The Behavior Gap


ImageSimple Ways to Stop Doing Dumb Things with Money By Carl Richards (2012)

This is one of those really interesting books that I read that can revive my interest in reading. The author has a humorous and direct way of writing, that it feels most genuine that he is giving his advice and sharing his experience.

1. We don’t beat the market, the market beat us.
You need to have a real plan, like deciding where you want to be, and how you are going to behave to get there. Find investments to populate your plan.  Admit there is a problem. Face the fact that cash is not a solution to crisis. Develop a checklist of questions to ask before you make major financial decisions. Take your time and incorporate new information slowly. Focus on your behaviour and not the market.


2. The Perfect Investment
There is no such thing as best investment. The best investment depends on personal factors – such as your goals, your personality, your existing holding, your credit card balance.


3. Ignore advice, make fun of forecasts
Goals of educational institutions and a person’s goals as a human being are almost certainly very different. Institutions get very different deals on their investments. Fees on alternative investments and hedging strategies put them out of reach of people like you and me.


4. It is not financial planning. It is life planning.


Why we want financial security is because we want to be happy, and to provide a good life for our loved ones.  Happiness is more about expectations and desire than it is about income. Financial decisions are almost like life decisions. Before you decide on your financial goals, you need to choose your life goals. When you link financial decisions to life decisions, you encounter a whole different set of challenges. Each person’s financial situation becomes unique because their goals are unique.


5. Too much information
 Spend less time watching and worrying about money. – less time giving in to our anxiety, our need to control things. Gathering information – being in the know- is not the same as being mindful, being aware, being present for what’s actually going on behind the news.


6. Plans are worthless
Limit your attention to things that matter to you and things that you can influence them.


7. Feelings

Investing, like life itself, forces us to make decisions in the midst of uncertainty We will never be right all the time. How can you tell whether to act or not? Try asking the two questions :

1. If I act on this new information and it turns out to be right, what impact will it have on my life?

2. If I act on this new information and it turns out to be wrong, what impact will it have on my life?

Just forcing yourself to consider the potential outcomes of being wrong will result in making much better investment decisions.


8. You’re responsible for your behaviour (but you can’t control the results)

Make sure you consider the bigger picture – the context of your behaviour. A single action may have broader financial consequences that aren’t immediately obvious. For example, you decide to start your own business. Your daughter workers there in the summer and ends up running it. This could be good or bad – but it probably wasn’t part of the plan.


9. When we talk about money

Sometimes generation gaps or upbringing can cause different perspective. My friend and his wife always believed it was important for them to teach their kids that there are limits to what their family could buy. Like many of us, my friends made their case by falling back on the statement , “We can’t afford that” each time their kids asked for something. After a few months of this, my friend’s 14 year old son asked him a question : “Dad, on a scale of 1-10, with one being homeless and ten being Bill Gates, how much money do we have?” As they discussed their situation, it was clear that their son was asking not because he wanted to buy more things, but because he was actually worried whether the family was okay. My friend assured the boy that he didn’t have anything to worry, but explained that they didn’t have unlimited money. They should spend their money on things that really mattered, and avoid buying things that weren’t really important to them. Okay. Make sense.

Kids often know more than we think they do. They sense anxiety even if they don’t make the immediate connection to money. We can’t afford that is not the same as “We ‘d rather use our money for something more important.


10. Simple. Not easy.

Slow and steady capital is short term boring. But it’s long term exciting.


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