Change Your Mindset
Step 1 of the Jurnex Process
How to overcome your worries of financial management
|Written by Tom Yeung, CFA | CDFA
Investment Advisor & Fund Manager, Jurnex Financial Advisors
Even if you’re financially stable, have you ever thought about your savings and felt some mixture of worry, regret, or distance? Such feelings can cause massive stress, and it’s one of the key reasons why people make panicked investment decisions. That’s why it’s so critical to change your mindset about investing.
In fact, mindset is so important that we make it our #1 step in our investment process. That’s because having the right mindset will affect your entire investment approach. And once you learn a growth-mindset about money, you’ll find so many possibilities to generate wealth for years to come.
Step 1. Change your mindset about MONEY
It’s sometimes easy to forget that our assets are, well, assets.
That’s because American culture tends to view money in a negative light. A study by Wells Fargo found that 44% of Americans see personal finances as the most challenging thing to talk about, outranking even death, politics, and religion. Just as surprisingly, Time magazine found that 40% of couples didn’t discuss how they would manage finances before getting married. We’re indeed a society that finds talking about money extraordinarily off-putting.
Changing your mindset means rethinking the way you view money. Rather than see personal finance as an evil, shameful topic, we need to consider cash as something that brings us joy and comfort. Something to be celebrated, shared, and discussed.
It’s certainly not easy to change your mindset. Thousands of books are written every year on the topic. But once you realize the absurdity of treating money like something shameful, it becomes far easier to change your mindset.
Why change your mindset
The way we think about money isn’t working. 64% of Americans aren’t prepared for retirement. And even those who are? According to surveys, more than half of affluent investors worry about being financially secure in retirement.
In part, that’s because personal finance has always been perpetually absent from school curriculums. According to Next Gen Personal Finance, less than 16 percent of U.S. students are required to take a personal finance course to graduate high school.
Even among affluent individuals and families, the “out of sight, out of mind” philosophy means that fewer than half of these parents consistently talk to their children about money.
When was the last time you felt truly confident about your money?
To fix a problem, it helps to talk about it first
For years, schools often avoided teaching sensitive issues. Even today, topics such as evolution and climate change still remain contentious in many school districts.
Unfortunately, personal finance has also fallen into the mix. Imagine *never* talking to your kid about finances. How do you think he or she would ever learn?
But by changing your mindset, you’re telling both yourself and the next generation that, “it’s okay to talk about finances.” And that creates a healthy relationship between you and money. After all, why should we be shy talking about money? It’s just part of life!
Step 2. Change your mindset about WEALTH
Because so few schools teach financial literacy, many people’s knowledge of personal finance ends up coming from its related cousin: accounting.
Accounting dates back to ancient Mesopotamia, where it was used to enable the trade of goods and services. The Venetians later developed double-entry bookkeeping 13th century, leading to the style of accounting we see today.
Assets – Liabilities = Net Worth (Equity)
The concept of assets and liabilities can be an excellent tool for measuring a company’s value. In fact, accountants are essential for tracking and auditing companies. However, when applied to measure personal wealth, this tool can produce unintended results.
People regularly talk about assets as if they’re universally useful, while liabilities are universally corrupt. That’s why you hear car and jewelry salesmen frequently refer to expensive purchases as “investments.” After all, they’re assets, aren’t they?
Assets don’t necessarily produce wealth
Here’s the rub. Assets are not universally beneficial, and liabilities aren’t universally bad.
- Good asset. A car that safely takes you to and from work, allowing you to generate income for you and your family.
- Bad asset. A car that sits in your garage collecting dust. You still have to run the car and spend money maintaining it, but it’s still technically an asset because you can sell it for cash.
- Good liability. A low-cost mortgage that buys an investment property where the rent comfortably covers the mortgage and expenses.
- Bad liability. An underwater mortgage that requires contributions from your salary to stay afloat.
What’s the difference between “good” and “bad” things for your wealth? It’s not that they’re assets or liabilities. It’s whether they produce profits or losses.
A different way to see wealth
Rather than view your wealth as assets and liabilities, I urge you to change your mindset. Instead, think about your investments as wealth builders or wealth burdens.
These are investments that generate well above their cost of capital. In other words, they produce profits above and beyond the money needed to buy them.
- Stocks, bonds and funds. Bought at the right price and the right time, these investments can generate significant wealth over the long-run.
- Investment property. Rental income and capital appreciation can make real estate an incredible investment.
- Education. Education might require upfront costs, but the benefits persist for decades later.
Wealth burdens, on the other hand, detract from investments.
These aren’t necessarily all bad. We need to spend money to live, after all. But we need to view these for what they are: consumption and not investments.
- Living expenses. Clothing, restaurant meals, and entertainment are all part of life, but they do cost money rather than generate.
- Unused vehicles. Except for collectible and restored cars, cars tend to lose value over time. Unutilized vehicles don’t generate the wealth they cost to maintain
- Negative-value investments. Even though they sit on the asset side of the balance sheet, money-losing companies, underwater real estate and negative-yielding bonds all have one thing in common. They consistently destroy shareholder value.
The most common way to profit from negative-value investments is the “greater fool” theory, where you sell it at a higher price to someone willing to pay for it. While this strategy *sometimes* works, it’s not a long-run winning strategy.
How to change your mindset about wealth
Changing your mindset won’t happen overnight. We’ve been taught for decades by school and society to view investments through the lens of accounting, where assets are “good” and liabilities are “bad.”
So how to change your mindset about wealth?
Understand the difference between wealth and assets
To change your mindset, you need to start thinking in terms of wealth builder/burden instead of assets/liabilities. Because once you start thinking in terms of wealth creation and destruction, your entire view of investing will change.
Suddenly, speculative money-losing companies look rather unattractive, (unless you have a true insight into a turnaround company.) And low-cost debt, such as mortgages, suddenly become some of your greatest friends.
I recommend you review your investments and see which ones generate wealth. People are often surprised to find things they believed were investments, such as collectible coins and artwork, are burdens. Costs of storage and opportunity costs can quickly outweigh potential capital gains
The benefits of changing your mindset
Once you change your mindset about money and wealth, you’ll start viewing your wealth-builders with pride and confidence. You’ll find yourself talking openly about them with your friends and kids. Educating people about the benefits of generating profits over speculative investments.
That’s when you know you have changed your mindset. And it’s why we at Jurnex see “Change your mindset” as the first and most important thing when it comes to investing.
If this seems like a lot of information, don’t worry. The great news is that help is available. That’s because here at Jurnex, we work with individuals and families just like you to make the most out of investing. I’ve helped invest client money for over a decade in the same old-fashioned way. And that’s to seek out great companies in great industries that can you can buy at a discount to their fair value. Sounds too simple to be true? Give me a call today, and I’ll show you that it’s still possible after all these years.
We are an independent registered investment advisor and asset manager. We have the securities backing of Charles Schwab, yet we retain our operational independence from any third party. This means you can have the confidence your money is safe with one of America’s best brokerages and still receive knowledge and advice from an independent firm focused on YOU.
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