Riding the Elephant

Mastering Decision-Making in Money and Life

Originally in ForbesThe most compelling findings regarding financial decision-making are found not in spreadsheets, but in science. A blend of psychology, biology and economics, much of the research on this topic has been around for years. Its application in mainstream personal finance, however, is barely evident. Perhaps a simple analogy will help you begin employing this wisdom in money and life: The Rider and the Elephant.

First, a little background.

Systems 1 and 2

Daniel Kahneman’s tour de force, Thinking, Fast and Slow, leveraged his decades of research with Amos Tversky into practical insight. Most notably, it introduced the broader world to “System 1” and “System 2,” two processors within our brains that send and receive information quite differently.

System 1 is “fast, intuitive, and emotional” while System 2 is “slower, more deliberative, and more logical.” The big punch line is that even though we’d prefer to make important financial decisions with the more rational System 2, System 1 is more often the proverbial decider.

Many other authors have built compelling insights on this scientific foundation. They offer alternative angles and analogies, but I believe the most comprehendible comes from Jonathan Haidt.

‘The One-Page Financial Plan’—Simple, But Not Simplistic

Originally in ForbesSimple is hot, even fashionable. But in many cases, it’s for all the wrong reasons. Simple is easier to pitch, explain and sell, and therefore also easier to receive, understand and buy. But when simple devolves into simplistic, becoming a one-dimensional end instead of a user-friendly means, it’s no longer an advantage and may actually be doing damage. Not everything can be turned into a tagline, a rule of thumb or a short cut.

Therefore, when my colleague and New York Times contributor Carl Richards first asked me a couple years ago to think about what a financial plan might look like if it was constrained to a single page, I was skeptical. After all, I’d dedicated my life and work to helping people, primarily in their dealings with money, wholly through the written and spoken word. The fullness of that education seemed impossible to responsibly confine to a single page. Then I read Carl’s new book, The One-Page Financial Plan

At 208 pages, it may be a tad shorter than most personal finance books, but it’s obviously longer than one page. There is, however, a single page in it that I believe will help you understand why the book was written and how it could benefit you. On page 11, toward the end of the book’s introduction, Richards shares with us his family’s first attempt at an actual one-page financial plan.

3 Ways To Write Your Own Story, Like Baseball’s Daniel Norris

Originally in ForbesYesterday, a bearded 21-year-old surfer who lives in a 1978 VW bus, and on a self-imposed annual allowance of $10,000, mowed down my beloved Orioles with a 96-mile-per-hour fastball.

Blue Jays pitcher Daniel Norris isn’t striving to make a statement with his apparently Spartan existence. He’s simply choosing to live life according to his priorities. He’s writing his own story.

According to ESPN, Norris’ values system is strengthened by generational ties and rooted in the topography of Johnson City in northeast Tennessee: “Play outdoors. Love the earth. Live simply. Use only what you need.”

The point of this article is not to compel you to adopt Daniel Norris’ values, but to convince you to live by your own. Here are three ways to do so: 

Putting Money In Its Place

Originally in ForbesWhat we believe about money will impact how we use it. Unfortunately, a central belief most of us hold about money is fundamentally flawed. We believe that money is either good or bad when, in reality, it is neither.

A belief that money is bad certainly is the minority mindset. But it may be a more dangerous conviction than its inverse, if only because it appears virtuous. After all, how could using less water, less square footage, less medication, less natural resources — less money — be a bad thing? Perhaps because there’s a deceptively short distance between being pro less-[fill-in-the-blank] and becoming anti-[fill-in-the-blank]. And if we’re anti-money, we may also become anti-people-who-have-money, including ourselves if such a circumstance arose.

A friend of mine has a huge heart for people with less — I mean, really less. So much so that he dedicated his life and work to serving them. He regularly goes to the world’s most deprived places, using his powerful combo of empathy, education and experience to rally the necessary aid. Once, when he received a sudden sum of money, I asked him if he was capable of committing financial suicide — by which I meant divesting himself of all the extra decimal places in his bank account — simply because it wouldn’t feel right for him to have such a possession as one so wholly dedicated to the world’s underserved communities. He acknowledged it was possible.

The far more common belief is that money is inherently good. Although this belief appears innocuous at first blush, it’s important to consider its logical conclusion. If money is good, then more money is better. If so, we might be inclined to accept a common lament as true: “If I only had more money, I’d have a better life.” Inevitably, money becomes personified, and thus becomes an unconquerable competitor pitted against the actual people in our lives. In this reality, our friends and family simply can’t compete with money. People let us down, while money only promises to make our hopes and dreams come true.

We need to put money in its place. Specifically:

Money is a neutral tool that can be used for good or ill.

That’s it.

When we believe that money is bad, we typically handle it poorly and strain our relationships. When we believe that it’s good, we tend to put money in competition with people and strain our relationships.

3 Questions That Will Get Your Finances — and Life — on Track

Originally in MoneyFew things seem more diametrically opposed than managing money and spiritual enlightenment. But not everyone sees it that way. Some very influential people in the financial advisory community have dedicated their lives to helping advisers assist clients deal with the more personal elements in personal finance.

