Your entire financial life comes down to fear and greed

Every single financial decision you make is driven by either fear or greed.

As much as I don't want to give you the dictionary definition of both fear and greed out of fear of lameness, I'm going to anyway.

Fear is a distressing emotion induced by a perceived threat.

Greed is an excessive desire to possess wealth or goods with the intention to keep it for one's self.

Now, I didn't say that all of your decisions are based on the extreme cases of fear and greed. I think you would agree that fear and greed both have pretty strong connotations. In fact, "excessive" is in the definition of greed. Therefore it is the more subtle incarnations of fear and greed that drive every single financial decision. Decide to buy a new car when there truly isn't anything wrong with your car? That is greed. Purchase life insurance? That is fear. Invest in the stock market instead of investing in a savings account? That is greed. Invest money in a savings account instead of investing in the stock market? That is fear. Go out to eat instead of dining in? That is greed.

Yes, I realize this seems trivial at best, and a bad cocktail party conversation at its worst. But the role of fear and greed matter a great deal. It is these two concepts that are used to sell you EVERYTHING by marketers. Every single message that you receive via various media plays on your feelings of fear or greed. And what is even more disconcerting is that the entire financial services industry has been created around these two concepts. Greed and fear.

There are two primary branches of the financial industry: banking (investing) and insurance (protection). Banking (investing) is primarily based on greed. Again, I'm not saying that this portion of the financial services industry is bad. I'm simply saying that, based on the definition of greed (an excessive desire to possess wealth or goods with the intention to keep it for one's self), that banking falls into this category. On the flipside, insurance (protection) is based on fear, fear of loss.Therefore you pay to alleviate your fear.

Why does this matter? Two reasons.

1. When you are talking to a "financial advisor", be aware that they use fear and greed. You need to counterbalance this with common sense. Most financial planning mistakes come from an altered perspective of fear or greed.

1. I want you to think about how many of your purchases are unnecessary based on excessive fear or greed. I am confident that you can find waste in your budget by identifying your propensity to react when you create excessive fear or greed for yourself.

There is, of course, one exception to the rule: charity. You don't act charitably driven by greed or fear.