When it comes to their finances, it’s common for people to either have way too much confidence or way too little.
People with too much confidence tend to:
– Pick stocks
– Invest too aggressively
– Take on too much leverage
– Overspend on cars and trucks and luxury goods to impress people
– End up paying more taxes than they need to
– Don’t get properly insured
– Get blindsided by downturns, big life events and other risks
– Don’t seek financial advice because they think they already know everything
People with not enough confidence run into a different set of problems. Things like:
– Holding too much cash
– Investing too conservatively
– Missing out on opportunities and downturns in the market
– Not using good debt to build their wealth faster
– Always feeling guilty for spending money even when they’re on track with their long-term plans
– Don’t get financial advice because they don’t think they know enough to talk to a professional and are worried about looking dumb
As a general rule, people with not enough confidence actually end up better off than people with too much and are usually far easier to help. But neither situation is ideal.
The goal is to find the sweet spot, where you feel confident with what you’re doing, how your finances are set up, your investment approach, and your long-term plan. You want your confidence to be grounded in a good system, good defaults and good judgement.
When it comes to your own finances, it’s worth considering whether it’s an abundance or a complete lack of confidence that’s holding you back, and then adjusting accordingly.