Loading...

Follow Money Health Blog | Personal Finance Education .. on Feedspot

Continue with Google
Continue with Facebook
or

Valid
"How can I get some money? Short of earning it, I mean."
-"Calvin" in Calvin and Hobbes by Bill Watterson
I'm helping my team set up for a family meeting with the firm's largest client. This client is the first generation to have significant wealth. Their children are in their 50s, but none of them are financially independent. They struggle to find meaning in their life since they have no need to find a career. They don't keep jobs for very long. They rely on credit cards to keep up their lifestyle. When they can't pay back the credit card company, their mom and dad pay their bills.
Mom and dad tell them, numerous times, that the support will be ending soon because they aren't learning how to be independent. With that warning in mind, the kids do it again. Once again, mom and dad bail them out. The kids won't be able to survive without their life support.
I don't work with that team or client anymore, but the lessons are still there.
Statistics Speak Louder Than Words
The example above was about children in their 50s, but there is a growing trend in parents of millennials doing the same thing. A recent study has shown that this is a growing concern. Here are some of the finding:
7 out of 10 are getting financial help from their parentsMore than half of those getting help are in their 30s6 out of 10 wouldn't be able to support their current lifestyle without their parent's helpGroceries and cell phone bills are among the most common items paid for
I've spoken to people who tell me they don't want to leave their kids with an inheritance and would rather give their money away now so they can see them enjoy it. On the surface, that sounds fair. There is one hitch, though - these parents haven't thought about the downsides of supporting adult children.
Financial Enabling
With any kind of self-defeating problem, be it alcoholism, gambling addiction, workaholism, or financial dependency, for every person with the problem there is at least one enabler. Enablers not only ignore the problem's impact, but often times fuel the problem. When this happens with money it's called financial enabling.
Financial enabling is effectively supporting people financial who shouldn't need to rely on you for support. It's most common in parent-child relationships, but can happen with between two siblings, other relatives, or even friends. Often, this financial help comes at the expense of the enabler's financial well-being.
In the short run, a financial enabler is helping, sort of. In the long run, though, and especially if it's continual, the enabler does more harm than good.
Side Effects and Unintended Consequences
Some people might say, "so what?" It's the financial enablers' money and they should be able to do whatever they want with it. While I agree that people should be able to make whatever informed decisions they want to with their money, most financial enabler's aren't making informed decisions. There are consequences to be aware of.
First, some people give money to financial dependent children even at the expense of their own future. To said that another way, many parents finance their adult children's lifestyles even if they can't afford to do so.
Every time you say "yes" to someone who asks for money reinforces that "strategy" of getting money. The reinforcement is even stronger if it involves a dramatic scene, threatening in some way, or begging.
If your child never has to work for money, or has a very reliable safety net available, it's going to be difficult for that child to manage a career. There's a strong chance that they will quit any job or career the first time it gets hard - because they don't need to work. They don't have to come up with a creative solution to their problem. They don't have to think about reducing their lifestyle. Why would they?
The problems can compound with a couple, one of whom doesn't want to financially support the child and the other does. This often leads to financial infidelity, or keeping money secrets from loved ones. This means that, in addition to contributing to a financially dependent child, they put their own relationship at risk.
It's Hard to Say "No"
It is understandable why parents continue to financially support their adult children. We don't like saying, "no." Nobody likes to see someone else suffer, even if the "suffering" is made up. Since every "yes" reinforces whatever behavior brought about the financial help, those behaviors and strategies are used again.
The fear of getting cut off is real, and the strategies that financially dependent folks will utilize can be very creative.
If a financial enabler has ever brought up ending support, but then gave support anyway, this can result in something I call a game of financial chicken - where both parties keep going until one finally gives in.
Financial Chicken
It's common, when a "no" is encountered, to try a new strategy, and a new one, until something works. This sometimes results in financial chicken, or a stand off. Financial dependents will use threats, like the threat of moving away so their parents won't get to see their grandchildren. They'll use guilt techniques and lay on stories about what's going to happen to them if they don't get support. All of these make it very difficult to deny support.
Alternatives
So what can you do? The first thing is to understand that support can actually be harmful in the long run. Even if, like the clients in the story above, the children stand to inherit a lot of money, you have to think about how long that money is likely to last in the hands of heirs who aren't prepared to handle money, especially a lot of money. Then, it's time to think of alternatives.
One alternative is to offer financial support, but in a way that is more likely to create a positive long term outcome. For example, you could pay for a financial coach or planner, offer to pay for psychotherapy, or help find a career counselor.
Another alternative is to simply end the support. This is akin to taking off the training wheels. Financial enablers have seen how creative and focused their financially dependent children can be when it comes to financial handouts. Cutting the support can help redirect that creative energy to getting money by earning it. This may require setting an end date in the future (so as to not cut it off without warning), and rehearsing a script.
Don't rob your retirement and ruin your children. Establish a plan to help your children grow and become financially independent.
References:
Brad Klontz, Ted Klontz: Mind Over Money
Sharon Wegscheider-Cruse: Another Chance
--
If you liked this post, consider joining the Money Health community. By signing up you'll get free Money Health eBooks and receive updates sent directly to you so you'll never miss anything.
