In your line of work as a professional athlete, you will have seen first-hand how the psychological approach to winning a match is just as important as the talent you have and the work you put in when training.
No matter how polished your skills or how hard you push yourself, you need to be in the right frame of mind and meet every challenge with the same positive mental attitude to help drive your team to success.
So, knowing how important psychology is to being successful in rugby, why would the same logic not apply to your finances?
When managing your money, your personal feelings and biases can have just as much of an impact on you as they can when you are battling for the win on the field.
Read on to discover how your psychology affects your relationship to your money, and what you can do to minimise any negative effects on your wealth.
An aversion to loss can put you off making sensible decisions
People are varied and will react to situations differently. But even so, there are common traps that are easy to fall into if you are not vigilantly looking out for them and their impact on your finances.
One issue you might encounter is that of “loss aversion”, a proven psychological concept in which the pain of losing is felt more acutely than the enjoyment of winning.
First identified in the Journal of Risk and Uncertainty by renowned economists Daniel Kahneman and Amos Tversky, loss aversion sees the pain of losses hurt twice as much as the pleasure of winning.
This leads individuals to make decisions that avoid losing at all costs, forgoing the potential of winning.
This can arguably be observed in the way that many rugby teams seize up late on in matches as they look to preserve points.
Rather than pushing for the kill when they have a slender lead, the fear of losing a match can drive teams to step off the gas and play defensively.
However, there may be times when this is not the right approach. In fact, trying to drive forwards and control a game might be far more effective in seeing out a win.
The way you handle your money is just the same. For example, while investing may offer the potential to generate a return on your money, the risk that you may also lose value can prevent you from putting it in the market, even if that could be a sensible decision.
There is risk involved with making these decisions with your money. But equally, a fear of loss could prevent you from making the most of what you have.
Overconfidence is just as much of a risk
Of course, while a disproportionate fear of losing can put you off making sensible decisions, so can brash overconfidence with your finances.
Again, consider overconfidence in the context of a rugby match. It is all too easy to take a result for granted and lose your concentration because you are comfortably in the lead, and it appears that the match is in the bag.
This might prevent you and your team from taking steps to stop a comeback and seal a win, because you do not react quickly enough to changes in formation or tactics from your opponents.
There is also the risk of confirmation bias, a cousin of overconfidence, in which pre-existing beliefs and prejudices inform your choices.
In this case, you might have won the reverse fixture of a match and so incorrectly presume you are going to win because this is what happened last time. But, as is so often the case, the reality on the day is something different.
The risk of overconfidence or falling victim to confirmation bias becomes all the more prevalent as time goes on in a match and fatigue sets in.
As your mind and body tire from the immense effort of being at your highest level for 75 minutes, you might find your physical reactions and mental decision-making are slightly less sharp in the final five. This effect is sometimes referred to as “choice overload”.
All of the above can affect you when making decisions about your money. For example:
- You place an investment because you know that it worked for someone else (confirmation bias)
- It loses value but you decide not to act as you are certain it will come through, perhaps increasing your investment (overconfidence)
- You start to feel mentally exhausted, and your decision-making suffers as you continue to make choices (choice overload).
In this case, it was not an in-built fear of losing that prevented you from making the most of your money, but rather misplaced overconfidence based on the wrong factors.
Making sensible, long-term decisions for your wealth
With all this in mind, it is clearly important to limit the effect that your personal thoughts and biases can have when dealing with your money. Otherwise, you put yourself in danger of not making the most sensible, long-term decisions for your wealth.
Perhaps the most useful way to do this is to work with a financial expert, such as with us at DBL.
We can act as a sounding board for your ideas, discussing your options in detail and offering an impartial voice that can help you to make decisions separately from your own preconceptions.
Crucially, we can show you how your decisions now can affect your situation in the future. Armed with this information, you might feel more comfortable taking on risk regardless of the potential for loss.
On the other end of the spectrum, we can help temper the voices of overconfidence and confirmation bias, ensuring that the choices you make are balanced and in line with your wider needs.
And, by sharing the workload, you may find that you are less affected by choice overload, too.
Work with us
At DBL Asset Management, we will help you create a plan for your finances so that every decision you make for your wealth suits your strategy and overall goals.
Email email@example.com or call 01625 529 499 to speak to an experienced adviser.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.