Lesson 6. Financial Thinking

[Brother]

Everything comes from the head. To be financially firm and to make intuitive entrepreneurial decisions, you need to develop a financial mindset. Of course, you can invade the world of big money and business, having an old psychology and even succeed in this, but let's do it smarter. We offer you three elements to help you find your financial mindset. You can study and graft them one at a time, but the result will be much better if you can manage to work with them at the same time.
The thinking of a poor person is different from that of a rich person. Here are the words of the writer Jerry Guilles: “The more you focus your attention on the lack of money, the less money you will have. Poverty comes to those who are emotionally and intellectually ready to accept it." Thoughts, emotions, fears and rules shape human thinking, so we will focus on all of these elements.
In order to instill in yourself a financial mindset, you need to learn three important elements. And the first of these will be an understanding of the psychology of money. Financial thinking has a lot to do with how we feel about money. And these feelings can have a big impact on our financial success.
Many people think that the psychology of money is a conventional term that stands for nothing. In fact, this is a new branch of psychology, which is being pursued by scientists, financiers and psychologists from all over the world.

Content:

The psychology of money​

The psychology of money is a branch of psychology that studies a person's attitude to money and to other people in connection with monetary relations, as well as the influence of monetary factors on human behavior, in particular on decision-making (see Wikipedia).
“Recent studies show that the biological mechanisms of the brain play an important role in the topic of “Man and money”. Human behavior in financial matters is quite predictable, although this may not correspond to the schemes of classical economic theories "("The Psychology Money", M. Argyle, A. Furnham).

Among the predictable psychological effects, the following were identified :

• Money illusion. It is the tendency of a person to perceive a nominal rather than a real amount of money. That is, a person does not make adjustments for inflation, even if he knows about it.
• Money taboo. In some cultures, it is forbidden to use money in some cases, even if it is economically desirable.
• Monetary conservatism. This is resistance to any monetary reforms.
• Silence effect. In some families and cultures, it is not customary to talk about money. Such a topic is considered indecent for discussion. When a person breaks out of such a society, he begins to raise the topic of money, protesting against his upbringing. This leads to the fact that such behavior is condemned by the new society, because it has developed a more correct discourse of the monetary topic and does not tolerate empty mention of it.
• Monetary stress effect. This is an emotional relationship between people about money. The theme of money provokes very strong, sometimes even affective, emotions: love and hate, envy and sacrifice. Most people develop an ambiguous, contrasting attitude towards money.
• Material money illusion effect. Money is referred to the realm of material, although in its essence it has not been such for a long time - since the time when it ceased to have an independent value. The evolution from commodity money to fiat money has led to the fact that they continue to be considered something tangible and this leads to many psychological problems and cognitive dissonance.
• The effect of different money. People treat different types of money differently and this is a very interesting paradox. Spending money with a bank card is considered more painless than spending cash, although they are one and the same thing. Coins are heavier than banknotes and are even harder to part with. Some types of money are considered dirty, immoral and evil by people, while others are kind, easy and reliable for them.
• The effect of monetary profanation. If a person gets money with the help of hard and unpleasant labor, they become something vulgar and negative for him. He looks at money and sees not opportunities, but suffering and hard work. While easy money is spent quickly, people part with it without regret.
• The borrowing effect . Borrowing money is morally condemned, while lending is encouraged. At different times, the attitude towards these processes has changed. Debt is now seen as a source of stress and new behaviors.
• Money size effect. They do not raise a trifle, but they try to hide large sums. For many people, there is a certain amount threshold, after which their behavior changes significantly.
• The effect of individual economic behavior. Individual economic behavior differs significantly from the behavior of groups and organizations.
• The effect of the advantageous value of money. The transfer of money in exchange for goods is much easier than the exchange of goods for money. We have already talked about the high liquidity of money - it can be exchanged for anything. Therefore, the amount of money is more valuable than a product of similar value.
• The effect of monetary arithmetic. Logical mathematical operations (addition, division, subtraction) with money and abstract numbers have their own distinct rules, norms and psychological attitude.

