Building Your Money Muscles

July 28, 2015

Connect Member

Founder and CEO of GoldBean: Investing for Beginners.

hellogoldbean.com

Getting strong and healthy is a rewarding task with long-term benefits. Just like when you exercise your regular muscles, your “money muscles” can also be strengthened over time with practice and training.

Think of your money muscles as an analogy for your risk tolerance. Can you hold a plank position (core muscle strength) for a minute? Likewise, can you stick to a budget (money muscle strength) and ride out a dip in your investment portfolio?

The best way to exercise your money muscles is by making decisions for yourself, and understanding your tolerance for, or aversion to, risk.

One of the hardest things with investing is taking the first steps. I’ve been investing for over 15 years, and as I remember it, the scariest investment was my very first $1,000 I put in. And my biggest high was doubling that $1,000 to $2,000.

Over time, I learned what it feels like to have small gains and big gains, as well as small losses and big losses. I learned that the pleasure in my bigger gains is stronger than the pain of my bigger losses. This means that I am open to risk — living on the riskier end of the spectrum of risk tolerance.

Some of the best investors I know started out very risk averse (even saying they prefer to keep money in their mattresses!). However, they learned that they could get over their risk aversion by making small investments, or even virtual ones, with the understanding that they had to be OK with it all going away.

While it’s rare to completely lose your money with investing unless you buy high and sell low, you will inevitably experience that week your $1,000 is worth $1,200 and the next it’s worth $900. Then you will start to realize that unless you’re in the lowest risk fixed-income products like bonds, your holdings will fluctuate — but the key is that over time, an amazing thing happens. Your investments will change in value, but your ability to tolerate those swings is your money muscles at work.

And there’s another benefit to having strong money muscles: They can help you be more successful at work.

I truly believe that I was able to build a successful career because I am an investor. With a separate income stream through investing, I was able to take risks that I may not have otherwise taken if I were worried about my financial security. These include taking on jobs that were a stretch for me, moving to different countries for new opportunities, and most importantly, speaking up when it counted.

So what are some ways you too can get buff money muscles?

Be conscious of decisions: Don’t let habits drive financial decisions.
Invest: Do so with either virtual or real money.
Be curious about the wider economy: Learn how boom and bust cycles work.
Negotiate: Make a practice of asking for more.
Ask questions: Especially ask questions of people who have a solid financial base.  

Building healthy money muscles and tolerance for risk can help you keep more of your money, and even grow it over time.

Jane Barratt is a member of the DailyWorth Connect program. Read more about the program here.

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