10 Mind Tricks That Are Ruining Your Wealth | How To Be Good With Your Money

Did you know that creating wealth has everything to do with your mindset the gist is your day-to-day decisions revolve around certain pre-existing psychological factors that affect most of your money decisions these components determine how you spend save and even invest your money which is why in this video i will be sharing with you 10 psychological factors that affect your wealth and if you're new to the channel then hit the subscribe button below for more life-changing content number one anchoring bias the first psychological factor is anchoring bias and it refers to the tendency of holding on to first impressions usually people tend to believe the first piece of information they come across and changing this habit can be difficult if not impossible as a result they base future decisions on their first point of inference even though it was inaccurate if you do this chances are high that you'll end up with a crooked decision-making process simply because you favor the first information you came across to put it into perspective let's assume you're planning to buy a car so after asking around the first person you ask tells you that your ideal's car's average price is 30 thousand dollars with that in mind you head to the dealership and when you get there the car seller informs you that the cost of the car you want is actually twenty eight thousand five hundred dollars being fifteen hundred dollars cheaper than what you expected you think to yourself this must be a great deal being offered a price that saves you money sounds like a dream right and so you pay for the car without knowing that there's another car dealership selling the same vehicle for 23 thousand dollars visible from the example i just mentioned anchoring buys can significantly affect your spending habits you may end up paying more and skipping on good deals simply because you didn't take time to shop for more economical alternatives the good thing is anchoring buys can work to your advantage during negotiations being the first to lay your cards on the table can set the whole negotiation processes pace particularly with salary negotiations and business deals anchoring bias will help you get the more financially rewarding results number two the bandwagon effect also known as the herd mentality the bandwagon effect is a critical psychological factor that will affect your wealth essentially the bandwagon effect is the tendency people have to hop onto popular trends irrespective of one's own beliefs in other words it's a form of group thinking where people blindly follow the masses often we find ourselves sidelining our beliefs and subscribing to other people's ways of doing things we see this with social media trends fashion trends political affiliations and even financial markets truth be told no one loves to be on the losing team maybe this is why so many people are often too willing to align their actions to match those of the winning team you'll find investors flocking to specific stocks or mutual funds simply because of what they hear on the news or because the majority of investors are going in the same direction and making profits as tempting as it can be applying the bandwagon effect can be damaging to your net worth if you really want to be successful learn how to fight the urge to go with the crowd instead shift your focus on sharpening your own analytical skills and as a result making your own sober inferences number three actor observer bias in every situation there's going to be two sides of the coin the actor and the observer the person executing the action is the actor while the observer observes the act actor observer bias refers to the tendency of being highly critical of other people's actions mistakes or shortcomings when royals switch and we're no longer the observer you find that this sense of harsh judgment fades naturally it's easy to find even the slimmest excuse to forgive your own failures you'll rarely ever find people owning up to their weaknesses when they fail instead they're more likely to blame some wild external factors that are outright beyond their control this is why it's easy to pin someone else's obesity on a poor diet yet be quick to pull the genetics card to defend your own excessive weight similarly how often have you honked angrily at another driver who was driving either too fast or too slow i'm sure you've done it quite a few times but when you find yourself bending the traffic rules for whatever reason you'll be quick to conclude that it's not your fault this effect also relates to your money you may be quick to judge someone for a bad investment but when you are the actor making a similar decision you can rationalize your choice therefore it is often worth getting secondary advice when making financially significant investment choices number four the endowment effect the endowment effect is a type of cognitive bias that prompts individuals to overprice their possessions even though the market says otherwise this particular behavior is typical when dealing with items that bear an emotional significance to individuals i'm talking things like jewelry cars houses or even books when there's a strong emotional attachment to an object it creates a false solution of higher monetary value this is why you'll find people overpricing their homes and missing good deals only because they are waiting for a buyer who will accept their ridiculously high price thing is the longer you take to sell something no matter how important it is to you the lower it goes in value this applies to highly depreciating assets like cars tech gadgets and even sometimes stocks so quit thinking that the objects you own deserve better pricing simply because you own them number five the false consensus effect next we have the false consensus effect it refers to the tendency to overestimate the position of our opinions or beliefs in other people's eyes it's tempting to convince yourself that people will always agree with your line of thinking yet this isn't particularly true the false consensus effect stems from individuals holding their opinions in high regard as a result they're trapped into believing that their views are too good to be ignored from a business standpoint the false consensus effect can be a significant hindrance i'm sure you've encountered a boss that quickly imposes their ideas on their workers such business leaders are never open to any form of