Whether we know it or not, each of us carries a story about money in our mind. This story is shaped by what we saw while growing up, the advice we received from family, and our personal wins and losses. Some people see money as safety, while others see it as freedom. These personal finance stories guide many of our daily choices, from small purchases to long-term investing. The way we think about money reflects our money mindset, which greatly influences how we spend, save, and invest.
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How narratives shape risk-taking, spending, and investing
Stories are powerful because they help us make sense of complex things. Money decisions are both uncertain and emotional, so our minds tend to rely on familiar stories for comfort.
- Risk-taking: If someone has grown up hearing that stock markets are dangerous, they may avoid them completely. On the other hand, someone who saw a relative make quick gains may take on more risk than they can handle, believing that they too will make profits, despite knowing that markets are inherently unpredictable and returns are not guaranteed.
- Spending: Narratives about status or sacrifice can shape how we spend. Some people feel money must always be saved, while others feel it should be enjoyed.
- Investing: Personal finance stories about stable assets, like gold or property, can keep people locked into limited choices, even when more suitable options might be accessible.
These stories can sometimes keep us from seeing the full picture, limiting our potential to grow.
Also Read: Value of Discipline: Behavioural Finance and Mutual Fund Investing
Examples of how past experiences affect investing
A few common examples of how narratives work in daily life:
- Family financial history: If your family struggled with debt, you may avoid borrowing at all costs. If your family saw business as the only path to potential wealth, you may feel uneasy in salaried jobs.
- Cultural attitudes to debt: In some families, debt is seen as shameful. In others, it is seen as a valuable tool for potential growth. Both beliefs can strongly affect decisions like taking a home loan or starting a business.
- Past wins or losses: If you once lost money in shares, you may feel nervous about trying again. If you made a profit by chance, you may expect it to happen every time.
These patterns show how past experiences affect investing. They remind us that financial decisions are rarely based only on numbers. They’re linked just as much to emotions and memories.
The danger of clinging to outdated stories
Problems arise when old stories no longer match today’s reality.
- Believing that gold is always a suitable choice may result in missed opportunities in other investments.
- Thinking that property never loses value may prevent us from seeing the risks of loans or market slowdowns.
- Avoiding all debt because of past family struggles may stop us from using loans responsibly to build assets.
When we cling to these outdated stories, we may feel safe in the short term, but limit our potential growth in the long run.
How to change your money mindset for more balanced decisions
- Notice your personal finance stories: Ask yourself, what phrases about money did I hear while growing up? Do I still believe them?
- Test the story against facts: If you believe all investing is risky, check data on long-term returns of different assets.
- Start small: If you want to try a new way of investing, begin with small amounts so that the risk feels manageable.
- Seek diverse views: Talk to people with different experiences. Read about various approaches to investing. This may help loosen the grip of a single narrative.
- Be willing to adjust: Your money mindset should grow as your life changes. What worked in your twenties may not suit you later in life.
This doesn’t mean that you should rush into decisions. It simply means allowing space to learn and change. You can gradually change your money mindset to support rather than limit your goals.
Also Read: How Fear and Greed Impact Risk Management in Investing
Conclusion
We all live with stories about money. These stories come from family, culture, and personal experience. They guide how we spend, save, and invest. While they can provide comfort, they can also hold us back if they are too rigid. By becoming aware of our personal finance stories and gradually questioning them, we can make more informed choices. Financial decisions will always involve uncertainty, but with a flexible money mindset, we can make them with reasonable confidence and clarity.
At Bajaj Finserv AMC, we recognise that emotions are the cornerstone of investor behaviour – not just for investors but for investment professionals too. That’s why, behavioural finance is at the heart of our investment philosophy, InQuBe , which combines the Information Edge, Quantitative Edge and Behavioural Edge. By understanding, tracking and monitoring market sentiments and our own investment biases, we seek to make mindful and strategic investment decisions. Get the Behavioural edge by investing with Bajaj Finserv AMC. Read more about InQuBe here.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
This document should not be treated as endorsement of the views/opinions or as investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.
The content herein has been prepared on the basis of publicly available information believed to be reliable. However, Bajaj Finserv Asset Management Ltd. does not guarantee the accuracy of such information, assure its completeness or warrant such information will not be changed.The tax information (if any) in this article is based on current laws and is subject to change. Please consult a tax professional or refer to the latest regulations for up-to-date information.
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