Consider George Kinder, the Harvard-trained economist-turned-philosopher-turned-CPA. He managed to evolve his tax practice into a comprehensive financial advisory offering, with supporting methodology, while on the successful path to becoming a Buddhist teacher based in Cambridge, Mass. and Hana, Hawaii.

Within the advisory community, Kinder is almost universally known as the “father of life planning.” To many advisers, his work is the seminal, much-needed missing link between life and money. He originally articulated his views in his book, The Seven Stages of Money Maturity. Many more advisers, however, envision Kinder playing the ukulele on a magic carpet — just a little too “out there” for mainstream consumption and practical application. Having moved from the camp of skeptics to the camp of adherents myself, I invite you to consider what could become one of the most valued tools in a financial planning practice: George Kinder’s Three Questions.

The Dumbest (Most Important) Thing I’ve Ever Done

Originally in MoneyThe most important event in my life is one of which I was long ashamed.

I was an 18-year-old punk with a monumental chip on my shoulder. You know, the kind of kid certain of his indestructability, sure of his immunity from the dangers of self-destructive behavior.

At 2:00 a.m. on a random Wednesday morning in June 1994, after a long day and night of double-ended candle-burning, I set out for home in my Plymouth Horizon. At the time, my car was bedecked with stickers loudly displaying the names of late-60s rock bands. No shoes, no seatbelt, no problem.

Not even halfway home, I was awakened by the sound of rumble strips, just in time to fully experience my car leaving the road and careening over an embankment. After rolling down the hill, the vehicle settled on its wheels and I, surprisingly, landed in the driver’s seat. But all was not well.

Broken glass. My right leg was visibly fractured. I had hit the passenger seat so hard that it was dislodged from its mooring. Blood dripped on my white T-shirt.

Stressed-Out Gen X and the Search for a More ‘Livable’ Life

Originally published CNBC“We’re just overwhelmed with life.” That was my response to an attorney looking for insight into the obstacles facing Generation X.

I’d referred a number of 30- and 40-something financial-planning clients to this attorney. All were in need of estate-planning documents.

But he came to me concerned about the difficulty he was having in reconnecting with clients who’d begun the process but were struggling to find the time to complete it. The time to complete anything, really.

While folks of all generations struggle with being overwhelmed by the various responsibilities and obligations of life, I see the problem as endemic within the ranks of Gen X, my peers.

The Guide to Happy Giving

Originally in ForbesGiving Tuesday might officially be behind us, but let’s face it—we’re just getting started. The giving season is underway, with the holidays and year-end bearing down on us. So how can we transform one of the more stressful, and sometimes guilt-ridden, elements of the season into something more life-giving?

Whether you’re giving to a family member, a friend or a cause, please consider the following four directives as a guide to happy giving:

1)   Give out of impulsion, not compulsion. Compulsion to give can arise from the mountain of expectations, perceived or otherwise, heaped upon us at this time of year. (Those expectations are more often self-imposed, by the way.) Impulsion, on the other hand, comes from within. Give because you want to, not because you have to. And don’t give if you don’t want to. 

Business Travelers – Skip In-Flight Wi-Fi To Increase Productivity And Save Money

Originally in ForbesI travel a decent amount. I don’t mind flying, but I’ve always struggled with the loss of productivity. Hours waiting at the airport. Even more hours in flight. But with the advent of in-flight Wi-Fi, I thought my productivity problems were solved. I was wrong.

I’ve instead concluded that by nixing slow and unpredictable in-flight Wi-Fi altogether, we can save money and use flight time to more productive ends (like reading, writing and resting) better suited for that environment.

My initial plan was to use in-flight Wi-Fi to slay the email dragon. That way, I could land knowing that nothing had slipped through the cracks and that there were no surprises waiting. I might even allow non-urgent emails to pile up for a couple days if I knew I had an upcoming flight. Unfortunately, the strategy was a miserable failure.

A 4-Step Process to Integrating Money and Life

Originally in ForbesOnce you’ve abandoned the pursuit of balancing money and life in favor of integrating the two, the question still remains: Now what? How the heck do I better integrate money and life? Like most personal finance dilemmas, the answer is simple, but not easy.

It’s simple because it doesn’t require many steps. What’s more, it’s advice you’ve likely heard before, perhaps multiple times. But it’s challenging because you have to do some work—interior work. And then you have to make some difficult decisions.

Before I share the process, it’s imperative that we recognize a fundamental financial truth, often shrouded in a sea of marketing, misinformation and self-help rubbish that’s more sales than psychology.

RULE: Money is a means, not an end. Money is a tool—a neutral tool that is neither good nor evil. It may, however, be used in pursuit of either good or evil, and everything in between. Money can be well-utilized in the pursuit of goals, but it makes a very poor, lonely goal in and of itself.

Understanding—and believing and applying—this rule is the aim of the following systematic four-step approach to better integrating life and money: