Young Canadian Investor #29 — Delineating Your Relationship With Money
As an investor, you’re somewhere between the person who doesn’t lose sleep over their investments and the person who can’t rest knowing they’re at risk of losing money. The former is able to take on riskier investments with the potential for a higher return. The latter will accept a lower return, so long as it means their money is protected from substantial loss. You see the trade off here. More security means less money in your pocket, and vice versa.
The key to making your investing life as easy on yourself as possible is recognizing where you fall on the spectrum and why. That way, you’ll hopefully be able to make adjustments to how you invest to make room for who you are. Let’s try and gauge where you stand with a couple questions.
Are you living paycheck to paycheck or are you able to save some money, however little, at the end of the month?
If you’re not able to save, investing is out of the question for the moment. Your basic expenses take precedent. If you’re able to save, it’s important to build up an emergency fund first—aim for a few months of expenses—before investing the remainder. Depending on your answer here, you may feel worried about putting your money to work in the stock market. While stocks offer you a positive expected return over the long term, they go up and down a lot day to day, which can cause investors to become distressed seeing the value of their investments move so wildly. The solution here is educating yourself about the stock market so you don’t get spooked by how it’s supposed to work.
Are you a saver or a spender?
To put it another way, if you have a little cash in your pocket, will you end up treating yourself to a nice meal at your favorite mom-and-pop brunch spot, buying books, clothes, or your version of a treat, or will you stash the cash in your savings account? If the money is likely to disappear into instant gratification, you’re best advised to automate your savings and investing by asking your bank to transfer a certain amount of money every month into the appropriate accounts. We all have personal histories that determine why we behave with money the ways we do. If you can stomach it, go back in time and see if you can identify your money triggers and the patterns they nudge you into.
In my case, I buy lots of books and take pride in hauling 30 or so boxes of them around every time I have to move, so I have to keep that habit in check. I have a sweet tooth, meaning a considerable portion of my grocery bill goes to chocolate, sour gummies, and other such base pleasures. I also grew up fairly well off, while the last 10 years have been a struggle financially, making me prone to save all the money I have when I should be setting some of it aside to have fun and enjoy myself.
In the end, if you can afford your indulgences while saving enough to buy yourself the future you want, you’re on the right track.
How does living in a capitalist society and having to make money to support yourself make you feel?
Are you happy to rise and grind every day to compete and earn your place in that society, or are you hell-bent on avoiding the rat race and forging a different path?
Let me know in the comments!
Disclaimer: This article is meant for general education purposes only. It does not constitute financial advice as I am unaware of your personal situation. Consult with a professional who abides by a fiduciary standard before making any investment decisions.