Any person who wants to learn to think in financial terms should know these patterns. As you may have noticed, most of the above were the misconceptions that are common to poor people. A rich man is devoid of such thinking, he knows the true value of money and very rarely allows himself to be fooled. All other people are forced to undergo all these monetary paradoxes until they are recognized and eradicated.
A person's reaction to financial factors has a significant impact on his life. That is why the study of the psychology of money is of such great importance. This is the first element to learn on the road to financial thinking.
The development of financial thinking is influenced by financial habits - and this is the second element on the path to finding it. They help you get rid of constant financial stress and start treating money as a tool for achieving freedom, and not as an end in itself. To grow them and introduce them into your subconscious, a certain amount of time must pass. Therefore, we will consider each of them separately, find out why they work and begin to cultivate them in our country.
We've compiled this list from books by financial literate people (Robert Kiyosaki, Bodo Schaefer, Robert Allen, Tony Robbins, and more) and hope they cover most of the habits of wealthy, successful business and investor.

Correct financial habits​

Pay yourself first​

This habit, which was developed and voiced by Robert Kiyosaki, and which is observed in the vast majority of millionaires around the world. Well-known finance writer Dave Ramsey notes: “Putting aside just $ 100 a month from $ 25 to $ 65 at 12% interest is $ 1,176,000. Everyone can retire as a millionaire! "
This is one of the most difficult skills because it leaves the feeling that we are wasting for the sake of accumulation and cannot be spent. That is why it is so difficult to become a millionaire. But not because it is impossible, but because many people want instant pleasure.
Some experts advise the “50-30-20” rule: spend 50% of your income on necessary needs (food, rent, rent), 30% on whatever you want, and 20% on saving and investing. Use this rule for all of your income. Better save 50% if you can.

Have a financial goal​

We touched on this habit in the second lesson when we talked about financial planning, but it will not be superfluous to recall. According to a study by Thomas Corley, 81% of millionaires have a clear financial plan and stick to it, while only 9% of middle-income people do the same.
Most successful people initially set themselves the simple goal of “Making a Million”, and after achieving this, they began to set more ambitious goals - investing and diversifying their income.
Find your goal and make a financial plan.

Feel comfortable in uncertainty​

This is another habit that financially illiterate people have the least to adhere to. Millionaires know how to take risks and feel confident in any development of events. Tony Robbins, a renowned motivational speaker, said: “All life is built on uncertainty. The quality of life is determined by the amount of uncertainty you can handle. Develop faith in yourself, gain experience, and be more flexible. You will never know what will happen."
Psychologically, uncertainty can lead to fear, which in turn leads to acquired helplessness, a reluctance to take action, even under favorable conditions. Therefore, the ability to be calm and confident in matters of a foggy future is so important in financial matters.

Chat with millionaires​

This may sound like mocking advice, but if you think about it a bit, you will realize that there are professions that are conducive to this. For example, journalists or writers may interview and even make acquaintances with wealthy people.
Tony Robbins defends his point of view on this, saying that people of the same profession attract each other. The same is the case with financially literate people. Now this is called networking and enough books have been written on this topic so that everyone can express themselves in this type of activity.
Grant Cardone, author of five books on financial independence, writes: “People who don't have money of their own are incapable of teaching you how to make money. You need to know what millionaires are doing to build their capital. What are their habits? What are they reading? How do they invest? What drives them? How do they motivate themselves? "

Don't waste time on internet and TV​

According to the same study by Thomas Corley, 76% of poor people spend more than five hours a day watching TV or using the Internet without any benefit, while 60% of millionaires spend less than an hour on it. Rich people are always busy with useful things, while poor people are just always busy with something. And this significant difference is worth the second millions of dollars.
You might argue if this is a financial habit, but any successful person will tell you that time is money. Don't waste it.

Create yourself multiple sources of income​

We touched on this topic in the fourth lesson. Rich people rarely get their money from just one source. They accumulate and invest - and so on in a circle.
Rich people know firsthand about financial risks, so they insure themselves, creating several sources of income for themselves. Perhaps this rule has no place in love relationships, but in financial it is golden.

