We often hear that positive thinking is essential for our happiness. In finance however, positive thinking can also lead us to financial disaster. When does this occur?
1. Instead of starting to prepare for your children's education fund, you tell yourself to have faith that when the time comes, you will have enough money to pay for it without ruining other financial needs.
2. Instead of starting to prepare your retirement fund, you rely on your employer to prepare it for you. You think positively that they will keep you forever and provide for you.
3. Instead of starting to learn how to invest your money well, you just think positively that the market is just going to go up and up, doubling your money every few years.
In finance and perhaps even in general life, it is better to have realistic thinking than positive thinking. Realistic thinking does not mean negative thinking either. Realistic thinking is understanding that conditions and situations will change all the time. The market may go up or go down. You may change job or even get fired. Your business may hit rough patches. There are inherent uncertainties in life.
What can we do? Be prepared!
- Make sure that you have enough emergency fund
- Make sure that you have enough insurance to cover for death, sickness or any other eventualities
- Make sure you prepare funds for your children's education need as early as possible
- Make sure you start saving and investing for your retirement fund
- Make sure you learn new skills to keep you relevant in your company
- Make sure to maintain and expand your network
Be realistic to changes in life.
Keep learning! Keep growing!
Inge Santoso, B Com, CFP®