The money skills that self-help books won’t teach you

When it comes to money, there are hard and soft skills. Hard skills involve technical know-how, such as when to start investing, what to look for in a good super fund, what insurance policies are needed, how taxes work and whether to buy property or shares.

Questions on soft skills sound more like: How do I overcome my fear of investing? Why do I feel unfulfilled or anxious despite my financial success? How do I stop overspending, sabotaging my success, procrastinating on my finances?

If you want to grow wealth without ever losing money, you’re in for a tough ride.Credit: Simon Letch

Such questions have everything to do with money, and yet nothing to do with the technical know-how of finance as a subject.

Most of the finance industry focuses on the first part. However, having spent years helping people create more financial success, confidence and fulfillment, I’ve noticed that hard financial skills only take you so far. The financial ceiling people hit is usually due to lack of soft ones.

These two financial soft skills affect your ability to create and maintain financial success:

1. Your capacity to tolerate financial loss

If you want to grow wealth without ever losing money, you’re in for a tough ride. In fact, your fear of losing money is most likely costing you more money than it’s saving you.

You might find yourself stuck in analysis paralysis, overthinking and over-researching every decision to avoid making any mistakes. You might feel intense shame and regret over past mistakes or losses and you are scared to try again. You might be riddled with self-doubt, second-guessing every move, needing external validation.

The truth is that building wealth, as with any aspect of life, is never a fully linear process. You can’t have a perfect winning streak – yet that’s what so many of us seek when it comes to money.

The bigger your wealth aspirations, the bigger your capacity to tolerate possible losses must be. If you can’t handle the small losses, how will you handle the bigger ones? If you panic when you see your investments have dropped by thousands, how will you handle them dropping by tens of thousands (which will happen in your lifetime)?

The best in the game do try to mitigate risk, but aren’t spending all their energy trying to avoid losing money. In fact, they may not even see it as a loss – they see it as a learning.

2. Your ability to spend money well

I’ve helped countless people save money without telling them to not spend on something. How? By improving how they spend, instead of only focusing on not spending.

If you’re focused only on spending less or not spending, you’ll never learn how to spend money well. They are two almost contradictory strategies. One focuses on the avoidance of an action, the other focuses on improving the quality of the action you take.

What you may not realise initially is that as you increase your wealth, you end up spending money just to maintain your money. You might be in a position where it would be valuable to buy insurance, work with an accountant or other financial professionals, or set up trusts or companies (which cost money to open and maintain). These also involve fees – brokerage fees, fund management fees, financial advice fees, taxes.

Hard financial skills are necessary, but also just a starting point.

However, if you’ve never developed the skill of spending money well, you’ll only know how to go for the cheapest option, or avoid spending altogether. All your decisions will be driven by cost instead of value.

You’ll avoid spending a few hundred dollars on financial advice that could make you tens of thousands of dollars. You’ll avoid getting a professional to help you with your financial management that could save you hours a week (and perhaps also your mental health).

Spending money is like building a muscle. If you train that muscle to not spend, you will develop an aversion to spending. If you train that muscle to spend well, you will improve the quality of your decision-making so you can get better value from spending.

Hard financial skills are an entry-level requirement to creating financial success long-term. They’re necessary, but also just a starting point. The soft skills are what enhance your ability to use the hard skills more effectively. In a sense, knowing what to do is different from doing it well.

Paridhi Jain is the founder of SkilledSmart, which helps adults learn to manage, save and invest money through financial education courses and classes.

• Advice given in this article is general in nature and not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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