you succeed by suppressing the limbic system.”

Here are the top psychological barriers to growing wealth – or how to suppress your limbic system.

All you have to do now is find the courage to trust your judgement and ignore your emotions.

Instant gratification

The limbic system is also known as the instant gratification seeker.

It is the part of your brain telling you to spend now, buy that new car, take that expensive holiday and splash your cash at that fancy restaurant.

It actively works against your wealth creation strategy by tempting you to overspend and to disregard the bigger picture.

This makes it one of the biggest psychological barriers to many people’s wealth creation plans.

Instant gratification can also lead an investor to adopt high-risk short-term strategies rather than investing in tried and tested long-term assets.

Practice delayed gratification by setting long-term financial goals, creating a rigid plan to achieve them and sticking to it.

Loss aversion

Most people would rather guard against losing money than attempt to make it, even when the odds of success outweigh the likelihood of failure.

This fear of losing money prevents many people from taking calculated risks.

These risks are nearly always necessary to some extent for wealth growth.

Gain a better understanding of the risks involved in different types of investments.

Start slowly by investing small amounts with manageable levels of risk.

Diversify your investments across different asset classes to mitigate risk levels.

Diversification is one of the basic rules of successful investing.

Lack of financial education

Many people stay away from investing because of a lack of economic knowledge and the fear they will lose their money because of it.

Educate yourself so you build enough confidence to make informed decisions for your own wealth creation.

You don’t need an MBA or a degree in economics – just a basic understanding of the financial principles that underpin successful investing in the long term.

There are many ways to grow your knowledge base:

• Read books
• Read online content
• Subscribe to financial newspapers and newsletters
• Take an online course
• Engage and speak with a professional financial advisor

Scarcity mindset

A scarcity mindset is fuelled by the fear of never having enough money, leading to overly conservative financial behaviours.

People with a scarcity mindset might keep their money in a bank account on a low to moderate interest rate.

They may even hoard some cash under their mattress.

The problem with this mindset is that it is virtually impossible to ever grow wealth.

That’s because zero risk equates to zero growth.

The solution is to shift towards an abundance mindset by slowly entertaining greater amounts of risk.

Set clear financial goals and track your progress carefully to help reinforce a positive mindset on wealth building.

Procrastination

The market waits for no-one.

Every day you don’t invest is an opportunity lost.

By delaying financial planning or investment decisions, you run the risk of missing significant opportunities.

This hinders wealth accumulation.

If it all seems overwhelming, start by breaking down financial tasks into smaller, actionable steps.

Set yourself deadlines to hold yourself accountable.

Try putting your wealth accumulation goals on autopilot by automating savings and investments.

It helps relieve the constant pressure of having to make financial decisions.

Fear of failure

Similar to procrastination and loss aversion, the fear of failure paralyses people into the worst financial decision of all – doing nothing.

First of all, you have to want to grow your wealth, despite your fear of failure.

Once you decide you want it, consider the exercise as a learning curve.

Begin slowly, investing small amounts to build your confidence.

Seek advice from a trusted financial advisor to minimise the likelihood of making simple mistakes.

Negative beliefs about money

Some people have negative views about money.

They are the ones you hear saying things like “money is the root of all evil” or “money doesn’t buy happiness”.

They may have strong political views about capitalism or they may have lost money in the past.

Both are psychological barriers likely to significantly inhibit wealth accumulation.

Instead, consider the positive impact money has, such as the financial security, freedom and ability to help others in need.

While it is true vast amounts of money beyond a certain point does not buy any more happiness, a certain amount is normally necessary to live comfortably and independently.

Get advice today

Psychological barriers stop many people from growing their wealth, but help is available at Calder Wealth Management. 

Calder Wealth Management have been helping South Australians grow their wealth for more than half a century.

Our team of professionals can help you establish an investment portfolio, and help you plan for a comfortable retirement.

We’ll work with you to devise investment strategies whatever your financial goals.

There really is no substitute for quality financial advice from someone personally invested in your wealth accumulation.

At CWM, we pride ourselves on leading our clients into the future with structure, financial stability and confidence. 

Contact us today to discuss all your financial needs and concerns.

Written by Liz Wilson

The information contained in this article is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.

Taxation, legal and other matters referred to on this website are of a general nature only and are based on Calder Wealth Management’s interpretation of laws existing at the time and should not be relied upon in place of appropriate professional advice. Those laws may change from time to time.

Calder specialises in wealth management with a focus on advice, investment, sustainability, insurance and finance.