If you would like help with financial enabling, financial dependency, or financial infidelity issues, or if you want to being more mindfulness and simplicity to your financial life, I can help you through Hagen Financial at www.HagenFinance.com.
If you would like to support Money Health and keep it ad-free, you can do so on Patreon.
© 2019 Hagen Personal Finance LLC. All rights reserved.
Read Full Article
  • Show original
  • .
  • Share
  • .
  • Favorite
  • .
  • Email
  • .
  • Add Tags 
"Life is 10% what happens to you and 90% how you react to it."
-Charles Swindoll
A conference just finished up on a Friday afternoon in southern California. My wife flew in and we're going to stay for the weekend. I'm looking forward to boogie boarding for the first time, and I quickly find out that 1) the Pacific Ocean is COLD, and 2) ocean waves can tumble you around for what feels like minutes and spit you out several yard down the beach. It was totally fun!
Earlier that day I just watched the keynote speaker, Simon Sinek, and couldn't get his talk out of my head. He was full of awesome information. One of the aspects of his talk was about how we react to the world around us.
Assume positive intent. That's the message I got from him. If you're driving and someone tries to hurry up and cut in front of you, do you let that person in or do you speed up and block him? I used to be in the camp that doesn't let him in. The challenge for me is to assume positive intent. It's true, maybe the guy is a jerk, but what if he's unemployed and is late for his first job interview in months because his child got sick that morning? If someone shoves you, do you assume they were trying to intimidate you or do you assume it was a mistake and they themselves were accidentally pushed into you?
Feel free to make whatever assumptions you want, but assuming positive intent will allow you to live a life with far less stress.
This sketch was done by author Carl Richards (used here with permission). It's a great visual to help us remember to focus our time and attention in areas that actually matter. Let's break this down.
Things That Matter...But You Can't Control
The list of things that matter but over which you have no control and can't do anything about is quite large. This is going to be things like the state of the economy, what rate of return you get in the markets, the unemployment rate, or interest rates. If could be things that impact your life specifically, like whether or not you lose your job, become disabled, or have a spouse die prematurely. If you can't do anything about these events or situations, then they aren't worthy of your attention and you have my permission to stop worrying about them.
For some of these, there are elements of them that fall into the overlap zone, such as our ability to insure for these risks and preparing ourselves for various market environments. So although we can prepare for the outcomes of some of these, we can't control whether or not the outcome occurs.
If you can't do anything about it, you don't have to worry about it.
Things You Can Control...But That Don't Matter
Sometimes you do have control over things, and the question to ask yourself is whether or not it matters. So somebody cut you off in traffic. Who cares!? It doesn't matter! Somebody accidentally bumped into you? Doesn't matter!
In personal finance, you can control whether or not you pay attention to financial news outlets that are in the business of promoting fear, selling advertisements and getting you to take action. However, nothing that comes out of those channels matter to you.
If it doesn't matter, don't worry about it. Spend your time, energy, and attention in better ways.
Things You Can't Control AND Don't Matter
Sometimes you'll hit the jackpot and stumble upon something that both doesn't matter AND over which you have no control. This is sometimes called gossip. You neighbor just brought home their third new car in four years or your friend just went on an expensive trip - I have news for you, it doesn't matter to you how they spend their time and money, and further, you can't do anything about it.
Stop wasting your time.
Focus Where It Matters
Focus your attention, time, energy, and money on the sweet spot. You have the ability to pay attention to what matters; your personal economy. You can control your savings rate, what you spend your money on, your aspirations, when you retire, your exposure to risky investments, how much insurance to buy, and how you want to spend your time. Those things matter and are worthy of your time and attention.
Focusing on what matters increases your confidence, and increasing your confidence increases your satisfaction.
Stop wasting your life worrying about stuff that doesn't matter and over which you have no control. Align your use of money with what you value. Live intentionally.
References:
Carl Richards: The Behavior Gap
--
If you liked this post, consider joining the Money Health community. By signing up you'll get free Money Health eBooks and receive updates sent directly to you so you'll never miss anything.
If you would like help aligning your focus, or if you want to being more mindfulness and simplicity to your financial life, I can help you through Hagen Financial at www.HagenFinance.com.
If you would like to support Money Health and keep it ad-free, you can do so on Patreon.
© 2019 Hagen Personal Finance LLC. All rights reserved.
Read Full Article
  • Show original
  • .
  • Share
  • .
  • Favorite
  • .
  • Email
  • .
  • Add Tags 
"The goal is not to be perfect by the end; the goal is to be better today."
-Simon Sinek
Let me paint four pictures for you:
One: I'm sitting in my office enrolling for my final class to finish up my graduate certificate. At the end of the enrollment session, they flash a big scary number on the screen telling me how much it's going to cost, and they make me pay for it immediately. If I don't pay, I don't take the class. I pull out my wallet and complete the transaction. Ouch. I know exactly how much I have to pay and I have to pay right now.
Two: I'm in college and after class on a Wednesday I meet some friends at a place that has drink specials on Wednesdays. I bring along all my cash, which isn't much, but it lasted all night. I had to make a decision every time someone ordered a round, whether I wanted to partake. I had to make a payment with each beverage, and I consumed fewer beverages as a result.
