One of my favorite sayings is, “A budget can tell you that you can’t afford something — but it won’t stop you from buying it.”
We all work so hard to earn our money, yet spend it so easily. Let me tell you why:
The world is selling to you all the time.
Before becoming an investment advisor, I spent 20 years in advertising and marketing, and I can tell you that the way you feel about certain companies, brands, and products is no accident.
Spending on things we want increases our brain’s dopamine, so it makes us happy. This is the same reason why many of us hold on to extra pounds, or have a few extra thousand dollars in credit card debt: Short-term rewards feel good. And in a cruel twist of evolution, those same short-term feelings make us forget our long-term problems — for a little while, anyway.
Unfortunately, whether we like it or not, we live in a consumption-based world. This is often at odds with the long-term financial success and increased options that saving and investing brings.
The question becomes: How can we make that work better for us, and our wallets?
As an investment advisor, I love the idea of conscious consumption. Being more objective about why you spend can help you make better decisions.
I’m also a big believer in the idea of “follow the money” when it comes to your career and your budget, to have a better understanding of where your money goes.
My big moment was when I realized we all work hard for our money and then give it to companies for the things we want and need. While those companies work hard for our business, their primary responsibilities are not to you, but their shareholders.
This made me think: Why was I working just to buy more stuff and help these random shareholders get richer? Why wasn’t I getting my share?
So, I started investing in the companies I liked and was spending money with, and over time, I built a portfolio that was meaningful to me. Then, a weird thing happened. My spending was reined in and I saw my investments growing into real money.
I’m not saying I stopped spending. That’s unrealistic, as is completely avoiding big companies.
What I am saying is to think outside of the box. Even if you’ve never invested in anything, there are companies out there that you already know, love, and spend money with.
A great starting point is your credit card bill.
Learn more about the companies you’re spending money with. Does your research make you like them enough to not spend money with any of their competitors? Do you think other people will continue to buy their products or services? Will you continue to buy from them? This is the basis of social intelligence and can lead to good investment decisions.
In recent years, the world has moved away from investing in individual companies and into funds. I’m a big fan of funds too, but they don’t provide the same learning opportunities as getting to know a few companies well.
For novice investors, a great way to get started is to invest in what you know, love, or buy. I started small, and using what I saw in the world (and on my credit card bills), I was able to gain the confidence I needed to explore more investments and build my money “muscles.” Over the years, I learned even more and built a passion for investing and financial literacy that soon outgrew my passion for the one-sided world of consumption.
When it comes to investing, I find that men talk about business and investment ideas much more freely than women do. This is truly a shame because women spend much more money and have great insights into what’s really going on in the world. In fact, two of the most famous investors of all time — Warren Buffett and Peter Lynch — both admit that simplicity and understanding what a company is really selling is the key to investing.
So if you’re considering getting started with investing, start with the tips I’ve outlined. There’s no better way to build your confidence and become an educated investor than by getting busy investing — even if it’s only with virtual money at first. And no matter which route you choose to put your money to work, being educated versus just trusting someone else will surely pay dividends in the long term.
Jane Barratt is a member of the DailyWorth Connect program. Read more about the program here.