As a wealth management professional, I’ve observed that most people approach financial planning with a focus on immediate numbers – how much they earn, how much they can save, or what returns they might get. The most successful wealth accumulators I’ve worked with understand something deeper: growing wealth is primarily a psychological journey, not just a mathematical one.
Start With Your Values, Not Your Numbers
When it comes to growing wealth, the foundation isn’t all about numbers and spreadsheets – even though I have a soft spot for Excel! It’s understanding what truly matters to you. Your core values rarely change significantly over time, making them the perfect bedrock for long-term financial planning.
Rather than beginning with “How much money can I make?”, start by asking “What do I want to achieve in life?” This might seem disconnected from finance, but nearly everything meaningful has financial implications. Once you identify these goals, you can determine:
- How much financial resource each goal requires
- The desired timeframe to achieve it
- The required investment strategy/strategies best suited to provide the return you need to achieve these goals
This also provides the boundaries to incorporate into your financial plan and ensures it is aligned with your personal journey.
Overcoming Our Short-Term and Recency Bias
One of our strongest psychological challenges is our inherent bias toward short-term thinking and recent information. We naturally want quick results with minimal effort or disproportionately allocate more emphasis on recent information (what’s happening now seems more important). Unfortunately, as with most worthwhile achievements, growing wealth requires discipline, patience, and managing uncertainty. The journey is never as smooth as we hope, but these bumps are expected and necessary for growth.
Our brains are wired to value immediate outcomes more heavily than distant ones. We can easily envision and feel the importance of something happening soon but struggle to assign proper value to something far in the future, like retirement or long-term financial independence. Not only does this bias make making the right decision hard, but it is usually coupled with another bias, recency bias, which discredits some of the long-term data and learning from historical events, as too much weight is given to recent information.
Recency bias can lead to overreacting to short-term market movements and making decisions based on the latest trends rather than a well-thought-out strategy. For example, if the market has been performing well recently, you might be tempted to invest more aggressively, forgetting the lessons from past downturns. Conversely, a recent market dip might make you overly cautious, even if your long-term strategy suggests staying the course.
To counteract these biases, it’s crucial to develop strategies that align with your long-term objectives. This might include automating your savings where possible, which removes the temptation to spend money earmarked for future goals. Perhaps most importantly, try to shift your focus from chasing quick wins to the satisfaction of building something meaningful over time. Remember that life’s most worthwhile achievements – whether in your career, relationships, or personal growth – didn’t happen overnight. They required consistent effort, learning from setbacks, and maintaining a long-term perspective. The same principle applies to building wealth. By acknowledging and actively working to counteract our short-term biases, we can create a more stable and successful approach to wealth building. This doesn’t mean ignoring short-term needs or opportunities, but rather finding a balance that keeps us moving steadily toward our long-term financial goals.
Building Psychological Resilience for Financial Success
The most successful individuals I’ve worked with share one critical trait: they’ve developed the psychological resilience to stick with their financial plan through market volatility and economic uncertainty.
This resilience comes from:
- Having clear, meaningful goals tied to personal values
- Understanding the principles behind their investment strategy
- Maintaining a properly diversified portfolio across asset classes
- Focusing on long-term outcomes rather than short-term fluctuations
When you build this psychological foundation, you’re less likely to make emotional decisions during market downturns or be swayed by investment fads that don’t align with your goals.
Taking time to reflect on your relationship with money and how it aligns with your values could be the most important financial decision you make this year.