Three: My wife and I are in a helicopter flying out of the Grand Canyon. It was a really fun. I don't know how much this ride costs. I don't know how much the flight back to Las Vegas is. I don't know know how much the food was that was prepared for us on our trip. It was all packaged together and paid for over half a year ago. We didn't have to worry about paying for anything. There was no financial stress.
Four: I'm 20 years old considering investing for the first time. I walk into a financial advisor's office near my place and ask about investing. He has me open two accounts, and told me which mutual funds I should have. I asked him how much I have to pay, and he says I only pay a small percentage of my account balance, and the rest isn't paid by me; it's paid by the fund companies. I don't really know how much I pay since it's tied to an abstract concept like percentage, and I don't know how much he gets paid by the fund companies nor if he put me in expensive products because they had higher commissions (hint: he did!). Finally, I didn't really know when I had to pay because, well, I didn't really pay; it just kind of came out of my account.
Both our awareness of our spending and the timing of our payments can impact our moods and behaviors because of something called the pain of paying.
The Pain of Paying
The pain of paying is the discomfort we feel when we think about letting our money go. It's not necessarily the spending of the money that causes the discomfort, but how we think about being separated from our money. Some people have a harder time than others. We can use techniques (or others can use techniques on us) to increase or decrease the pain of paying.
Basically, the pain of paying has two components; how close the payment is to the actual transaction and how aware we are of the money we are paying.
Time
When we think about the time aspect of the pain of paying, we should think about how much time there is between the transaction and when we pay. If you use cash to buy something, you part with your money at exactly the same time as the transaction. That hurts, because it's immediate. If we prepay for a vacation six months or more ahead of time, by the time the trip we bought happens, we've long forgotten about the payment. On the other side of that coin, if we put something on our credit card or charge it to our room, we enjoy the transaction without having to pay yet. The further the payment is from the transaction, the less pain there is. The most pain is incurred when the money changes hands at the exact time of the transaction.
Attention
Attention is another aspect of the pain of paying that we need to discuss. Using cash as an example again, we see exactly how much something costs, because we literally hand over the money to pay for it. We have to count it out to make sure we have enough. We get change back. There's no avoiding it. The other end of the spectrum is an automatic payment. You have near zero awareness of those transactions and only discover them if you look over your statement at the end of the month. How long have you been paying for that gym membership that you never use?
Even debit cards distract our attention from the transaction because, even though we're paying at the same time, it's abstract. I know a guy who went to his favorite lunch spot several times per week and if asked, wouldn't really be able to tell you how much he spent on lunch. He just hands them the card and they hand him a sandwich.
It's Used to Take Advantage of Us
Knowing all about the pain of paying, retailers, marketers, and others can manipulate the system to take advantage of us. They intentionally reduce the pain of paying so that we don't feel so bad spending our money. This is why places encourage credit and debit cards. This is why automatic payments are suggested to us. Transactions get hidden from our awareness. We're encouraged to pay over time or to prepay for a better deal. Reducing the pain of paying for us is a way for them to separate us from our money.
We Can Take Advantage of It
It's not just folks who are trying to sell things to us that can manipulate the pain of paying. We can manipulate it ourselves. We can intentionally reduce the pain of paying if that makes sense for our financial situation. On the other hand, pain is a good teacher. How many times did you touch a hot stove before you realized you shouldn't do that? By strategically introducing the pain of paying we can train ourselves to get our spending under control.
Introducing Pain - In most cases we probably want to introduce the pain of paying. Doing so actually makes us more aware of what, and why, we are spending. We become more intentional with our money this way. This is the idea behind some common personal finance tips, like only using cash (even putting cash in envelopes).
Relieving Pain - There are certain instances where we want to relieve the pain of paying. This should be done intentionally and only for big experiences that we want to enjoy. Getting rid of the pain of paying for everyday purchases would make us feel a little better in the short run, but is detrimental to our financial health in the long run.
For example, you will enjoy a vacation more if you prepay for the experience well ahead of time. In this example, you introduce more time between your vacation and when you pay, and you reduce the awareness of spending because you already bought it. This can lead to a far more enjoyable experience.
Retailers reduce the pain of paying so we will be more likely to spend money on their products. In a similar fashion, we can reduce the pain of paying so we will be more likely to save. Automatic savings and debt repayments are a great way to reduce the awareness of sending money...but in a way that strategically improves our long term financial health.
One More Example
In their book Dollars and Sense, authors Dan Ariely and Jeff Kreisler give what I think is a fascinating look at how to better enjoy dinners out with friends by manipulating the pain of paying. They recommend a game called credit card roulette, or at the very least, each person takes turns paying for the group.
The idea is that the pain of paying is strongest when you have to pay anything. The first dollars hurt the most. So if four friends each pay a quarter of the bill, all four friends experience the same (or similar) pain and the total amount of pain will be high.
On the other hand, if one person pays, three people experience no pain, and the person paying the bill will experience less total pain than if everyone paid.
Obviously there are some considerations here. It is helpful if you have the same group of friends going out so nobody can ditch out when it's their turn to pay. And, some research has shown that people tend to order more if they aren't paying than if they are. Still, it could be a good idea if you are looking to add to the enjoyment of dining out.
