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Rule # 3 – Don’t Be Reactive

The Psychology of Money | July 12, 2010

I do yoga.

Funny story – the other day in yoga class I was able to lay on my belly and grab hold of both of my ankles. It is called “Bow” pose. I’ve been watching people perform this obviously simple pose for 5 years now. I say “watching” because until last week I couldn’t do it. I say “obviously simple” because I’ve never seen anyone else that hasn’t been able to do it.

Now for 5 years, while everyone else looked like a bow, I would be laying on my side looking more like a boat. A boat that sunk. But not on Sunday. On Sunday, I was in a picture perfect bow pose. At least it felt picture perfect. And truly, that is all that matters to me.

So. Yoga? Money? How are we going to connect those two seemingly unrelated topics? Easy. Whether you want money or you want to strike a perfectly beautiful bow pose, the way to achieve it is the same. Don’t be reactive.

If you have taken the time to start watching your spending habits. If you have become conscious of your feelings as they relate to your use of money. If you have sought out and found the right investment advisor and you own a portfolio of quality diversified stocks, real estate, cash and securities. Now what? I’ll tell you what. Keep doing it!

You see, many people start things with a lot of momentum. They get into something quickly. They put great effort into their new venture. They chart a course and head off into a new direction and then…………………….. well unfortunately most of them reverse course and head back to the dock, tie up the boat and get right back to whatever it was that they were doing before they got on that boat in the first place.

Would you like some examples? Diets, investing, exercise, saving, socializing, studying (do any of these sound familiar to you?).

The way to success is practice and patience.

If you have a savings plan and you contribute regularly you are doing very well. Keep doing it and you’ll be doing even better soon. As time goes on, you’ll inevitably come across some set backs. The stock market will go down. If it does? Keep buying stocks. If you can’t touch your toes you may want to keep trying. While you are doing that you take an assessment of other things that may be keeping you from being able to do it. Maybe losing a few pounds might help. Maybe stretching your hamstrings would be a good idea. Asking a trainer could give you the tip you need to put it all together. Consulting with a professional money manager may be the way to touch your financial toes.

Whatever you do, keep at it. Keep trying. Keep practicing. Be patient. Embrace your mistakes and try your best to learn from them. If you find something that works, keep doing it. If you see something that doesn’t work, try to find out why before you toss it aside. It is all to easy and unfortunately, all to common to say “I can’t do this” or “this doesn’t work”. Don’t react. Instead, try to be proactive. Look at everything in your life with new eyes. See if you can find a new perspective before you throw anything away. Whether it is a stock, a relationship, an idea or a strategy, make sure that it is not your lack of patience that does you in.

Take it from me. I could have quit hundreds of times over the last five years. If I did, I would never know the joy of the Bow.

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Rule # 2 – Keep your Past in the Past

The Psychology of Money | June 30, 2010

Ok. Hopefully, you’ve taken my advice and you are on the path to recognizing a pattern in your relationship with money. Good for you!

While you are doing that, allow me to share some sage advice on how you got here in the first place. You see, you didn’t just happen upon today. You have made literally millions of decisions that brought you to this very place. Each of us makes decisions all day long, every day. Like anything else, once it becomes a routine it may not feel like you are making decisions. You may just feel like life is happening to you. But I assure you that life is not happening to you. On the contrary, you are happening to life. That is, with each decision you make, each action you take and each thing you choose to do or not to do, you are shaping your present and your future. Which brings me to today’s topic. No matter what we do in this moment or any other, the only thing that is completely out of our control is the past. You do agree with me, right?

Well if we can’t do anything to change our past, then why do so many of us choose to spend the bulk of our time there? Every day I hear people talking about past events. “He said this. She said that.” Worse, I hear people telling me the reason something is not happening today is because of what happened yesterday. The truth is that whatever you want to happen today is not happening because your energy is in yesterday. If your energy isn’t present, how would you expect to be present? Being present is something that we are born fully capable of. We socialize that ability out of ourselves. Some of us recognize it and go through great effort to get it back. That re-aquired skill has a name. It is called success. And you can apply it to anything. Since this is a blog about money, let me show you the importance of being present in making good financial decisions.

