Money mindset: 5 steps to help you invest with confidence

Many people find the topics of money, finances and investments overwhelming. If this is you, you’re not alone! Financial coach Kerstin Brunner has put together these five key steps to help you achieve a “Money Mindset”: that is, a good understanding and positive attitude to help you invest with confidence. 

Facts - it is all about facts! This is why many people have a confused mindset when it comes to money, finances and investments. Many people think, “It’s better to do nothing, than do something wrong” - but they don’t know how wrong they are!

Yes, financial topics can be overwhelming and confusing, but if you start with some essential, easy-to-understand facts, you might realise that it’s not as tricky as you first thought. In this article, I’ll look at five key steps you can take to positively arrange your mindset when it comes to investing and other financial topics. 

1. Start with your personal situation

Some people try to walk in the footsteps of others, and it’s only later on that they realise it’s not right for them. That is why, when it comes to finances, it’s so important to start with your personal and unique situation. Ask yourself what kind of ideas you have for your money and investments, and what kinds of goals you want to achieve. 

The first step is never about actually proceeding with an investment itself, but about learning more about how different types of investments work, so you can decide which ones might work for you. Investing in funds, real estate, or private pensions (for instance) each have their own pros and cons when it comes to flexibility, security and long-term growth prospects. So the kind of investment that works for one person’s financial goals won’t necessarily work for someone else. 

Like choosing a badly-fitting running shoe to improve on your personal best marathon time, selecting the wrong investment profile for your financial goals is almost always going to be an unsustainable decision - in the long run, it’ll work out uncomfortable, perhaps painful, and won’t lead to the desired result. 

This is why it’s important to get an overview of your own thoughts, feelings and goals, because this is your base for making important financial decisions. 

2. Understand your risk appetite

Equally important as having an understanding of your financial goals is gaining an understanding of your characteristics as an investor - specifically your risk appetite. Your risk appetite is your willingness to expose yourself to financial risk with the aim of generating a higher potential profit. There might be greater risks (and losses), but there also could be greater rewards. 

This shouldn’t be a gender discussion, but typically men and women trend towards different ends of this scale. Women generally ask more questions and feel they need a better understanding and feeling before investing. Statistically they make better investment decisions. Men, on the other hand, often overestimate themselves and are more likely to take risks when investing. 

Of course, this is a generalisation, and you might not feel you fit so neatly into this scale, but it’s important to consider what level of risk you are comfortable with, as different investment options carry different levels of risk - some might swing violently up and down in value, while others grow gradually, and steadily. How much risk you take can affect your potential growth, but it can also affect your potential losses. 

Choosing an investment that doesn’t match your risk appetite is not the way forward - it could have consequences like you unintentionally losing money, or missing out on your financial goals. 

3. It’s all about your lifetime

Let’s come back to the phrase “It’s better to do nothing, than do something wrong”. In my opinion, this mindset is all the wrong way around. The most important thing when it comes to investments is this: to start as soon as possible. 

Even if we’re talking about a small amount of money, doing nothing with an “I’ll do that later” attitude is a no go, because it simply gives you less time to build up your wealth. “So when is the best time to invest,” you ask? The time is now! There is no best time, because there is only your lifetime, your private and professional life and your future goals and wishes.

4. Understand your monthly income and spending

Before starting with investments, it is really important to have a full overview of your monthly income and outgoings. Be honest - leave nothing out! 

Once you know how much you’re making and spending in a month, then it’s time to think about your future. When you retire, what do you want your life to look like? Would you want your standard of living to stay the same? Which expenses will you still be paying in your retirement? For instance, if you have a mortgage, hopefully this will be paid off by then. Which additional expenses might you have in retirement? This will give you an idea of the monthly income you need.

If you’re investing to save for something else, like purchasing a property, then the process is the same. You need to know your numbers. What is the maximum amount you could afford on your (joint) salary? How much of a deposit do you need? Will you need additional money for things like taxes and fees, decorating, new furnishings? Will you save any money on rent if you take out a mortgage? This will give you a figure to aim for.

5. Stay flexible with the money in your bank account

While the right time to start investing is certainly now, in my opinion, it is also important to make sure you’re only investing what you can afford. You’ll need to set aside some money in your bank account to act as a safety net in case of unexpected situations like a broken washing machine or a big repair bill for your car. 

You need to remember that not all investments are flexible: some investments will keep your money locked up for a long time, or won’t be flexible about letting you withdraw cash from them when you need. 

This is why it’s so important to know your numbers. Before deciding how much you want to invest, decide how much you can afford to invest, after first setting aside money for all your fixed expenses, building up your cash safety net, and keeping back some other money that you might want to spend from month to month. As nothing is ever certain with investing, the money you invest needs to be cash you can afford to lose (at least for a while). 

As you can see from these five steps, everything is first about feeling and second about thinking. Don’t be afraid! If you are not sure how to switch your mind positively when it comes to financial topics, feel free to get in touch with Kerstin Brunner, a fully licensed financial expert who specialises in financial education. The best time is always now!