References:
Dan Ariely, Jeff Kreisler: Dollars and Sense
--
If you liked this post, consider joining the Money Health community. By signing up you'll get free Money Health eBooks and receive updates sent directly to you so you'll never miss anything.
If you would like some help gaining a healthy relationship with money, or if you want to being more mindfulness and simplicity to your financial life, I can help you through Hagen Financial at www.HagenFinance.com.
If you would like to support Money Health and keep it ad-free, you can do so on Patreon.
© 2019 Hagen Personal Finance LLC. All rights reserved.
Read Full Article
  • Show original
  • .
  • Share
  • .
  • Favorite
  • .
  • Email
  • .
  • Add Tags 
"Differences in financial status can pose serious challenges to relationships."
-Ted Klontz and Brad Klontz
"Truly confident people do not need to prove anything."
-Beau Norton
My wife and I sit down to watch Friends. We have both seen the show before, but never not all the episodes and certainly never in order. We happen to be watching an episode that caught my attention. Three of the friends have well-paying jobs, while the other three don't have as much. One of the well-off friends, Chandler, suggests going to a concert, but the three with less think it's too much money. Later, Monica wants to go to an expensive restaurant to celebrate a promotion. The three with money order expensive dishes while the other three order the cheapest things they can find. When Ross suggests they split it evenly comes up, causing the three who ordered the cheap food to have to help pay for the three who ordered expensive food, the situation gets awkward.
Later, to make up for the awkwardness, Ross, Monica, and Chandler buy tickets for everyone to go to the concert. Not wanting to feel like charity cases, the three without money turn down the offer.
I realized while watching it, is the reason it's so funny is that it's so relatable to almost everyone. Most of us have been in a situation where we felt awkward saying no to something we can't afford to do or don't want to spend our money on, and we've likely been on the other side as well, worrying about offending those with less.
It can get awkward when one friend has more or less than the other.
Judgement, Shame, and Blame
Money is full of negative emotions and as a result it's hard to talk about. When it comes to friends and family members who have significantly more or less money than you (or are perceived to have more or less than you), it's equally hard to voice concerns or try to be fair.
For example, if your friends have more than you and want to go out to eat at an expensive restaurant, it's not easy to tell him or her that you can't afford that restaurant. If you do go, do you try to hide it by just ordering the least expensive meal? What if someone has the check split evenly (like in the Friends clip) and you ordered a less expensive meal; do you speak up? Are you comfortable if your friend pays? Do you expect your friend to pay?
On the other hand, if you friends have less than you do, do you consider that before going out to eat? Do you feel obligated to pay? Do you go to less expensive restaurants just because you don't want to put him or her into an awkward position?
These are just some examples of tough decisions and conversations that can come up between friends with different income and wealth levels. It's not just eating out, either. There can be this kind of tension when it comes to vacations or traveling, hobbies and events, or even just talking about frustrating money topics.
It's difficult to have these conversations, so many times we don't. Or we do and we end up having an argument. We are afraid that if we say that we prefer a less expensive restaurant or that we want to have the bill divided into who ordered what, that someone will judge or blame us and we'll feel shameful.
We spend a lot of energy considering what others are going to think but the truth of the matter is that nobody really cares. For real. They are too busy with their concerns about what you think of them.
Boost Your Confidence
Once you begin to understand that most difficult conversations are mostly only difficult in our own minds, you can begin to take steps toward increasing your confidence. The knowledge that people really don't care (or whether we want people in our lives who do) about our preferences, combined with a solid understanding of what money's role is in our life and what's important to us, gives us the confidence to speak up. With that confidence you'll understand that the other person probably doesn't care but that doesn't even matter - because you won't care what they think.
If someone tells you they are going to a restaurant you can't afford or taking a trip that doesn't align with your values, there is nothing wrong with saying so. You don't even have to provide a rationale. A simple, "I appreciate you thinking about me, but no thank you," goes a long way. If you would like to participate, maybe, "I would love to go out to eat with you. Any chance you're up for XYZ Restaurant instead?"
It's None of Your Business
Another way to view how other people think about your situation is to consider that their opinions are their own and they are entitled to them. I was told recently that someone's opinion of you is none of your business. That's a short, simple statement, but there's a lot to unpack there.
If (big if) someone has criticisms about a particular restaurant being out of your budget or for suggesting one that's too fancy, I'm giving you permission to let it go. Those criticisms are none of your business...and along with your newfound confidence, you won't care about the criticism anyway. You can work toward a solution without feeling ashamed or embarrassed.
Use Your Money to Support Your Values
If you start to align your use of money with what's important to you, increase your awareness of your financial life, and stop spending money in ways that don't energize you, you will gain a certain confidence and peace of mind that helps you understand that everyone has their own opinions.
So how could our friends, Chandler, Joey, Monica, Phoebe, Rachel, and Ross have handled their situation differently? Before suggesting a place that is known to be upscale, perhaps Monica could have asked everyone's opinion. That works well if everyone answers honestly. If they had confidence and the ability to navigate money emotions, Joey, Phoebe, and Rachel could have suggested a different place, or a celebration at home. They could have told them that they don't have room in their budget at the moment. If they got into a situation where they were at dinner, one of them, or all of them, could have mentioned ahead of time that they intend to pay for themselves. Alternatively, Ross, Chandler, and Monica could have indicated ahead of time their intent to split the bill evenly, to which the other three could have voiced concern for early. Ross, Monica, and Chandler had a good idea to buy concert tickets as gifts for their friends, but the negative emotions associated with thinking of themselves as charity cases caused them to miss out on an experience. If they had a better relationship with money they could have accepted their gift and enjoyed the show.
