Money Principles – Group Hug or Financial Stranglehold?

E L Emerson

Look around your neighbourhood. Go on, give it a try. Open the front door and have a glance up and down the street or hallway. What do you see? Houses and cars dotting the pavements? Rows of doors opening into apartments similar to yours?

Now imagine what you think your neighbours do with their money. Do they live like you do? Spend on the same types of things you do? Put their money in the same places as you?

Finally, ask yourself if this is what you want. Do you want to live as your neighbours do? Do you want to maintain or improve your current lifestyle? Are there a few of them you’d like to emulate financially and some you wouldn’t? Or would you like to live on a different street or in another building?     

This little exercise is called getting perspective. It shows you what’s around you (which is sometimes easy to miss) and how things actually are financially in and around your little piece of the world.

The Group Hug

Now, I couldn’t possibly know your personal circumstances; how you live, what you invest in, if anything, or how much money you have in the bank for a rainy (or even stormy) day.

But what I do know is that most people, the vast majority) don’t have serious financial storm money (or even an umbrella for light rain). And the core reason is that we tend to do a lot of the same things.

It’s like we’re products being run off a manufacturing line, schooled and designed to go into work every day, put our money into bank accounts with a view to saving some when we can, and living in the hope of eventual retirement, inheritance, winning the lottery, or experiencing the luck of one of our offspring selling records like Taylor Swift or signing with the New York Giants (and hoping they remember you were nice to them).

The truth is that we do things in groups. But that very social human behaviour that guides us to move and hug in with the herd – born of survival instincts we sharpened living in caves on the Savannah Grasslands millions of years ago – are not very helpful in the modern world.

The Stranglehold

In fact, while that Amygdala section of our brain (they actually call it the Lizard Brain), that fills with adrenaline when we sense danger, may have saved us from Sabretooths in our cave-dwelling days, our natural response to hug into the crowd is now like a financial stranglehold when it comes to money.

And it harkens back to looking around at what your friends and neighbours do with their finances and how you emulate them.

We all know, or should do, that it’s the very definition of insanity to do the same thing over and over again and expect a different result. It doesn’t happen.

The same rule applies to your financial actions.

The 1% vs Those Earning 1%

By example, if you put your money into a savings account like everyone else around you probably does, and you’re expecting better returns or a runaway train of income, it’s simply not going to happen. What you’re going to get is what everyone else gets.

Savings accounts in the UK right now return about 1% or less interest on your deposit. That means it will take you 72 years to double your money there. That’s right, 72 years! You can find out why here – The Rule of 72. And a quick Google of US savings accounts tells me that folks living stateside are in for about the same 1% to 1.5% return.

Now let’s say you were getting 4% instead, like back in the days before the 2008/09 crash. The returns are better – it would only take you 18 years to double your money (72 / 4 = 18) – but not exactly staggering or life-changing. And usually when banks are shovelling out those kinds of interest rates inflation and other factors are balancing the value scales back into their favour.

You can’t get wealthy saving your money in a bank account.

That’s not what folks who want to make money do.

It’s just what everyone else does.

And maybe that’s what you’re doing too.

How to Retire a Millionaire (On An Average Wage)

If you follow this series of HNW’s Money Principles you’ll notice we focus heavily on the principles.

If you don’t come to understand the basics about money and investing you’ll never really understand why you need to make any changes to your financial behaviour in the first place.

That’s why this series focuses on the principles.

If you want to begin to understand the options available to create wealth, then you need to sign up to our weekly newsletter below (don’t worry, it’s free).

The idea of retiring a millionaire (or better) is a very real option, even if you’re bringing in an average wage and have the usual banquet of life’s expenditures.

But that process of doing what others don’t do starts with changing how you think about money and how you manage it.

In simplest terms, if you see lots of people doing the same thing with their money every day, week, or month, generally speaking it’s either stupid or the wrong thing to do.

Think of the idea of a bank savings as an example.

We’ll talk more about what the herd does, and that you might not want follow, the next time on Money Principles.

E L Emerson, Editor, HNW Magazine

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