Buy smart​

It is very rare for rich people to indulge in rash purchases because they know how business and advertising work. Of course, we are talking about those people who made their own fortune. They buy exactly as much as they need - for their needs and their business. These are people who distinguish price from value. They can afford a lot of unnecessary purchases, but they know what this can lead to, because they were poor and remember that that habit kept them in this state for a long time.
Emotional spending can keep you at the bottom of a financial hole for a long time until you understand what it means to buy wisely. Instant satisfaction of needs is destructive for any person in any area of life, while in the field of finance it is doubly destructive.
eight

Get rid of the poor man's mindset​

We again touch on the psychological aspect in monetary matters. There is no shortage of money in the world, there is only a shortage of people who think rightly about them. To become a millionaire from scratch, you have to get rid of the poor man's mindset.
Observe the people around you who are struggling to make ends meet and reflect on what and how they think. Notice their attitudes towards money and try to understand their psychology. Then answer the question: "What do I have in common with these people?" And get rid of all the habits that are inherent in them. Such careful work on yourself will lead you to success.
nine

Read as many books on finance as you can​

Not all successful millionaires read a lot, it's true. This type of millionaire relies more on intuition than knowledge, however, even they communicate and listen to people who read many books on the topic of finance.
If you can read seven books a month and take an idea into each of them, imagine how many ideas you will have in a few years. The world is constantly changing and you need to feed yourself with important information every day. Read the books we recommend you, then look for others. Just make it a rule to apply tips and ideas from every book you read.
Once you have perpetuated these habits, you’ll learn a second important lesson. It's time to learn the third element that will teach us how to get rid of fear.
Napoleon Hill, in his bestselling book Think and Grow Rich, lists six signs of fear. Knowing these signs will help not only in gaining financial independence, but also in other aspects of our life.

Six types of fear of Napoleon Hill​

There are three enemies that every person should get rid of - fear, indecision and doubt. Indecision leads to the doubt that fear breeds. And that, in turn, paralyzes a person's ability to act. Therefore, Napoleon Hill advises to engage in introspection in order to identify the six signs of fear. To defeat the enemy, you need to know his name, habits and habitat. It is possible that fear is in your subconscious.
We have all been convinced more than once that thoughts tend to be embodied in life, therefore getting rid of fears will allow a person to find financial success and thinking.

Fear of poverty​

Many people fear poverty and thus bring it upon themselves. Here are six symptoms that will help you recognize this type of fear:

1. Indecision. It is a habit of letting others think for themselves and not acting for themselves.
2. Indifference. These are unwillingness to fight poverty, attitude towards a bad event as fate, lack of initiative, as well as intellectual and physical laziness.
3. Anxiety. A frowning, frowning appearance, which leads to excessive alcohol consumption and addiction to drugs and tobacco. Also, such people are characterized by self-doubt.
4. Doubt. It manifests itself in the form of apologies and explanations.
5. Over-caution. Such people only talk about possible failures instead of focusing their minds on the means of achieving success. Pessimism leading to physical illness.
6. Procrastination. In our century, this is called procrastination. Avoiding responsibility and a complete lack of initiative.

An unemployed person is ready to accept the very first offer, which leads to a deterioration in an already dire financial situation. He looks at the windows and feels like a second-class man. Jealousy aggravates fear and helplessness. The fear of poverty breeds more poverty.

Fear of criticism​

There is always enough criticism in our life. It can cause an inferiority complex in a person and leads to a complete inability to build constructive relationships. It kills creative thinking and forces you to take a few steps back.
Seven symptoms of fear of criticism:

1. Shyness. Expressed in shyness and nervousness. It may seem like a pleasant character trait, but such a person is not capable of achieving success.
2. Weakness. This is thoughtless agreement with someone else's opinion and the lack of the ability to clearly express your thoughts.
3. Imbalance. Poor posture and memory, inability to control your voice and behavior. An extremely unpleasant character trait of a person who wants to devote his life to business.
4. An inferiority complex. The habit of using loud words to impress. Such people seem to be overconfident, but in reality they are not. They imitate others in how they dress and talk, and are accustomed to inventing stories of their accomplishments.
5. Extravagance. The desire to spend more than you have in order to seem richer, the habit of living beyond our means, borrowing.
6. Lack of pride. It is a habit to give up any undertakings with a light heart, laziness of soul and body.
7. Lack of initiative. This is the lack of confidence in your ideas and the fear of expressing your point of view.

