Who manages finances better: Optimists or pessimists?

While the optimist always sees the glass half full and the pessimist the glass half empty, taking the middle ground might just be the best thing you can do for yourself.

Your disposition in life is among the things that affect your financial management and decisions.

That’s why there’s no “one-size-fits-all” when it comes to financial advice – you first have to understand the way a person thinks and perceives things in order to come up with realistic advice that the person can follow.

When it comes to mindsets, among the most common are the optimists and the pessimists.

Optimists tend to see the upside in things, while the pessimist tends to be cynical and foresee the possibilities, especially those that could go wrong. So which of the two is better?

When it comes to financial matters, however, there is a more concrete answer: neither. This is because optimism and pessimism have their flaws, especially when taken to extremes.

After all, too much of something is harmful – the optimist tends to overestimate and get out of touch with reality, and the pessimist tends to get too cynical to the point of missing out on rare opportunities.

The trick, therefore, is to find the middle ground.

1. Budgeting

The optimist: According to the optimist, budgeting can help you save more and manage your finances more efficiently.

As long as they budget, things will go smoothly, and problems can easily be avoided. They are, therefore, motivated to regularly budget.

The downside, however, is that optimists don’t always see beyond their plans, and therefore don’t see possible problems and don’t prepare for it.

The pessimist: The pessimist would probably dismiss the idea that budgeting works, most likely never having successful experience in budgeting in the past.

The pessimist however is better aware of problematic areas and worst-case scenarios and therefore, more likely to be prepared to face it.

The middle ground: If you don’t believe in budgeting, the first step is to convince yourself to try it just once.

Try to be as organised as possible to make referencing easy, and it is preferable to use a handy notebook, planner or phone.

Now, after you have done your budget, it is time to take a lesson from the pessimist.

Do not give in to your optimistic biases, especially when it comes to your expectations on following the budget. It is better to assume that it will be challenging, to foresee the specific struggles you may encounter, and think of ways to solve them ahead of time.

It’s good to be cautious but not to the point that you refuse to take calculated risks.

2. On making it on their own

The optimist: The optimist when thinking about starting their own business always says, “Go for it”; “What could go wrong?”

Their ability to sacrifice stability and face risk in exchange for the possibility of bigger earnings is admirable. The problem is, many things can go wrong especially for newbies in the business world.

The pessimist: Naturally, the pessimist will be wary of taking such a big, uncertain leap. They, of all people, know that it will not be easy.

The middle ground: Being your own boss is tough, especially when you’re just starting. You may very likely do double the work, and still earn less than your previous job.

At first, there will be losses as the pessimist foresaw. Like the optimist, however, you have to keep your vision in mind.

Instead of giving in to either optimistic or pessimistic biases, learn to be objective. Look at the facts, and know when it is worth pushing through or when the time has come for it to stop.

The same applies to those working for you. It helps to keep a positive aura in the office like the optimist, but you also have to know when to replace those who are simply not productive or a good fit like the pessimist.

3. On making investments

The optimist: Someone who is too much of an optimist would easily say “yes” when it comes to investing. They are less afraid of taking risks because they do not think too much about things that might go wrong. Because of their positive mindset, however, they have probably made financial losses.

The pessimist: All economies and markets, no matter how big they are, can come crashing down at any moment.

While not necessarily false, the pessimist tends to exaggerate the instability of the market and underestimate the value of the investment.

The middle ground: If you want your money to grow, you must invest. The secret is to take the optimist’s courage to take the risks but the pessimist’s ability to see what might go wrong in the future.

Being good at the latter can help you find the kind of investment perfect for you and which might boom in the future.

Pessimists will find that being careful in making decisions is a helpful and valuable trait when it comes to investing, and it is something that optimists should also learn from.

This article first appeared in The New Savvy.

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