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Your Money- I Dare You To Surprise Me!

October 23, 2013

When it comes to personal finance, there is very little you can say or do that will surprise me.

surprise

As a finance professional who cares deeply about improving people’s money skills, I’ve seen it all.  High income families on the brink of financial disaster.   Low income families that manage their finances exceptionally well.  How can this be?

Enter the world of behavioural finance; a term that many of you have not heard of but need to understand.  In a nutshell, behavioural finance refers to the influences of emotion and psychology on our financial decisions.  These influences cause people to behave in unpredictable or irrational ways around money.  I am fascinated by this field of learning because it so perfectly explains why people do what they do even when it doesn’t make sense!

Personal finance is 80% behaviour and 20% head knowledge … Dave Ramsay

Most people know that they should save at least 10% of their annual income for retirement.  But they don’t do it.  The reasons are endless; some make perfect sense and some don’t.  Strategies that work for some people will not work for all.

George is a 42 year old energetic, gregarious sales person who loves his job and earns an above average salary.   His retirement savings are almost non-existent and he’s not sure why he can’t save more.  Telling George to meticulously track his monthly spending in a detailed spreadsheet is a recipe for disaster.  Kind of like asking a toddler to sit still for an hour.

A better idea for George is to find options that will work for him.  Our conversation continues and I learn more about George;  his frequent dining out, a gambling hobby and his love of expensive cigars.  We also talk about things that George doesn’t like to spend money on; his expensive condo fees and the high cost of his commute to work.  Talking through these things helps George realize what he wants to do differently.  He decides to reduce the frequency and type of dining out and gambling – I encourage him to begin tracking these costs to know if he’s making progress.  He also decides to investigate moving closer to work to save more on his housing and car costs.  Finally, but reluctantly, he agrees to set up an automatic 10% contribution to his RRSP on pay day- “forced savings” to keep him on track.  I leave our meeting with a great sense of satisfaction that George will do better!

Gone are the days when my job is done after telling you to save more, reduce debt or spend less.  I’m happy about that.  Of course, I will tell you those things but alone, they are not enough.  Its often more important to help you figure out how to do it. And,  the strategies that can help you be successful.  A tall order but I’m up for the challenge!  So in my future blog posts, I will remind you about both the what and the how of personal finance success.

Give some thought to the things you do well with your money and where you can improve.  Challenge yourself to identify solutions that will help you succeed even if they’re not perfect.  Any solution that motivates you to save more for retirement is better than nothing!  I wish you luck!

P.S.-  Predictably Irrational, by Dan Ariely, is a fun and interesting read for anyone who wants to better understand human behaviour and decision-making.

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2 Comments
  1. I really enjoyed your story on working with your client towards better financial health. Going into something like CFP or PFP is something I am mulling over so it is interesting to hear stories from the trenches!

    Also, I would recommend Daniel Kahneman “Thinking, Fast and Slow”.

  2. Glad you liked it. Thanks for the book recommendation- I’ve heard its great!

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