Why do smart people make stupid money mistakes?

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April 2, 2021 4:02 PM

How to avoid stupid money mistakes: Even those considered smart (in their own eyes or by people surrounding them), often make silly mistakes. More so when it comes to money matters

Why smart people make stupid money mistakesHow smart people make stupid money mistakes. Representative image/Pixabay

Everyone likes money. But not everyone makes it at his/her own will. People make mistakes. Be it making a career choice to making big money decisions like investing, buying a house, planning for retirement or even while making small decisions like buying monthly grocery, there is not an exceptional activity in life where people don’t make mistakes.

Even those considered smart (in their own eyes or by people surrounding them), often make silly mistakes. More so when it comes to money matters. While there is nothing wrong with making mistakes, one does wonder as to why this happens. Why smart people make mistakes, especially when it comes to money? Here are some reasons and how to avoid them.

First, not many people manage their money well. Especially, when it comes to investing in the stock markets, a lot of people focus on what stocks to buy. How are they performing? How are they expected to perform? Instead of focusing on the performance of a stock, the real focus should be on the risks involved and money management. Your smartness may not ensure how good the stock will perform. But you can manage your money smartly.

If you manage your money well, you can come out on top under any circumstances.

ALSO READ | What to do in your 20s to retire before 40? Is it really possible?

Second, many people don’t strategise well. Like in cricket where you can’t hit a six on every ball and you need to keep rotating the strike while being alert for the loose ball to hit it out of the park. In money matters also, having a proper strategy is important. But how to have it? Well, there are two ways – you can either educate yourself or lookout for a good advisor. There is a problem in finding a good advisor too. But the following tips may help you in finding a financial good advisor:

  • Broadly there are two kind advisors. Outside of the banking system, some advisors work on a commission model and others work on a fee-only model. While neither of them can be classified as good or bad, what you should look for is that your advisor must be qualified and licensed by regulatory bodies for offering financial advice. You can skip someone who is working without a license.
  • Never let anyone pressurise you into making a decision or purchasing a financial product. If someone is trying to push a product, you should be assured that h/she is a bad advisor for you.
  • Once you find a good advisor, do trust him. There is no point in having multiple advisors influencing your money-making decisions, or managing your money.

Third, when it comes to money, you should not be guided by your impulses. Only logical, well-thought-out decisions will see you through. You should remember that there is a very thin line between passion and foolishness. The mentality of always running after returns and not taking advice may result in blunders that you may regret for a long time.

Fourth, ask better questions. When you are interacting with a financial expert, it is important to ask better questions that will help you understand how the product in which you are investing works. This will help you decide whether you should stake your money in this product or not. There is no point in asking questions like – Tell me the best mutual fund! Some experts even feel this is the worst question an investor can ask.

Fifth, There is nothing wrong with making mistakes as long as you are learning and making better decisions. Personal finance is heavily personal. What will apply to another person may not apply to you. We are human beings and human beings make mistakes however smart they are. And it is okay to make mistakes. Fear and greed react with different people differently. A lot of people define smart as knowing more, being more educated, reading one book a day etc. But these do not really define you as a smart person. For smart isn’t just knowing more. Being able to control your greed and fear is more important.

(The above is based on a panel discussion by Radhika Gupta, CEO Edelweiss Asset Management, and Nithin Kamath, co-founder Zerodha, recently during Thrive 2021- a virtual event organised by Groww.)

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