Archive for August, 2010

Magic Question

The Psychology of Money | August 27, 2010

If you are a regular reader of my work, then you are aware that I have spent a lot of time pointing out things that require changes in behavior. The reason for this is that it is very difficult to go East and West at the same time. When all of your thoughts, efforts and momentum are moving together in one direction, you’ll find the most success. With that logic in mind, I am encouraging you to get rid of everything you don’t need so that you can take stock of what you want and begin taking the steps necessary to get there.

Since this is a financial blog, we’ll apply it to money. As always, feel free to use the information on any area of your life. Good practices and positive change are applicable to any life situation.

So….. What can you live without? If you look closely, I’ll bet that you can find a long list of things, purchases, habits and rituals that cost you a lot of money but do not contribute to your happiness, health or well being. Do you need to eat out as often as you do? How many cups of coffee do you buy every week? Have you ever taken the time to add up the total cost of your coffee habit on a yearly basis? Do you give yourself a monthly cash allowance for spending or do you just visit the ATM machine whenever you desire money without any real concern for how much you have taken? Maybe you shop just to shop? Do you buy groceries without a list? If it looks good, do you buy it, whether you need it or not?

Why point these things out? Great question. The answer is that over the last 20 years, these are the types of questions that I have been asking the clients that hire me to help them become financially successful. I ask these questions in response to most clients insistence that they have no money to invest because “all of the money I make goes toward paying my bills and living expenses.” That may be true. Next question – “”Give me an exact breakdown of what your bills and living expenses are on a monthly basis.”

That always brings us to the original questions above. It is always quite interesting to see the reactions that these questions elicit. There are always so many things that we find that can be easily eliminated simply by paying attention and asking one simple magic question … “Do I really need this?”

Some clients go to great lengths to explain their “need” for coffee, music or a new app for their smart phone. And to be clear, I’m not saying that there is no room in your life for these things. I’m simply espousing that none of them should be classified as a need. Wants yes. Needs no. The list of needs is actually very short for most of us. Food, water, shelter, reliable transportation, exercise, sleep, security and an extra large serving of love. Why did I not put “money” on that list? Well, for most American’s, money is not a need. it is simply a means to an end. If money were a need, you would hold on to most of yours (you know, in case later on you ever “needed” it). The truth is that unless you change your views about what you need vs. what you want, you’ll never have enough financially. And that is true no matter how much you make.

If this makes sense to you, start taking the time to ask yourself the magic question before you buy anything. If the answer is yes then go ahead and buy it. If the answer is no, then walk away. When you master this, you’ll gain control over marketing and ingrained habit. In addition, you’ll start to see a balance in your bank account.

Once you commit to getting yourself to that point. I’ll show you how to grow your wealth. So go ahead. You first.

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Learn to Unjustify

The Psychology of Money | August 18, 2010

How many times in your life have you justified?

You know, doing something and then having a conversation with yourself about why it was a good thing to do. Hundreds? Thousands? Still doing it?

Dino’s Advice? Stop.

Anytime you find yourself justifying things, you are most likely taking an action that should not be taken. Think about it. When you do something right or good or pleasant or compassionate, do you justify your action? Of course not. Want proof? When you hold the door for an older person, do you mutter to yourself ” I could be walking in the building already but I suppose I’ll hold the door for this person because they are old and I’d feel bad if I didn’t hold it?” Probably not. If you are a door holder, you hold the door because it is a nice and courteous thing to do. It makes you feel good. It shows good manners. It requires no justification.

Contrast that with “I really can’t afford this dress but I haven’t bought myself a dress in months and it’s so cute.” Or, ” This car costs more than I should spend but I’ll just spend less on other things later to make up for it.” Isn’t it simple to see that everything up until the word “but” is the truth and everything after is the justification? Isn’t it also easy to see that the justifications are silly?

I just read that Abercrombie and Fitch has discounted many of their jeans by 40% in order to grab a larger share of the back to school market. That news undoubtedly will make many people happy and they’ll go out and buy 4 pairs because of the discount. I wonder if they will stop long enough to think about this……. How long has Abercrombie been selling their jeans at a price 40% more than today’s price? Also, if they can make a fair profit at this new price, how did they justify the 40% higher price in the past? Oh wait, they didn’t justify the higher price. You did. And when you stopped, they lowered the price. And they are hoping that the lower price will cause you to justify buying more than you need. Will you?