This stuff is rooted deep in our minds. There is a concept called our financial comfort zone that makes it difficult to be comfortable with more or less than we are used to. I'm not saying it's easy to gain confidence and a healthy relationship with money, just that it's possible to be more comfortable with "awkward" money conversations.
References:
Dan Ariely, Jeff Kreisler: Dollars and Sense
Friends: "The One With Five Steaks and an Eggplant"
Brad Klontz, Ted Klontz: Mind Over Money
--
If you liked this post, consider joining the Money Health community. By signing up you'll get free Money Health eBooks and receive updates sent directly to you so you'll never miss anything.
If you would like some help gaining a healthy relationship with money, or if you want to being more mindfulness and simplicity to your financial life, I can help you through Hagen Financial at www.HagenFinance.com.
If you would like to support Money Health and keep it ad-free, you can do so on Patreon.
© 2019 Hagen Personal Finance LLC. All rights reserved.
Read Full Article
  • Show original
  • .
  • Share
  • .
  • Favorite
  • .
  • Email
  • .
  • Add Tags 
"It doesn't' matter if the glass is half full or half empty; there's water in the cup...stop complaining."
-Rudy Francisco
"There are some people so poor, all they have is money."
-Unknown
I just graduated college and decide to move to "the big city." I don't have a job a job lined up, though. I tell myself that not having a job will be the fire behind me that I need to find one. It takes a while, but I eventually get a job. They don't pay me well at first, so I live paycheck to paycheck.
A year later I'm sitting in my review meeting and I learn that I'm getting a 20% raise! Jackpot! I can spend more money now!
Another year later I'm getting another review, and I learn I'm getting a 28% raise! I'm rich (at least I think I am)!
After a couple years of spending money on things and stuff, like I think I'm supposed to, I change directions and am finally able to stop living paycheck-to-paycheck. I finally get out of debt. I am able to build emergency savings. This comes with less stress and more peace of mind.
Later I take a trip to Alaska, and I had a great time. This is the first time I had a clue that the way I spend my money matters; that going to Alaska for a week gives me more enjoyment than buying a new computer desk or car stereo.
Money Can Buy Happiness
More money can buy happiness up to a certain point, which is about $75,000 per year. This number depends on where you live, of course, but the idea is that if you make less than this you are at greater risk of not having your basic needs met. If you're basic needs aren't being met, then making more money will give you more happiness simply because your stress levels are down.
If you are below the magic number, then yes, more income will make you happy up to the magic number.
Purchase Experiences Instead of Things
One way to use our money to bring happiness to our lives is to purchase experiences instead things. To some this may seem counter-intuitive. After all, if we spend money on physical things, we still have the physical thing a week, a month, a year later. If we spend money on skydiving, a concert, zip-lining, attending a painting class, or going to a museum, we don't have anything physical to show for it, the saying goes.
However, as time passes we have to look at the physical things we bought. We watch them break. We watch them get out-dated. We see new versions come out. We see the prices drop. We see them become redundant. We finally throw them out, sell them, or trade them in.
On the other hand, even though there is nothing physical to show for our experiences we have memories, and these memories live on. It's even better, because we have a tendency to forgot the bad aspects of the experience and only remember the great parts. I don't remember the fear I felt before jumping out of the airplane, just the experience of free-falling and having my face flapping in the wind. Even if I do remember some negative aspects of the memories, it's in a positive light. If you went out for dinner with a loved one, but you spend an hour and a half picking a place, you probably won't remember that as a stressful moment. Instead it will be recalled as a funny moment.
Helping Others Can Make Us Happy
Making more money doesn't necessarily make us any happier if all our needs are being met. However, using some of that money to help others whose needs aren't being we can give us a lot of satisfaction. We can donate to charities or even help people in person. We can help others without spending money, as well, by volunteering. Helping people and causes that are important to us will definitely bring us more long term satisfaction than getting a raise.
Purchasing Time Can Make You Happy
Everyone has the same time. We all have 24 hours in a day. We all have seven days in a week. We all have 52 weeks each year. Time does not discriminate. Using our money to buy more time can contribute to our happiness, because it frees us up to be able to spend our time on hobbies, experiences, and volunteer activities that will engage and energize us.
Income Can Be Used to Build Wealth
Now, just because we can spend our money on buying experiences and giving to charities doesn't mean to should spend all of our money buying experiences and giving to charities. Income can't buy happiness, but it can build wealth over time. While wealth (nor income) alone will make us happy, wealth provides us options, freedom, and independence. It gives us the flexibility to use our money in a way that supports our happiness.
Use Your Money (and Time and Energy) to Support Your Values
It used to be that we could be influenced by our neighbors, peers, and some advertising on TV, magazines, and billboards. The proverbial Jones' that everyone tried to keep up with used to be our neighbors, the Jones'. Now, with the internet and social media, the Jones' are everywhere and everyone. Image crafting has become much simpler in the age of social media. Everyone is miserable, but they portray their lives as being amazing. As a result, we see their crafted images, feel insecure, and try to keep with the internet-version of the Jones' even though it is a facade.