If you were to look at your current financial situation and wish it was better, what would be the best course of action to get things going in the right direction? Well, lets compare money management to dieting or weight management. It seems that everyone in America has been on some sort of a diet at one time or another. So what is the best way to lose weight? The fact is, there are many great ways to lose weight. Not eating is probably the best way that I could think of. I looked it up and it is a fact that by not eating you will definitely lose weight. It is also a fact that eventually you will get sick and then you’ll die. But you have to admit, as far as losing weight goes, it is definitely the best way to do it. Most every dieter has fallen into the yo yo effect. You focus on losing weight, you lose some weight and then inevitably you gain it back. Why? It is because your focus is all wrong. Your focus should not be on losing weight. Your focus should be on attaining and then maintaining your optimum weight. If that were the case, you would not try to lose as much weight as you could as soon as you could. Instead, you would study what you could improve upon. You would learn better ways to prepare food. You would take out what isn’t good and replace it with things that are. It would become a positive and permanent patterned behavior. It would simply replace your current negative patterned behavior. But of course to do this, the first step would be to recognize and commit to changing your current negative patterned behavior.

The big problem comes when people are faced with this choice. Usually, you don’t want to recognize your current behavior because then you would have to own it. That is, take responsibility for it. I often wonder why that is so hard for people to do. Whenever someone does something that they think is good, the usual response is to take credit for it. Hang out in a corporate boardroom for a few hours and you’ll see what I mean. So if we take credit when we do something good, why do we have such trouble accepting responsibility for things that didn’t work out the way we had hoped? My feeling is that when things go well, we take credit in the present. When things do not look as good, we seemingly have a need to look into our past to find out why. No one appears to want to open that door. All kinds of scary things in there.

Well I have some good news for you. You don’t have to look at your past. Of course you can if you want to. It may even help you if you did. But if you find it scary or paralyzing, you don’t have to do it. You just have to change how you do things in your present and that will change your now and your future.

There are many ways to do this effectively. You can practice breathing, meditation, guided imagery or yoga. Those are all great long term ways to learn to be calm and present. For the purposes of making it easy though, lets try this. Just start catching yourself. Make it a game. Any time you notice your thoughts or words in the past, just stop and gently remind yourself that you need to return to now. If you are diligent about practicing this, I promise you that you will need to do it less and less. Being in the past is a habit. So is being in the present. Once you make being present a habit, there will be less and less time for the past.

So……we’ve reached the million dollar question. Great advice Dino. Thanks. But what does being present have to do with money?

Everything!

Get practicing and I’ll explain more in my next blog entry. Good luck!

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Rule #1 – Recognize Your Patterned Behavior

The Psychology of Money | June 23, 2010

By far, the biggest impediment to a successful financial life is your pattern. Conversely, the greatest predictor of financial success is……… your pattern.

What is your financial pattern? Do you know. Did you know you have one? Are you willing to explore it?

If you want to know what your pattern is, become curious about it. Curiosity is a wonderful gift. You are born with loads of it. Unfortunately, it can be easily squandered and it often is. If you are curious about something you will want to explore it. Ever wonder how a radio works? The best way to find out is to take one apart then put it back together. You can also read about how radio waves are transmitted from a tower and picked up by the receiver (radio). Most people go through their lives listening to radio regularly. Satellite radio, i pods, AM, FM and Citizens Band are in constant daily use. You probably listened today.

So if almost everyone listens to some form of transmission daily, how come almost no one can tell you how the system works. Don’t believe me? Go ahead. Explain it. Ask your child to explain it. Not in theory but in fact. You can do the same test with smart phones, wireless internet, food processing, electricity, cellular division, oil drilling or photosynthesis not to mention every other process that happens every day.

