Most people don’t realize it until it’s too late and a financial emergency hits, or markets crash, and suddenly every “safe” investment looks fragile. What failed wasn’t always the plan but the mindset behind the plan.
At FundMazer, we explore financial mental models, frameworks that help you make better decisions under uncertainty for finance. If you are new to finance topics and would like to start with a simpler topic, try out: Basics of Personal Finance (ABC)
Just as mental models shape clearer thinking in business and life, these models aim to shape clarity in terms of money, like how you save, invest, and react when things don’t go as planned.
Our goal is to break down why people struggle with good financial habits and how small shifts in reasoning can lead to more resilient outcomes. Think of it as building your decision architecture for finance but one model at a time.
We start with our impressive collection of four financial mental models:
- 🛡️The Margin of Safety: Your Hidden Shield in Investing and Life
Safety comes before everything, in life and in finance. When we aren’t in a safe zone, our survival instincts take over, clouding our ability to think clearly and make sound decisions. A sense of safety calms the mind and creates the space needed for rational judgment.
In finance, this same principle applies. A margin of safety acts as your psychological and financial buffer, which keeps you stable when markets turn volatile or uncertainty strikes. It’s not about avoiding risk entirely, but about building enough resilience to think clearly when it matters most. This model explores the what and how of the Margin of Safety and how to create it, preserve it, and use it as a foundation for better financial choices. - 💫 The 8th Wonder of the World: The Magic (and Trap) of Compounding
Power of compounding drives finance, including the loan you take, the dividends you reinvest, the bonds you purchase, or even the balance in your savings account. Compounding can work for you or against you, depending on how you align your choices. Understanding it isn’t optional — it’s the difference between accelerating wealth and unknowingly eroding it. - ⏳Understanding The Hidden Cost of Opportunity
Newton famously said, “Every action has an equal and opposite reaction” – in science.
In finance theory, every decision carries an opposite opportunity cost, though not always equal.
Whether it’s investing, spending, saving, or even resting, everything has a trade-off. Going to work means not resting. Saving more means consuming less. Ask a simple question: “What am I giving up by choosing this?” Eliminating opportunity cost is impossible, but recognizing and measuring it consciously makes us far more informed.
Every choice carries a price — know what you’re trading, for what, and why it’s better? - ⚙️ The Magnification of Leverage — Why It Cuts Both Ways.”
Anything can be financed in two ways: through your own money (equity) or by using someone else’s money (debt). Borrowing isn’t inherently bad, but it’s misunderstood. Leverage simply means we are using borrowed funds to control a larger asset base.
Leverage amplifies your outcome, good or bad. Understanding leverage helps you see why some loans are productive while others are destructive. It’s not the debt that’s dangerous but the mismatch between the cost of borrowing and where borrowed funds are deployed. - 💸 Taxes in Financial Decisions — The Hidden Cost Most People Miss
When we make money, the government makes money. When we lose money, the government still makes money. Taxation is omnipresent.
You might think earning 8% on a fixed deposit is good until you realize it’s taxed at your slab rate, and what you actually keep is closer to 6%–6.5%. Most people ignore that 2% tax drag on returns.
Understanding taxation isn’t about evasion; it’s about efficiency. There are legitimate ways to reduce this leakage through tax shields, tax deferrals, and exemptions, all designed within the system.
Taxes create a constant outflow from the very resources we depend on for compounding. Ensure that your money keeps compounding to the maximum, not for the government. - 🕳️ The Sunk Cost Trap — Why It’s So Hard to Exit a Bad Investment
Finance is all about making the right decisions continuously—but real decisions aren’t purely logical. They’re influenced by personal, educational, and psychological factors, and some of these actually work against us. One such factor is the sunk cost fallacy.
When we’ve already committed to something like that overpriced car we bought and can’t really afford anymore, we struggle to make the right call to sell it. Emotionally, it feels like we’re giving up or admitting a mistake. So instead, we hold on and overestimate the value of what we spent, instead of what makes sense going forward. - 🧠 The Cognitive Load of Owning Assets
You could win the lottery tomorrow and still end up broke five years later. This isn’t uncommon. Owning money or assets doesn’t only bring positives. There’s a psychological burden that comes with them. We tend to overlook the mental load required to manage, protect, and make decisions about what we own.
Take a married woman who’s received a large amount of gold from her parents. Instead of feeling secure, she might constantly worry whether her home is safe enough or whether someone could target her. The asset that should provide comfort instead becomes a source of anxiety. The point isn’t to avoid worrying—it’s understanding whether we can continue to operate rationally even when our mind is crowded with worry. Ultimately, the question is simple: do we own our assets, or do our assets start owning us?
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