Wealth Whisper : Silent Strategies for Financial Freedom

Unlocking Your Financial DNA: The Psychology of Wealth and Success

• Derek Goneke • Episode 65

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Unlock the secrets of your financial DNA and transform the way you think about money. How do our experiences and the time we grew up in shape our financial habits? We unravel these mysteries as we explore the psychology of money, drawing insights from the eye-opening video by Escaping Ordinary. Discover how the powerful forces of compounding can turn the tide of wealth in your favor, with legends like Warren Buffett and Jim Simons showing us the way. We’ll tackle the human tendency towards negativity bias and uncover strategies to maintain a balanced, long-term perspective amidst market chaos.

In this enlightening episode, we dive into the fascinating intersection of finance and human psychology, revealing the subtle biases that influence our financial decisions. We'll take you on a journey through luck and risk, urging you to reflect on your own financial path and identify the beliefs that may either hinder or propel your success. By embracing continuous exploration and learning, we challenge you to question conventional financial wisdom and embrace your unique financial journey. Join us as we explore what wealth truly means and how you can harness the power of your financial DNA to chart a more prosperous future.

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Speaker 1:

Hey everyone, Welcome back. You know we love to dig deep into the stuff you're curious about, and today's topic is no exception. We're talking the psychology of money and we're really excited to unpack this one using a fascinating video by Escaping Ordinary, called the Psychology of Money in 20 Minutes.

Speaker 2:

Should be interesting.

Speaker 1:

It really is, because it's not just about the numbers, right, we're diving into the why behind our financial choices, those sometimes irrational, always fascinating human elements. We're going way beyond the spreadsheets and formulas today because, honestly, our upbringing, our experiences, they have a much bigger impact on our financial lives than we might realize.

Speaker 2:

Absolutely Like it's baked in from the start.

Speaker 1:

Exactly. The video calls it our financial DNA, and it's a great way to think about it. It's like this blueprint we develop early on that shapes how we view and handle money.

Speaker 2:

And we don't even realize it most of the time.

Speaker 1:

It's true. So think back for a second. What was it like for you growing up? Did your family talk about money openly, or was it kind of a taboo subject?

Speaker 2:

Oh yeah, Mine never did subject.

Speaker 1:

Oh yeah, mine never did Right. It really varies. And then think about what the overall economic climate was like when you were a kid. Were you encouraged to save, spend, invest All those little things they add up to this financial DNA that influences us even decades later.

Speaker 2:

It's incredible when you start to connect those dots right. Someone who grew up during, say, the booming stock market of the 70s they might be more inclined to see investing as the sure thing, while someone who came of age during the 2008 recession their instincts might be completely different.

Speaker 1:

Totally Like someone who lived through the Great Depression might be clutching their pennies even now.

Speaker 2:

Yeah.

Speaker 1:

You know, it makes perfect sense based on their individual experiences, their own financial DNA.

Speaker 2:

Makes you wonder about your own financial DNA, doesn't it?

Speaker 1:

It really does. It's like what are some of your earliest memories about money? Were there any sayings your family always repeated about money?

Speaker 2:

Oh, I bet there are tons.

Speaker 1:

my grandmother used to say See, it's all there shaping our money mindset even today, and speaking of which, this really blew my mind. The video points out that Warren Buffett you know the Oracle of Omaha himself. He earned most of his massive wealth after turning 60. Wow really Isn't that wild. And it's not that we should all wait until retirement to get our finances in order, but it highlights this incredibly powerful concept the magic of compounding.

Speaker 2:

Compounding yeah.

Speaker 1:

We've all heard about it, but sometimes it feels like financial jargon. So let's break it down. Imagine this you invest just $1,000, right, and you get a decent return, say 8% annually. Not bad right.

Speaker 2:

Not bad at all.

Speaker 1:

So the first year you earn $80 in interest Okay, cool. But here's where the magic happens. The next year you're not just earning 8% on your original thousand, you're earning it on $1,080 because that first $80 got added back in.

Speaker 2:

Right, it keeps building on itself.

Speaker 1:

Exactly Year after year. That snowball of money just gets bigger and bigger. It's like this amazing financial chain reaction and the longer it goes on the more dramatic the results.

Speaker 2:

That's why starting early, even if it's with small amounts, can make such a huge difference in the long run.

Speaker 1:

Totally. And to really drive that point home, the video mentions that if Warren Buffett had started investing seriously at 30 instead of 10, his net worth today would be a staggering $72 billion less $72 billion.

Speaker 2:

That's hard to even fathom.