Justification costs people billions of dollars in impulse purchases. My question? How come there is no such term as “Impulse Investing?” Wouldn’t it be great if we were all walking around saying “You know, I really should buy a bunch of new things that I don’t need but I just can’t resist contributing more money to my investment account because I think it is so cute when the balance goes up?”

If you have trouble not justifying everything, try changing what you justify. Start justifying why you should save more and spend less. Once you get in the habit it becomes easy. Just like it is now easy to spend too much because that is your current habit. And while you’re at it, stop listening to the government justify why it is your responsibility to spend your way to economic recovery. Save your money. Invest wisely. You work too hard to waste it.

Oh, and if we all wait, those jeans will soon be 50% off.

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Choosing your financial future

The Psychology of Money | August 7, 2010

“You have a brain in your head and feet in your shoes. You can steer yourself any direction you choose!” – Dr. Seuss

Do you wish you could just decide what your financial future would look like and then have it come true? Would it shock you to know that you already possess the ability to make that happen? You do. All you have to do is choose to do it.

The simple reality is this…… wherever you currently are financially is where you have brought yourself. Want to change your reality? Change your action and your expectations. That and a bit of patience will get you where you want to be.

And don’t fret or blame yourself. That is a waste of energy. Whatever you are currently successful at is also a result of where you have brought yourself. Just duplicate what brings you success in your field of endeavor and translate it to money.

Doing well? Most likely, you spend a lot of your time thinking about and pursuing financial success. What you need to look out for is balance. There is a reason that so many rich people have a lot of money and a lot of problems. Concentrating all of your effort on money matters often leaves you lacking elsewhere.

Likewise, if you are not having the financial success that you would like to have, you would benefit by spending more of your time picturing a financially positive future. If you can not visualize where you want to be, you’ll have trouble getting there. It’s simple really. How would you begin to take the steps necessary to build a better financial future if you do not have a clear picture of where you want to be? It is equivalent to driving West from New York City without paying attention and expecting to end up in Nebraska. It’s possible that you could get lucky and find yourself surrounded by cornhuskers. It is more likely however, that you will find yourself somewhere else. With a map in hand and close attention to the signs, Nebraska would be relatively easy to find. It is no different with finance or anything else.

A great example is provided by sports. Have you ever wondered how a professional athlete making millions (and sometimes hundreds of millions) of dollars often find themselves broke just a few years after their career is over? The last number I saw on this subject said that fully 85% of National Football League players are broke (no assets) within 5 years of their last playing day. At first glance, that number is hard to believe. But if you apply my advice above, it is not only believable, it actually makes sense. The same things that make the athlete a dominant player on the field (hard work, singular focus, concentration, confidence and ability) is what does them in financially. Most of these men have focused all of their attention on becoming a great football player. So much so that they are severely lacking in other matters. The money they earn is soon lost because they do not have the time, want or skill to properly manage and invest it.

I can hear the questions already. “But there are professional money managers that can be employed to manage and invest their money. Why don’t they hire one?” They do. There are a few problems though. Again, because their focus has been on a singular quest to become dominant athletically, most of them (based on the 85% broke number) have not cultivated the ability to do other things successfully. Many of these players have relationship problems and money problems. Picking the right money manager requires using your experience and gut instinct to select a person that is in concert with your goals and risk profile. If you don’t have the skills necessary to pick the good ones, you’ll probably end up with poor financial performance. This is the reason that most players simply follow the advice of their agent or their uncle or their teammate. The quicker they can rid themselves of responsibility for their financial success, the better. That is why they often end up with someone that takes advantage of them and their money. Imagine if they used this same technique with their athletic career? Try to imagine an elite athlete entrusting their career to poor coaches and trainers. They don’t. When it comes to their career, they find the best guru’s in their field. Whether it is nutrition, speed, agility or skill development, they will find the absolute best person to help them achieve their goals.

Now imagine if they did the same thing and took the same time and made the same effort to find the right person to help them achieve their long term financial goals.

Now look at yourself. Are you doing that?


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