Sheryl Sutherland points out that being unprepared to achieve your financial goals will very likely mean that Murphy's Law will apply

By Sheryl Sutherland*

“If there are two or more ways to do something and one of those ways can result in a catastrophe, then someone will do it.”
~ Edward A. Murphy, Jr.

Some of the brightest minds in the world are devoted to making profits, yet newcomers to the financial scene naively believe that with minimal knowledge and experience they too can make a quick killing.

Many of us are unrealistic and have been brainwashed into thinking that investing is easy and does not require much thought or attention. We hear through the media that others have made quick and easy gains and conclude incorrectly that we can participate in these with little preparation and forethought. Nothing could be further from the truth. There is no rapid road to easy riches.

People make investment decisions involving thousands of dollars on a whim or from a comment from a friend or associate. Yet, when buying an item for the home where less money is at stake the same people may reach a decision only after great deliberation and consideration.

If you react to news the same way as everyone else you are destined to fall into the same traps, but if you can rise above the crowd, suppressing your own emotional instincts by following a carefully laid out plan, you are more likely to succeed. Your results, however, will depend on the degree of commitment you bring to the implementation of that plan.

All markets reflect the attitudes and expectations of its participants in response to the financial and economic environment. People tend to be universally greedy when they think prices will rise, whether they are buying gold, currency, shares or property. Conversely, their mood can easily swing to fear or panic if they are sufficiently persuaded that prices will decline. Human nature is the same in all markets the world over.

A final piece of advice: remember Murphy’s Law. This is the belief that if something is going to go wrong then it will go wrong, and at the worst possible time. It refers to trials such as a traffic jam when you are running late; food spilt on your clothing before an important meeting; or the power going off when you are in the middle of cooking dinner. In fact, a panel of experts – a psychologist, an economist and a mathematician – developed the Murphy’s Law formula for British Gas. The formula is ((U+C+I) x (10-S))/20 x A x 1/(1-sin(F/10)).

The psychologist, Dr David Lewis, claims that to pre-empt Murphy’s Law you need to change one of the elements in the equation. The five factors that need to be assessed are: Urgency (U), Complexity (C), Importance (I), Skill (S), Frequency (F). Each is to be given a score between one and nine. The sixth factor, Aggravation (A), was set at seven by the experts.

Consider these factors in relation to your financial life – each of them has a part to play when you are making financial decisions. The researchers concluded by suggesting that, if you don’t have the necessary level of skill to perform a task, leave it alone; if the task is urgent or complicated, find a simple solution; and if something upends your plans make certain you can cope with it. So, dear reader, create a financial plan, with an exit strategy, and be aware of your financial mindset.

*Sheryl Sutherland is director of The Financial Strategies Group, and author of Girls Just Want to Have Fund$ – Every Women’s Guide to Financial Independence, Money, Money, Money Ain’t it Funny – How to Wire your Brain for Wealth, and co-author of Smart Money – How to structure your New Zealand business or investments and pay less tax. You can contact her here.