The 10 Simple Truths About Money

Book Review: The Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money

The Behavior Gap

The Behavior GapAs a financial advisor, I published my free ebook, The 10 Simple Truths About Money, because I strongly believe that it’s true that, “Learning financial concepts and managing money can be intimidating, but it doesn’t have to be. There are simple truths about money that can change your life.” I wanted to help alleviate some of the stress people feel around money.

After reading Carl Richards simple but powerful book, The Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money, I realized that a better title for my ebook would have been, The 10 Simple (But Not Easy) Truths About Money. As Richards says, “We often resist simple solutions because it requires us to change our behavior.” Thus, the behavior gap.

Richards displays a true understanding of human nature with his words, but also with his disarmingly simple sketches that portray powerful truths about people’s behavior around money. You will recognize yourself in many of them. With amazing insight into how our brains work, he uses real-life stories and humor to show how we are our own worst enemies when it comes to money management. He also offers up great advice on how to make better money decisions.

Some of my favorite “behavior gap” insights include:

  • Investments don’t make mistakes. Investors do.
  • Figure out which emotion is the bigger issue for you—fear or greed—and invest accordingly. You can’t have it both ways.
  • Planning for your financial future is a balancing act rather than a single-minded pursuit of the highest return.
  • There is no such thing as the best investment.
  • Planning for your financial future is personal. A good plan will be unique to your situation.
  • No one knows what the future holds.
  • Our real task is getting to know ourselves and our goals, making choices aligned with those goals, and adapting to the surprises that are bound to come along.
  • Financial decisions are almost always life decisions. Before you decide on your financial goals, you need to choose your life goals.
  • Focus on your personal economy and stop worrying about the global one.
  • Our deepest instincts will tell us that money doesn’t mean anything, it’s simply a tool to each our goals.

Two thoughts kept running through my head as I read Carl’s book: “I wish I had written this” and “All of my clients need to read this.” Even if you don’t have time to read the book, flip through and take in all the sketches. They tell the story of our behavior gap just as well and may just motivate you to stop doing dumb things with your money!

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Simple Truth #1: Procrastination is the Cause of Financial Fuzziness

In the course of my financial planning practice, I meet many people who share similar attitudes, fears or misconceptions about money management. It turns out that most people make money way more difficult and scary than it needs to be.

In response to all this, I came up with 10 Simple Truths About Money in order to point out and identify some critical financial concepts that are easy to understand and implement. My next 10 blog posts are meant to inspire you to incorporate these truths into your actions around money.

Ready? Let’s go!

Simple Truth #1: Procrastination is the Cause of Financial Fuzziness

Simple Truth #1: Procrastination is the Cause of Financial Fuzziness

Does any of this sound like you?

  • There’s 10 months of accumulated mail  – all unopened – that contain your investment account statements and they are all dumped into a drawer you never open.
  • You have $30,000 sitting in a savings account at the bank earning 0.15 interest.
  • You refuse to automate your monthly bill paying on-line, even though you often forget to pay your bills and end up with late fees.
  • You sold all your stock mutual funds in March because you couldn’t stand to watch them go down anymore and now they are sitting in a money market account earning 0.35% interest.
  • You know you need to do something, but you don’t.  This is called procrastination.  And, it doesn’t feel good. It generates feelings of confusion, guilt and worry – fuzziness!

If it makes you feel any better, you’re not alone.

However, that doesn’t make it better or okay. This type of procrastination can have serious consequences for your finances:  the spending power of your dollars gets eroded by inflation, your credit score gets downgraded, and you have constant fights with your honey about money. Not good, and even more to the point, not necessary.

Being up to date and clear about your finances can relieve so much stress, and really, it’s just a matter of making it a priority.  This is a great time of year to get started. 2009 is almost over, and January 1 is right around the corner.  If you want to call it a New Year’s resolution, go ahead.  If that doesn’t do it for you, get started anyway!

Here are some tips to get started:

Most time management experts will tell you that the best way to tackle a big hairy project is  to do a little each day, or divide the big project up into smaller ones.

So for a great first example, let’s take that pile of mail.

First day:  Take all the statements out of the envelopes and arrange them in date order, the oldest date on top. See! You’re already making progress!

Second day:  Starting with the oldest statements, glance at the first page which summarizes what’s inside.  Pay careful attention to any deposits or withdrawals – if anything looks strange – investigate.  If not, move on to the next statement. Keep going until you have reached the latest statement and set aside.

Third day:  Spend some time on the latest statement, as it should summarize what went on in your account year-to-date: total withdrawals and deposits, investment gains or losses, total interest or dividend interest earned.

By now, you should have a pretty good idea of the activity in your investment account over the time period that the statements covered.

Fourth Day:  Determine whether you need to make any changes to your investments (or find a financial advisor that can help you with this step). For example, if one of your mutual funds is down 50% year-to-date…go to Yahoo Finance and type the symbol in the search box….read up on this dog-of-a-fund and see if there is a good reason to hold on to it, or chuck it at the soonest opportunity!

From now on, when you receive your monthly investment statement in the mail, open it immediately, glance at the aforementioned items and file it (in date order) with the others.

I suggest keeping a year’s worth of monthly statements, but hold on to your December statements for 3 years.

I can feel that fuzziness clearing up already, can’t you?

Do you want to manage your money (and life!) better?

The Happiness SpreadsheetIf you want to think differently about the relationship between your spending, your values and your happiness, then sign up to get your FREE copy of The Happiness Spreadsheet.

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