Learn from money mistakes

Imbibe the lesson each mistakes teaches you and improve your financial life

We mostly struggle with regret. In personal finance, we make several decisions about earning, saving and investing. Assuming 35 years of working and 20 years of retired life, we make money decisions for 55 years or more. What is the chance that we get it right always? We are all prone to making mistakes and making them too often for comfort.

We repeat mistakes without knowing why. Researchers, who have studied the mistakes we make, point out that there does not seem to be a problem with the way our brain processes information. Based on experience, we tend to apply similar rules from the past when we make decisions. In fact, we optimize the use of our brain’s energies by automating some of these rule-based tasks, so that we perform them almost instinctively without effort. The problem though seems to be in the quality of information we feed into our thinking process.

What should you aim for? First, do not make the choice of personal finance inertia. That is the choice where you decide to do nothing, because you worry you will make a mistake. The large savings bank account balances that many carry with quiet guilt is evidence of this unfortunate choice. It is better to make mistakes than do nothing at all.

Second, pause to find the lesson to learn when you make a mistake. Do not deny or blame every person or circumstance, but focus on what you could have done instead and why you did not do it.

Third, recognize the personal limitations you have when you deal with a mistake. 

·     You may be too attached to property to look at anything else,

·        You may be associating equity investment with gambling,

·        Having never succeeded in forecasting the stock market movements, you continue doing that.

·        Having never invested in market corrections for oversized gains, you continue fearing corrections.

Every mistake offers an opportunity to recognize what should have been done, and why you did not end up doing it.

Fourth, consider the possibility that corrections can happen any time, when it comes to personal financial habits. Except for a few lucky inheritors, most of us earn, save and spend gradually over a long period of time. It should be possible for us to correct for an ill placed fixed deposit, a wrongly selected IPO, a faulty insurance product, or a wrong mutual fund.

Fifth, the merit about rules is the oversimplification. If it appeals to your preferences, set a few rules and make them your personal finance habits.

Don’t let a mistake go wasted. Use it to see yourself in fresh light and modify your financial life accordingly.