So here is the deal. If you want to know how something works, you have to study it.

Do you study finance? Do you understand it? Do you dedicate part of every day to getting better at it? Professional football players are great at football because they practice it every day. Most of them have done this since they were 6 years old. What we see as natural talent is truly mostly cultivated. Sure genetics help you become 6’5″, 230 pounds and strong, but if that is all it took, how come everyone of that ilk is not in the NFL? The reason is practice. Talent cultivation.Patterned behavior that has become automatic through repetition. The best players watch hundreds of hours of film just to catch a single tendency of an opposing player. They look to exploit their opponent’s pattern. That is how intense their practice and dedication is. That is what makes them great. I would like to help you notice your pattern and then give you the tools to change it to your advantage. The repetition and study is up to you.

There are two excellent ways to begin to expose your financial pattern.

The first is to keep a daily financial diary. Simply write down every dollar you spend for the next 2 months. Include everything from a pack of gum to groceries. Buy a lottery ticket? Write it down. Put fifty cents in a can for an animal hospital? Write it down. Don’t miss anything. A clear picture of your money pattern will begin to emerge in a few days and you’ll have a greater understanding of your habits in a month. You’ll also see what you save vs. what you spend.

The other thing you want to do is make a second column next to what you spent or saved and write down how you are feeling at that moment.

For example, if you write down ” Wednesday, June 23, 3:25 PM – Candy Bar $1.00″, follow that in the second column with, ” I feel stressed” or “I’m happy!” or even “not sure how I feel right now”. This will expose a very important sub pattern that will help steer you to the root of your money habits.

The second way to expose your financial pattern is to ask your spouse or a close friend for their opinion of your money habits. This exercise is not for the feint of heart. I believe that the best way to find your pattern is a combination of keeping a journal and asking for feedback. It is always interesting to compare what you see to what others see. If your ego is not ready for this exercise, skip it for now. It takes a secure person to be able to receive outside feedback properly.

So go ahead. Take the test. Keep a journal. Be open to what you uncover. Good or bad doesn’t matter. Besides, what you think is good may in fact be bad and vice versa. We’ll learn more about that as we go.

Good luck!

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Things People Say – Part 2

The Psychology of Money | June 18, 2010

So, have you decided that you want to change the way you view money? The good news is that dealing well with money is no different than dealing well with anything else.

Marketing has made people feel that there are different sets of rules for different things. It is important for marketers to make things seem complicated and confusing. This strategy preys upon the normal human tendencies of laziness and procrastination. When something seems difficult, most of us shy away from dealing with it until we have to. Eventually, we have to deal with it and we leave ourselves insufficient time to learn what we need to know. Not having time to learn leads us to whomever is thrust in front of us in that moment. Sometimes it is a friend of a friend. Other times it may be a person that happens to hold a position at a company that we have heard of. We tend to assign importance to people that we hardly know or who may be unqualified or inexperienced. This action is common. We justify turning over our whole financial being to someone that we just met yesterday.

Why do we do that? Simple. If we didn’t do it, we would be responsible for the outcome. If the “professional” messes things up, we have someone to blame.

Well, I’m sorry to tell you that if you continue reading this, you’ll no longer have the option to justify this behavior. The bad news? You’ll have some work to do. The good news? This will be the beginning of the end of your bad relationship with money (or anything else). You can apply these principles to anything that you are having trouble with. They are simple and easy. Taking the time to shift your thinking, recognize your behavior and change your pattern is the difficult part.

So , where to start? Last time, I asked you to write down “why you do the things you do?” and “what is your relationship with money?” If you haven’t already done that, please go back and read part one now before you continue. If you don’t do it, then you’ve confirmed that you may be a “lazy procrastinator”.

Be honest. Are you still reading without having read part 1? It’s ok if you did. But it does begin to reveal your pattern. There is no judging here. Just accept your pattern for what it is and vow to change it.

