It is not the wealth that you amass that makes you rich. Rather, it's a question of what is in your mind, says Sanjay Matai.

Money means different things to different people. The human psychology — specifically, the perceptions and attitudes that people have about money — play a very important role in their financial well-being or misery. Finance may be a fairly precise subject mathematically, but human behaviour in many financial situations is usually seen to be anything but rational. Little wonder that behavioural science is increasingly being used in modern-day economics.

Misers will hoard their money. Even though they are rich, they will live very poorly — wear old clothes, live in a cramped house, make do with old furniture, buy no household gadgets and take no vacations. At the other end of the spectrum are the extravagant ones who live beyond their means — not only do they spend everything they earn, but even consume their future income by using credit cards and taking personal loans.

People who have inherited — or earned — enormous wealth, can become penniless. Yet there are others, who can build a fortune from nothing, through sheer financial discipline. One doesn't have to be a financial expert to lead a life free of financial struggle. Rather, the point is to become rational and judicious in one's behaviour — to analyse the various myths and misconceptions that we carry in our minds and correct them — to overcome illogical behaviour and become more money-confident.

Optimistic money behaviour
We are all brought up to believe that money is bad. Too much money, we are told, leads to indulgence, extravagance and tension. The rich, goes the common myth, are deeply unhappy and cannot sleep well at night.

It isn't true, but that is the popular mythology of money. The problem is compounded by the fact that we don't learn much about managing money in our schools and colleges. Is it any wonder that, quite often, we develop negative attitudes towards money? With such a negative attitude, one cannot expect to attract money and become rich. As a first step, therefore, we should remove all the guilt feelings attached to money.

Making money fairly is no sin. By itself, money is neutral — it is people who make it black or white. Not having money doesn't make us saints, and honest hard work can make a person wealthy. Wrong means don't automatically come into this equation.

Overcome the fear of losing
The problem is, losing money brings us much more misery than earning money gives us joy. This irrational fear of loss scares us, and we opt for low risk investment options. Low risk means low returns. It does not create wealth. We may continue earning a risk-free income, but also lead a life of unfulfilled desires forever trying to balance the budget.

If it is gains one is looking for, then losses are a reality that must be accepted as a fact of life. No one likes losing money, but it's not as if the rich never lose. But it still does not deter them from investing. The difference is that they do not avoid risk, but try and manage it.

Knowledge can help us overcome the fear of losing. Once we have a basic understanding of the risk-rewards associated with various investment options, we can take calculated risks that match our risk profile.

Ignorance isn't bliss
Many of us have a mental block to numbers and finance. They all seem Greek and Latin. We take a lot of precautions when it comes to protecting our house — special locks, safety devices, watchmen, etc, but don't take similar precautions when it comes to managing our money. We sign forms, issue cheques and hand over hard-earned money to a broker, friend or relative, without even understanding the basics of investment. This is nothing but blind trust; it's like leaving the front door wide open because the people "known" to us can't be crooks! In money matters, ignorance is definitely not bliss.

The risk of fraud is one thing. More important, however, is the likely mismatch between your investment needs and the objectives of the instrument (insurance, ULIP, mutual fund or savings scheme) that you entrust your money to. Only you know your exact financial needs. It is this perspective that must guide your decision about whether a particular scheme suits your profile or not. Consult a financial expert by all means, but you must make the final decision, after a suitable assessment.

Some education and understanding of money matters and investments is a must. The investment world is huge, and some parts of it can be fairly complex, but it is not so difficult that one needs to remain completely ignorant.

Herd mentality
Should you buy the latest model of car, just because you know someone who has one? Should you invest in equity, just because everyone else is 'making a killing' on the stock market? Is money the only symbol of success? We stand to face a lot of financial misery when we try and emulate others. We only create grief and jealousy for ourselves if we live our lives based on others' standards.

Each one of us is unique. Therefore, we need a unique definition of happiness; one that applies only to us. So often, it is only after we buy what others have, that we realise that it was not really worth having after all. If we equate our self-worth with our bank balance, if we flaunt our wealth to make others envious, if we are easily influenced by others' opinions, we are only reflecting a poor mindset.

Get-rich-quick syndrome
The main reason for people losing money is the 'get-rich-quick' syndrome. If investment were to follow a gambling mentality doubling one's money in a single throw — the result would invariably be disaster. Gambling never made anyone rich, except the casino. Even those who hit the occasional jackpot invariably seem to lose it in double quick time.

We have to be realistic about our expectations.

There are very few who have lost money by being patient. When we plant a seed, we give it time to grow. And when it grows, it gives lots of fruits. The important thing is, the seed has to be of good quality and the tree must be well tended.

The same principle holds true for investments. If we invest in good quality schemes and give them time to grow, we can reap good and consistent returns in due course. Our heads must rule our investment decisions, not our hearts.

We must be patient. Life is not a 20/20 cricket match; it's not even a one-day match. It is like the test match of bygone days, when there was no restriction on the number of days, and matches were played till there was a result. Starting early helps — we benefit from the power of compounding and are not forced to take any undue risks.

Greed and need
Greed is bad. Mindless acquisition of materialistic wealth does not translate into happiness, for there is no end to wanting some more.

This doesn't imply, however, that living in want is good. There is no virtue in poverty, either, if you can help it. It is good to have desires. But money is not the panacea for everything. It can buy us food, clothing, shelter, and all the little luxuries that make life easier, but it cannot buy us enjoyment. That comes from the mind.

To get our priorities right, we have to make a clear distinction between our 'needs' and our 'wants'. Money is important, very much so, but more important is having good and genuine desires — it will make their fulfilment purposeful and satisfying. That will give proper joy and meaning to our money

Any journey becomes smoother, quicker, safer and more successful, if we are prepared for it. The first step to becoming financially successful is to prepare one's mind. When we overcome our insecurities and set right the irrational behaviours that limit financial success, we start understanding our own psychological profiles much better. We feel confident of achieving prosperity and start acting rationally and positively. We are able to set clear financial goals and draw the roadmap to achieving them.