Should You Really Be Buying That?

How To Decide If A Purchase Is Really Worth It

Originally in Forbes“It was totally worth it.” In this case, “it” referred to a Vitamix blender that a friend recently had purchased. He wasn’t the first. Indeed, I don’t know anyone who has purchased a Vitamix blender and didn’t share my friend’s effusive sentiment, even after spending between $429 and $719 (for the new line of G-Series models). For a blender.

But despite my appreciation for these friends and their opinions, I can’t help but notice their errors in judgment, explained by behavioral science, that, if followed, could lead to an unwise purchase for you or me.

To be clear, it’s not their purchase of the blender that I’m questioning. Rather, it’s their insistence that said purchase is a universal must. Worth, you see, is relative. What is “worth it” for you may not be “worth it” for me. Ultimately, determining the worthiness of your next purchase depends on many factors, but chief among them are 1) the joy you receive from using the product, 2) your personal cash flow, 3) how much you will use the product, and 4) the cost of available alternatives.

The Market Volatility Survival Tool: True Grit

Originally in ForbesIs recent stock market volatility bugging you?

Do you wince with every headline announcing Greece’s demise, China’s bubble(s), the Federal Reserve’s indecision or the Dow’s down day?

Do you sneak a peak at your portfolio’s performance more than quarterly (or perhaps even annually)?

Does market volatility tempt you to question your investment strategy, even if it’s well thought out and carefully implemented?

Does it weaken your resolve to resist the sky-is-falling siren song heard so frequently in the financial media, or the sales pitch du jour?

Having the right investment strategy is important—really important—and surely contributes to long-term success in building wealth. But no matter how superlative your strategy, it’s your willingness to stick with it that ultimately will help you meet your financial goals.

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.

Does Greece Really Matter?

The Bigger Picture for You and Your Portfolio

Originally in Forbes“Greece is a tiny player in global capital markets. Its default is 100% certain,” says Larry Swedroe, Director of Research for The BAM ALLIANCE and the author of 14 books on investing, including his most recent, The Incredible Shrinking Alpha, co-authored with Andrew Berkin.

“The only question is how much and what they default on,” Swedroe continues. “But with a GNP that is similar to Rhode Island’s, Greece’s default should have little to no impact on the world’s economy, at least not directly.”

So why is everyone so worried?

Because raging forest fires are kindled from a single, tiny spark. “Greece’s default could trigger a broader contagion, like a run on Portuguese banks or a lack of confidence in the ECU, that may have wider ranging implications for larger economies,” says Swedroe, my colleague.

Budgeting Guide for the Rich

Originally in Forbes“You don’t really do this stuff—do you?” The question came from a major network anchor after the camera stopped rolling. The topic was budgeting.

He certainly isn’t obtuse, and he wasn’t being patronizing or condescending. It was a legitimate question that accurately reflects the underlying perception held by most people in any demographic–that budgeting is for those just scraping by and young people just getting started. A tedious chore reserved for those lacking the means to do otherwise. A humble state from which most of us hope to graduate.

But this is a misconception. In truth, the budgeting process can help people at every stage of life and every income level articulate and align their deeply held values with their financial priorities, which is the first step on the path to integrating money and life. However, there is more to be gained from the discipline of budgeting (at least in terms of raw dollars) for those of means. Better said, there is less to be lost by families who earn especially high incomes. 

Level: Can a budgeting app change the way we bank?

Originally in Forbes“Level is dedicated to rewriting the financial rulebook to create a secure future for the next generation.” That’s budgeting app Level Money’s stated mission, which can be found on their website’s “About Us” page. But even as lofty as that objective sounds, co-founder and CEO Jake Fuentes says the company’s sights are set even higher.

“Basic everyday money management,” he suggests, could be “the first step toward changing—or creating—the next generation’s banking structure.”

An app that hopes to change the way the next generation banks? I’m listening.

 

The Keys to Effective Budgeting: Autonomy and Automation

Originally in ForbesMost people avoid budgeting because they consider it an exercise in repressive tedium. But it doesn’t have to be. By applying the science of motivation, economic evidence and the art of creativity, the apparent boredom of budgeting and saving can be remade into part a life-giving financial rhythm.

In his book, Drive, Daniel Pink teaches us that most institutions still use outdated science to motivate. Known as the “carrot-and-stick” approach, Pink demonstrates that the archaic addiction many organizations have to extrinsic motivation is far less effective than intrinsic motivation, which comes from within. The most successful resolutions are those autonomously motivated. In short, the word could is more effective than the overused should.

So, please hear this: Only budget if you want to, on your terms. It’s up to you.

‘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.

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.