As we move forward, each of my next few blog posts will be a rule of change. It takes courage and effort to change. It is not easy. But it will lead you to a better relationship with money or whatever you apply it to.

I hope you’ll join me. See you next time.

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Things People Say – Part 1

The Psychology of Money | June 7, 2010

In my 25 years in business, I have seen and heard a lot. My position makes me a sounding board for my clients. I hear the fun stuff (family, kids, weddings), the not so fun stuff (funerals,divorce) and the random stuff ( “My dad knows a guy who was in the army with Elvis!).
I also hear things that are damaging. Oddly, the damaging statements are usually wrapped in a beautiful package of hope and delight. Or maybe you could call it delusion.

You see, I have made it a habit to carefully observe my clients. I watch their hand movements, their eyes, their body language and their tonality. I then match what is coming out of their mouth to what is coming out of their movements. When you do this for as long as I have ,you can tell a lot about what someone is really saying. You can also learn a lot from watching their spouse. Does the spouse agree with their words? What is their body language saying while their significant other is speaking?

Am I a mind reader? No.

A wanna be psychologist? Maybe. I’ve been called worse.

The truth is that I am a student of human behavior. I need to be in order to serve my clients properly. My job is to address my clients true needs. Not the needs that they think they have.
Many people go through life thinking that everything is peachy even if it isn’t. Focusing on things you may need to change is not what most people do for fun.

People often come to my office to set up an investment account and they leave with a budget. Other times they come in for a mortgage and leave with an investment account. I always assume that someone has come to me because I can help them. So that’s what I do.

So what about the damaging stuff?

Whenever I see a problem, I look for a pattern.

People are creatures of habit. We all do and say the same things over and over. After a while, whatever we tell ourselves is what we become. So how does this relate to a finance blog? Let me explain.

Most financial dilemma’s are created out of our reactions to the patterns that we follow. We follow the pattern, it works for a while and then something happens; a recession, lower property values, a layoff etc. This re shifting event shows us the hole in our pattern. Maybe we spend most of what we make never thinking to save a percentage of our income for later. The shift happens, we temporarily find ourselves out of work and we have nothing to fall back on.

Maybe we do save our money but we don’t know how to save it properly. 10 years later we find ourselves with less money than we started with because we were too aggressive or too passive.

What is really amazing is how closely our issues match that of our parents. Many of us grew up with parents that paid little or no attention to money. They always found themselves in a financial bind. The next generation comes and we find ourselves in the same position. Or maybe we go to the opposite extreme and we work so hard so we are never in our parent’s position. With excessive hard work comes hard playing as a reward. That attracts the same type of friends and before we know it, we are carrying on in ways that will kill any chance to have any savings for the future. We don’t worry about it because we know how to make money. Then that darn re shifting thing shows up. You may presume that the re shifting event will put an end to our pattern. Wake us up maybe. Unfortunately, usually the opposite is true. Sure we may temporarily close it down a bit. Cut back a little. But it never seems to last for most of us. Sacrifice is not learned in a few months. It is learned over a lifetime.

You either live a disciplined life or you don’t. You invest wisely or you don’t. There is no halfway or middle ground to common sense. Oh, and then there is that Ego thing. That’s a tough one. You see, once that Ego is attached to new cars, nice trips, new shoes and the best restaurants, it becomes quite a struggle to get Mr. Ego to go along with our new plan. Sure, we can all justify a little slowdown in our spending as “temporary”, but a long term shift is a whole different kettle of fish. Our Egos tell us what to spend, where to go, how to look and who to play with. I have not come across many Egos that tell their slave how much to save!

Your Ego doesn’t like budgets, savings or well thought out financial planning. So the first step in having a happy financial life is not to be a slave to your Ego. How do you do it? Acknowledge your Ego. Sit quietly and think about why you do the things you do. What is your relationship with money? Write down the answers and look at them again in a few days.

To be continued………………………………

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