If we try to support other peoples' values (friends, family, neighbors, social media friends), we're unlikely to be happy. It's an unstable way to use our money.
The alternative is to get clear about what your value, what you want out of life, and what money needs to do for you. By doing that, and aligning your use of money to support that, you will be far more satisfied with your life.
A pile of money won't make you happy in the long run, but the way you use your money can. Live your life intentionally and on purpose.
References:
Dan Ariely, Jeff Kreisler: Dollars and Sense
Jonathan Clements: How to Think About Money
Dorothy B. Durband, Ryan H. Law, Angela K. Mazzolini (eds.): Financial Counseling
Daniel Kahneman: Thinking Fast and Slow
Thomas Stanley, Sarah Fallaw: The Next Millionaire Next Door
--
If you liked this post, consider joining the Money Health community. By signing up you'll get free Money Health eBooks and receive updates sent directly to you so you'll never miss anything.
If you would like some help using your money to give you happiness, or if you want to being more mindfulness and simplicity to your financial life, I can help you through Hagen Financial at www.HagenFinance.com.
If you would like to support Money Health and keep it ad-free, you can do so on Patreon.
© 2019 Hagen Personal Finance LLC. All rights reserved.
Read Full Article
  • Show original
  • .
  • Share
  • .
  • Favorite
  • .
  • Email
  • .
  • Add Tags 
"If you want to feel rich, just stop and count the things you have that money can't buy."
-Unknown
I'm eating alligator while watching a group of musicians play street jazz in New Orleans. I've never been to the Big Easy before. It's really fun; it was kind of like the jazz version of Austin or Nashville - music everywhere. I'm in town for a wealth management conference.
I've done a lot of studying in the world of economics and investments and it kind of feels like everyone should make rational decisions; after all, that's what we assume in economics. At a session on behavioral finance the speaker tells us that most humans compare themselves to one another, whether they know it or not. What he said next stuck with me. He said that most people don't care if they make more than person A; they only care that they don't make as much as person B.
It made so much sense but I've never heard it articulated before. It's difficult for us to be happy with what we have. Instead, we spend our time and energy chasing more and more in the hopes of finally being happy.
What Money Is
Money is simply a tool that we use. The collection of money is not the goal. Money comes to us via income, which is kind of like turning on a water faucet. It's a flow, or a stream. It's important to understand that income is not the same as wealth.
Maybe you've heard of people who make it their quest to earn more and more income because they think that will give them happiness or make them wealthy. But income alone does not give you happiness, nor wealth.
What You Can Do With Income
Income is a flow, or a stream, of money, and we get to choose what we do with it. At the end of the day there are only four things you can do with your money; you can pay taxes, you and save it, you can give it away, or you can spend it. That's it.
Do you have friends or family members who use their income to buy stuff - better cars, a nicer house in a nicer neighborhood, fancier clothes, and so on? This is usually driven by the belief that acquiring stuff will make us happy, but stuff doesn't make us happy and trying to look rich for our neighbors doesn't, either.
Money and Happiness Distraction
Ok, so if income and consumer goods don't make us happy, why do so many people chase these things? It's a good question that's worth exploring. Being truly happy is different from chasing happiness. Being happy is more about being grateful and appreciative for what you do have. Appreciating what we have is far easier when we have our basic needs met, of course. Having our needs met, though (basic and higher-level needs), isn't very easy to see, measure, or demonstrate. On the other hand money, how much of it we make, how much of it we spend, or how much of it we've collected, is very objective. People tend to use money as a proxy for happiness because it's easy. Unfortunately, measuring happiness with money and chasing more income and more spending doesn't fill our needs.
How Much Is Enough?
If you find yourself chasing more money, more success, and more stuff, ask yourself a question and give yourself an honest answer - when will it be enough? Once we set a target, say making $50,000 per year, do you think we're happy when we get there? Nope! Once we're there we set a new target - $100,000 per year. When we get there we move the target again, and on and on and on we go. It's like having a hat with a carrot dangling in front of us that we call happiness. Unfortunately, we can't get get it because it's always just out of reach.
The Relationship Between Money and Happiness
Poverty can give us misery, but once our household income gets up to about $75,000 per year, additional income doesn't make us much happier. We're all basically born with a base-level of happiness. Most of us find that even if we get some kind of a financial windfall, even though we'll get a short term jolt of bliss, it won't take long before we get back to our baseline level of happiness.
There are ways to use your money to increase your happiness, but chasing more money or success aren't it. Be grateful for what you have, and use your money ways that support your values.
References:
Dan Ariely, Jeff Kreisler: Dollars and Sense
Jonathan Clements: How to Think About Money
Dorothy B. Durband, Ryan H. Law, Angela K. Mazzolini (eds.): Financial Counseling
Daniel Kahneman: Thinking Fast and Slow
Carl Richards: The Behavior Gap
Behavior Gap Newsletter: "More money, more success, more stuff? Don't count on more happiness."