criticism as a result they end up imposing changes that can be damaging to their brands when it comes to product innovation the false consensus effect can hinder a product's performance in the market as a creator of a product you may create a product whose design interface you find easy to navigate yet when you release it to the market it gives consumers a plethora of challenges therefore it's important to understand that not everyone holds the same beliefs as ourselves when making business decisions number six hindsight bias have you ever had an i knew it all along moment turns out we all do and it happens more often than you think if you're keen enough you'll notice that in events outcomes become apparent and predictable after the event occurs in a nutshell hindsight bias is a psychological phenomenon that instills a false sense of confidence regarding people's ability to predict future events from a psychological standpoint this kind of bias can make you perceive occurrences to be more predictable than they actually are as it relates to your money you will often find this bias in effect after you've sold the stock if you sell and the stock soon plummets then you will think to yourself that you are a master at timing the market the effect may pave the way for overconfidence and if you keep convincing yourself that your predictions are always right you'll be more inclined to make wrong moves number seven overconfidence bias here's one that needs no explanation overconfidence bias thing is as humans we tend to overestimate our abilities this false assessment of our traits and skills makes us prone to making poor decisions while being confident is a fascinating trait overdoing it will lead you down the path of failure and disappointment overconfidence will make you lock out the ideas of external parties yet in the real sense their input could have saved your situation this is particularly common in the investment and entrepreneurship world if you believe that you're always right you'll find yourself less cautious when making investment decisions this causes some investors to risk everything on one single stock only to end up bankrupt when the company experiences financial ruin in reality exercising caution as you invest will save you lots of money doing this doesn't necessarily mean that you're less confident it merely implies that you acknowledge how risky the market can get and you're smart enough to tread a little bit more carefully number eight survivorship bias moving on survivorship bias is another cognitive factor that will heavily influence your financial life to put it simply it refers to a type of selection bias where data favors the survivors of a given selection process and sidelines the rest of the population that failed to cross over successfully actually this is the most common form of cognitive bias and we see it every day a good example where survivorship bias dominates is in the entrepreneurship world often you'll hear stories of entrepreneurs that dropped out of school or quit their annoying jobs and still became successful while such stories motivate they often sideline the rest of the population that equally ditched their employment and education yet failed miserably no one talks about the group of people that don't survive which can be misleading survivorship bias pushes people to hop onto business trends simply because they know a few people that adopted the trends and succeeded actually it's a leading reason why stock market investors make misguided investment moves usually it results in overhyped historical trends that instill a false sense of optimism in new investors the result money is lost and lots of it number nine confirmation bias truth is nothing beats the sense of stumbling on a piece of information that backs up your strongly held attitudes beliefs and opinions if you're like most people you probably believe that you're the smartest person in the room it seems adopting such an ever right mindset makes you susceptible to confirmation bias when in action confirmation bias will lead you to favor information that conforms with your way of thinking and consequently proves your smarts for example take someone who holds a firm conviction that poor people are happier than rich people if this person meets a wealthy person that's had a bad day and isn't in a good mood they'll jump to the conclusion that indeed rich people are never happy if this same person came across a millionaire that's bubbling with radiance and positivity they'll probably dismiss them and argue that it's sheer pretense however such a conclusion is skewed in reality we have rich people who are happy and satisfied inasmuch as we have poor people who are miserable as a leader confirmation bias will hurt your chances of making the right choices allowing this form of prejudice to take over your thought process will only make you plunge your company job or investments into a bottomless pit of failure number 10 the ambiguity effect lastly the ambiguity effect is another psychological factor that will reflect on your net worth simply put it refers to the tendency of making decisions based on predictable outcomes when the probability of a desirable outcome is known invisible people will gravitate towards this direction this is why people choose to work with investments that they're familiar with if you've had prior success with real estate you're less likely to put your money in the stock market simply because the probability of success is unknown well it's only natural to shun choices whose outcomes are uncertain while this trend is common it can also lead to poor decision making just because you know nothing about a particular venture doesn't credit its chance of success thanks for watching if you want to go from the life you have to the life you deserve then hit the subscribe button now you

Channel: Betterment Boss

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Keywords: how to be good with your money, how to be rich for beginners, how to make money like the rich, how to invest money like the rich, sources of income of the rich, ways the rich make money, how rich people spend their money, how to make more money by working less, how the rich use their time, how to make more money with little time, how to build a high income skill, how to manage your money like the rich, how the rich become richer, how to become rich in 5 years or less

Id: C6Bjvspk6Po

Length: 11min 29sec (689 seconds)

Published: Fri Apr 23 2021