Be careful when criticizing your child - this can lead to the above problems. Learn to accept constructive criticism and be immune to unfounded criticism.

Disease fear​

Fear of getting sick leads to somatic illness and makes a person weak in spirit. If you have this fear, you are unlikely to think about your financial success. Your head will be occupied with only one thing.
The fear of disease has seven symptoms:

1. Self-hypnosis. A person searches in himself for the symptoms of all possible diseases and of course finds them.
2. Hypochondria. Comes with bad thoughts. A person starts to get sick and sometimes even medications do not help.
3. Impressiveness. It undermines the body's vitality to resist.
4. Lethargy. Leads to being overweight and unwilling to do anything. In such a situation, a person is unable to motivate himself, let alone think financially and look for sources of income.
5. Anxiety. A person reads medical literature, even if he is not sick with anything and constantly worries about himself.
6. Intemperance. This is the habit of consuming alcohol and nicotine instead of medication.
7. Self-care. The habit of causing pity in others.

It may seem that the fear of illness and its manifestations are not directly related to financial independence. However, look at any millionaire - do you see at least one of these signs in him?

Fear of failure in love​

This is perhaps a good fear when it comes to a poet and a creative person in general. But in finance, it's a destructive fear.
Three symptoms:

1. Jealousy. This is the habit of suspecting loved ones without any reason, complete disbelief and suspicion.
2. Adventurism. Propensity for theft, cheating, and risky ventures. It's about going into debt to buy gifts to show your best.
3. Search for misses from others. For the slightest reason.

Fear of old age​

This fear comes from two sources. First, from the thought that old age brings poverty. Secondly, from false beliefs that such a state is helpless and there is no joy in it.
Four symptoms:

1. "Forgive me, old man ...". This is how some people apologize when they reach the age of forty or fifty.
2. Premature decline. By the age of forty, many people have finally overcome the inferiority complex, which leads to the degradation of the human personality.
3. The desire to be young. Imitation in the clothes and behavior of young people, which looks ridiculous in the eyes of others.
4. Lack of initiative. If a person has decided that he is old, then this quality develops in him. He doesn't want to make any more serious decisions.

Only people who are not confident in their financial future, poor or destitute people are afraid of old age. The rich, on the other hand, look at the passing time differently, philosophically. They are not afraid of old age, they enjoy it. Some billionaires, even at 80 years old, work hard and find no reason for inaction and anxiety.

Fear of death​

People are afraid of death as such or for religious reasons. Often this constrains such people so much that they are unable to think about anything else.
Three symptoms:

1. Thoughts about death. These thoughts come not only to old people, but also to young people, which prevents them from enjoying life. Often such thoughts come when a person has no meaning in life. Serving other people will help here - a person busy with other matters will not think about death.
2. Link to fear of poverty. The death of a loved one is associated with the approach of their own poverty.
3. Disease connection. May lead to depression.

Napoleon Hill associates all six types of fear with anxiety and asks how you can get rid of it. And Dale Carnegie, in his book How to Stop Worrying, answers that question.
We recommend that you read these two books cover to cover because they contain a lot of important information. Think and Grow Rich will help shape your financial mindset, and How to Stop Worrying helps you break this nasty habit and eradicate fear.
And finally, I would like to warn you:
Of course, now you know enough about finance, but always remember one very clever phrase: "Never attribute to malicious intent that which can be explained by stupidity."
Humanity, represented by a huge number of people, is doing a lot of stupid things. And if a crisis or something completely unexpected occurred in the world economy, this does not mean that it was deliberately provoked by someone. On the other hand, this also does not mean that as a result of this event, someone did not receive a large profit. The world economy is incredibly complex so that everything can be calculated to the smallest detail.
I wish you success and good luck in your further financial literacy training!

Test your knowledge​

If you want to test your knowledge of the topic of this lesson, you can take a short test consisting of several questions. In each question, there can be only one correct answer. After you have selected one of the options, the system automatically proceeds to the next question. The points you receive are influenced by the correctness of your answers and the time spent on passing. Please note that the questions are different each time, and the options are mixed.