Thomas Stanley, Sarah Fallaw: The Next Millionaire Next Door
--
If you liked this post, consider joining the Money Health community. By signing up you'll get free Money Health eBooks and receive updates sent directly to you so you'll never miss anything.
If you would like some help using your money to give you happiness, or if you want to being more mindfulness and simplicity to your financial life, I can help you through Hagen Financial at www.HagenFinance.com.
If you would like to support Money Health and keep it ad-free, you can do so on Patreon.
© 2019 Hagen Personal Finance LLC. All rights reserved.
Read Full Article
  • Show original
  • .
  • Share
  • .
  • Favorite
  • .
  • Email
  • .
  • Add Tags 
"Things do not change; we change."
-Henry David Thoreau
"People do not resist change; they resist being changed."
-Peter Senge
I'm a teenager biking through the local college campus, pretending I'm really cool because I can ride up a ramp and "jump" down the four stairs on the other side. This is as close as I'll come to going to college; people in my neighborhood don't go. It's not even an option.
A few years later I'm working as a cook, and this is what I plan on doing for my life. It's good money compared to what I'm used to. One day, after a particularly stressful, under-staffed, supper rush, I realize that I need to do something different. I believe things would be better if I could sit at a desk and think for a living instead of doing manual work. I don't like it anymore.
I think about going to technical school so I can be an architectural drafter. I like this idea, so I want to do it. By taking this path, though, I have to realize that I'm going to have to get by on smaller paychecks, even change jobs while I'm in school. I'm not sure I'm ready for that.
I finally realize I am ready to go to school and deal with the lifestyle changes that are coming, so I start researching my options. I can't go to school for architectural drafting so I go for mechanical drafting instead. This led to a job drawing toilet stalls, which led to a degree in economics, which led to a job at an investment firm.
I couldn't have changed myself from a cook to a financial planner if I didn't first recognize the need to go to school and actually want to do it. It wouldn't have happened if I couldn't get myself ready for that change and I had to do some work to make sure I was able to do it.
What It Means to Change
Change quite simply means we want something to be different from how it is now. Unfortunately, this is quite difficult for us. In behavioral finance there is a concept called status quo bias, which just means that if given a choice, we tend to want to stay the same. That means we have to have a strong sense that change will be good for us; so much so that it counters our deep desire to not change.
I should mention that our desires to stay the same are so strong that we even keep doing bad things even though we know change would be positive. Think of all the people you know who smoke, have unhealthy diets, or don't exercise. If information and data were enough, these wouldn't be issues.
Similarly, in personal finance, many people under save, overspend, financially support people who should be able to support themselves, ignore their finances, become dependent on others for support, gamble too much, waste their money, mindlessly spend, keep money secrets, involve their children in money-related conversations, among many others.
People resist change because for many reasons, and any kink in the change-train makes it more difficult. First, you have know that you need change. Then you have to want to change. After you know you need to change and you want to change, then you have to be ready for change. Finally, after all that, you have to be confident that you are able to change.
Let's explore these steps in more detail.
The Need to Change
Knowing you need to change isn't always as simple as it sounds. It's true that most of us know that we need to save more (although that's not necessarily true for everyone), but fewer people know the benefits of consciously spending in areas that engage them and that they value. Many people may not know the negative effects of regularly giving money to those who shouldn't need support. Others may know that keeping money secrets is bad, but think they are doing the right thing.
In some circles, not knowing you need to change can be seen as denial, where people pretend they don't have a problem and/or blame others for the problem. That's only partially true. We might simply be completely unaware of our problematic behaviors.
The Desire to Change
Once you know you need to change, you have to want it. Knowing that you need to change but not wanting to change is a form of denial, although you're not technically denying the problem. It's like someone who knows they need to exercise more, but hates exercise so they don't do it.
This motivation to change has to come from the inside. In the professional space we call this intrinsic motivation. The opposite of intrinsic motivation is extrinsic motivation, and we're all familiar with it. This is when someone we know tells us about how we should change. "I know you hate the types of exercise you've tried, but you just haven't found one that worked for you," they'll say. The folks trying to give us extrinsic motivation can range from encouraging, like the example above, to shaming. An example of this might be, "You know you're going to get heart disease and die young, right?!" If someone pushes us to change, we're likely to push back, fall off balance, move away, and/or resent the person who pushed us. We don't like to be told what to do; it goes against our basic need for autonomy.
If we can figure out for ourselves that we want to change, nothing can get in the way. Once we put our mind to it, we got it. But it has to come from within us.
The Readiness to Change
You know you need to change, and you even want to change, but are you ready for it? Successfully making change in your life, financially or otherwise, means that things are going to be different. You have to be ready for that. Sometimes the thought of the change causes too much anxiety or fear. In that case you aren't ready yet. An idea to try to get ready is to visualize yourself in the end state. Feel what it's like and try to get used to that feeling. Think of it as a trial run.
The Ability to Change
You've gotten far, now. You recognize the need to change, you want to do it and you're ready. Now you have to be able to do it. This could mean knowing how - do you know what you're supposed to do? Sometimes you know what you're supposed to do, but you need some guidance or someone to provide accountability.
If you find yourself here and can't get over the hump, don't give up; you're close. Do some more research. Find friends who can help give you the accountability you need. Seek out someone who can offer guidance.