Speaker 1:

It really is, and it's not just about how much you invest, but how long that money has to grow. Time really is your greatest ally when it comes to building wealth. The video even uses the example of Jim Simons, who some argue has even higher average returns than Buffett, but his overall net worth is lower.

Speaker 2:

Because he started later.

Speaker 1:

Exactly. He just hasn't had as much time for that compounding magic to work its wonders.

Speaker 2:

It's mind-blowing when you think about how much those early years of compounding can really snowball over a lifetime.

Speaker 1:

It really is. But here's the catch right. Even knowing all of this, it doesn't always make it easy to stay optimistic, especially when the markets get bumpy or we see those scary headlines about the economy. It's like we're almost wired to worry about money, even when things seem to be going okay.

Speaker 2:

Oh, absolutely. Our brains are funny that way, aren't they? We tend to have this negativity bias, especially when it comes to finances. It's like our brains are fixated on those potential losses, those headlines about market crashes or companies going under.

Speaker 1:

And it's hard not to get sucked in, right, you see those numbers going down and it feels so real, so immediate.

Speaker 2:

It makes sense from an evolutionary standpoint, though, for most of human history, those immediate threats, they were the ones we had to pay attention to to survive.

Speaker 1:

Survival mode. It's like our brains haven't quite caught up to the fact that we're not foraging for berries anymore.

Speaker 2:

Exactly. But the thing is, while we're busy focusing on those potential dangers, we often miss the slow, steady improvements happening all around us.

Speaker 1:

It's true. Like medical advancements are making us live longer and healthier lives, the overall standard of living has been on the rise for decades.

Speaker 2:

Right. But these positive trends, they're not as attention-grabbing as a sudden loss or a scary headline.

Speaker 1:

It's like that saying no news is good news, but try telling that to our brains. So how do we overcome this negativity bias, then? How do we make smarter financial choices when our instincts are telling us to panic?

Speaker 2:

It's not about being naive or ignoring risks altogether. It's more about understanding that our brains are wired this way and we can adjust for it. We don't have to be blindly optimistic, but having a more balanced, long-term perspective can make a huge difference.

Speaker 1:

A balanced perspective. I like that. And, speaking of perspective, the video shares some pretty interesting stories that really highlight the roles of luck and risk in our financial lives. Have you ever heard of Kent Evans?

Speaker 2:

Kent Evans? I don't think so.

Speaker 1:

He was a brilliant programmer, a close friend of Bill Gates. Back in their high school days they were both completely obsessed with computers, practically inseparable. And Kent well, he was considered every bit as brilliant as Gates. Imagine if things had gone differently. If he had lived a long, healthy life, he could have been right there alongside Gates, a co-founder of Microsoft.

Speaker 2:

Wow, that would have been something.

Speaker 1:

Right, but tragically, that's not how the story goes. Kent died in a mountain climbing accident while they were still in high school.

Speaker 2:

Oh wow, that's incredibly sad.

Speaker 1:

It is, and it really makes you think, doesn't it? You have these two incredibly talented individuals, both with immense potential, but a single unpredictable event dramatically changed the course of their lives and, arguably, the course of tech history as we know it.

Speaker 2:

It's humbling really. You can have all the talent and drive in the world, but sometimes Sometimes it comes down to luck, or maybe bad luck in this case. It underscores this point that, while we often focus on things like talent and hard work, luck and risk are always there, these ever present forces in our lives. It's like sailing you know, you can chart a course, adjust your sails, but you can't control the wind or the waves.

Speaker 1:

It's so true, we can't control everything, but we can control how we respond to those unpredictable elements, those winds and waves.

Speaker 2:

Exactly Acknowledging that helps us cultivate gratitude for the good fortune that comes our way and build resilience for the inevitable challenges we'll face.

Speaker 1:

It's about making smart choices with the understanding that there are always going to be factors outside of our control. And that leads us to another point. The video makes the true nature of wealth. I think we often equate it with those material things the flashy cars, expensive homes, luxury vacations.

Speaker 2:

The things we see in magazines and on social media.

Speaker 1:

Exactly, but this video makes a really important distinction between being rich, which is often about those outward appearances.

Speaker 2:

And being truly wealthy.

Speaker 1:

Yes, and it's not always what we think.

Speaker 2:

It's about what you don't see right. It's about the financial security you've built, the investments you've made, the freedom and options that come with knowing you're financially secure. It's about having the resources to live life on your own terms, pursue your passions, all without constantly worrying about money.

Speaker 1:

It's about having options and peace of mind.

Speaker 2:

Exactly.

Speaker 1:

It's easy to get caught up in appearances, though. You see someone driving a fancy car and you think, wow, they've made it. But what we don't see is maybe they're drowning in debt or they're working themselves to the bone just to maintain that lifestyle.

Speaker 2:

It's like that, saying wealth is what you don't spend.

Speaker 1:

It really resonates, doesn't it? Yeah? It's like that saying wealth is what you don't spend. It really resonates, doesn't it? Yeah, because it's about having the freedom to choose how you spend your time, your energy, your resources. It's about having the freedom to pursue your passions, spend time with loved ones, give back to your community things that money can't buy.

Speaker 2:

It's about true fulfillment, not just financial abundance. And that's where the concept of the hedonic treadmill comes in right, this idea that we constantly adapt to our circumstances, so we're always striving for that next level, that next big thing, thinking it will finally make us happy. We get that raise, buy that bigger house, but then the goalposts move, we adapt and suddenly we need something even bigger, even better, to feel that same level of satisfaction. Bigger, even better, to feel that same level of satisfaction.

Speaker 1:

It's like this never-ending cycle of wanting more, and the video uses some pretty striking examples of this. Like Bernie, madoff or Gupta, they achieved incredible financial success, but were driven by this insatiable desire for more, even if it meant resorting to illegal activities. They had millions, even billions, but it was never enough. Makes you think about your own relationship with enough, doesn't it? When is it enough, and how do we escape this trap of always wanting more, especially when it comes to something like investing, where the potential gains seem limitless?

Speaker 2:

It's a tough one, right? Because on the one hand, you want to grow your wealth, but on the other hand, you don't want to get caught in that endless cycle of always chasing the next big thing.

Speaker 1:

It's a balancing act, for sure, and the video actually uses a really interesting analogy to illustrate this comparing the stock market to stealing a car.

Speaker 2:

Stealing a car. Ok, I'm intrigued, tell me more. So let's say you want a car, right, you could buy a brand new one. It's the most expensive option up front, but it also comes with the highest potential reward.

Speaker 1:

Right, like going for those high growth stocks, hoping for those double digit returns. You know there's going to be volatility, but the potential upside is huge.

Speaker 2:

Exactly Now. You could also buy a used car. It's cheaper, less risky, but you're probably not going to see those same massive returns.

Speaker 1:

Like choosing a more conservative investment strategy, maybe aiming for slow and steady growth, instead of trying to time the market perfectly.

Speaker 2:

Right. And then, of course, there's option three stealing a car. You get the car without paying anything up front, but the risks are enormous.

Speaker 1:

Yeah, getting caught facing serious consequences. Not exactly a sound financial strategy.

Speaker 2:

Not at all. But here's the thing when it comes to the stock market, so many people act like they can just steal the car and get away with it. They're looking for shortcuts, those guaranteed wins, trying to avoid any and all losses.

Speaker 1:

They want the reward without the risk, which, as we know, is pretty much impossible in any area of life, let alone the stock market.

Speaker 2:

Exactly. And what they often miss is that volatility, those ups and downs. They're not some kind of flaw in the system, they're the price of admission.

Speaker 1:

It's like an entry fee. You pay for the opportunity to potentially build long term wealth.

Speaker 2:

Exactly. You can't expect those potentially high returns without accepting the fact that the market's going to go up and down along the way.

Speaker 1:

So instead of seeing those market dips as some kind of punishment or failure, we can reframe them as opportunities.

Speaker 2:

Opportunities to buy low and ride the market back up.

Speaker 1:

I love that perspective shift and you know it's funny because so much of what we've talked about today it's not about complex formulas or investment strategies. It's about understanding ourselves, our own psychology, our own relationship with money.

Speaker 2:

It's about those deep-seated beliefs and biases we've developed over time, that financial DNA we were talking about earlier.

Speaker 1:

Absolutely. And once we understand those things, we can start making more conscious, intentional choices with our money, choices that align with our values, our goals and our own unique financial DNA. Well, this has been an incredibly insightful deep dive. We've covered so much ground, from our financial DNA to the power of compounding the sneaky biases our brains have, the roles of luck and risk and the true meaning of wealth.

Speaker 2:

It's a lot to think about, but it's all connected, isn't it?

Speaker 1:

It really is, because, ultimately, financial success isn't just about knowing the numbers. It's about understanding the human side of money, the psychology behind our choices. So, as you go about your week, we encourage you to reflect on what we've discussed today. Think about your own financial journey, your own financial DNA, and see if you can identify those patterns, those beliefs that might be holding you back or propelling you forward. That's all for today's Deep Dive. Until next time, keep exploring, keep learning and keep asking those great questions.