Change Is Difficult
The moral of the story is that change is difficult. We tend to jump around in our readiness to change. Some days we're all about change, and next week we're back to our old ways. Jumping around is normal. Sometimes we've even implemented the change, but we find ourselves back in our old ways - we relapse. This happens regularly and if it happens to you, it's perfectly normal and not a sign that you can't do it. Sometimes you just need a little nudge, a couple at bats, or maybe a daily process you can follow to make the change part of your routine.
Change can be hard, but we are wired to want to change for the better. Harness that instinct.
References:
Daniel Kahneman: Thinking Fast and Slow
Brad Klontz, Rick Kahler, Ted Klontz: Facilitating Financial Health
Bradley Klontz, Sonya Britt, Kristy Archuleta (eds): Financial Therapy
William Miller, Stephen Rollnick: Motivational Interviewing
--
If you liked this post, consider joining the Money Health community. By signing up you'll get free Money Health eBooks and receive updates sent directly to you so you'll never miss anything.
If you want help help making a change, or you want to being more mindfulness and simplicity to your financial life, I can help you through Hagen Financial at www.HagenFinance.com.
If you would like to support Money Health and keep it ad-free, you can do so on Patreon.
© 2019 Hagen Personal Finance LLC. All rights reserved.
Read Full Article
  • Show original
  • .
  • Share
  • .
  • Favorite
  • .
  • Email
  • .
  • Add Tags 
"Save more, spend less, and don't do anything stupid."
-Richard Wagner
"There is no secret. Just boring stuff. Simple. Boring. But certainly not easy."
-Carl Richards
I'm reading Kiplinger magazine and I'm fascinated. I wonder if I should subscribe to Money, Fortune, and Forbes, too. This personal fiance stuff is fascinating. I'm working a lot of hours at the family restaurant, but in my spare time I watch programs on cable that cover personal finance, like Suze Orman's show. This stuff just makes a lot of sense to me and I love how simple and straightforward it is.
It's now a few years later and I'm working as a bank teller with a coworker and friend of mine. He tells me that his brother told him, "You aren't really living until you rack up at least $20,000 in credit card debt." We laugh. "What a moron," we think. Nobody should have that much credit card debt! That's so much money! Plus, it doesn't fit into any of the rules we've ever read or heard about in our personal finance educations.
Now it's 2005 and I'm bummed that had to cut back on my hours toward the end my college career because I was making less but the bills stayed the same. I move to the Twin Cities (Minneapolis-St. Paul, MN) where I find a temp job helping people peddle subprime mortgages, but it only lasts a couple months. I find myself unemployed in an expensive city.
By the time I find the job that starts my career I've taken inventory of my credit card bills. Somewhere along the lines I borrowed $25,000 over 10 credit cards with interest payments of over $5,000 per year. My mind flashes back to how I made fun of my friend's brother for having credit card debt and now I've gone and done it.
It took some time, but I finally learned that this personal finance stuff isn't easy, even if it is simple.
Simple, but Not Easy
Simple and easy are not the same thing. Simple usually refers to concepts and rules. Are the rules simple or complex? Easy usually refers to performing. Is it easy to do or difficult? Mowing the grass is both simple and easy, because the concept of cutting the grass is straightforward and actually doing the mowing is not difficult. The game Rock, Paper, Scissors is easy, because it's not a difficult game to learn. However the game itself is rooted in game theory and predicting opponent behavior, so it's quite complicated. Everyone's favorite comparison, rocket science, is both complicated and difficult (i.e. not simple and not easy).
The formula for me to follow if I want to lose weight is pretty simple; burn more calories than I eat. That's it. Is that easy to do? Well, how's it going for you?
Similarly, the rules of personal finance are quite simple. Live on less than you make, save for the future, insure against large risks, and have a plan in case bad stuff happens. Yet, so many of us don't follow the rules of personal finance. Something else must be going on. When we think about how simple it is, that is the logical part of our brains. It makes sense. It's rule-based. But, there's a second part. Once we know what to do we have to do it. Getting ourselves to actually do it is the biggest factor tripping us up. That's because the culprit is our emotions.
Simple = Logical
Simple usually refers to the concepts. The opposite of simple is complex. There are some in the personal finance world (salespeople) who make a living trying to convince you (read: speaking to your emotions) that finance is complex. It can be, but if it's done properly it doesn't have to be. In the world of money, simplicity beats complexity every time.
Not Easy = Emotional
Easy refers to how hard it is to actually do. Unfortunately personal finance is not easy. The opposite of easy is difficult. Managing our emotions and instincts is what makes this quite difficult. There are a lot of negative emotions attached to money, such as guilt, shame, envy, anxiety, anger, fear, and regret.
It's not always negative emotions, though. The fear of missing out (or FOMO to my hip friends) gets us to engage in behaviors that aren't in our long term best interest because we want a short term reward, which gives us a hit of dopamine (which is very addictive).
Logic Versus Emotion
Human beings will do a lot to avoid these emotions, including sacrificing the long run for a less stressful short run. If everyone is jumping into some kind of investment (e.g. Bitcoin), we feel like we don't belong if we aren't participating. If nobody in our circle of friends or family follows a spending plan, we are going to feel like we stick out if we do. If taking long term risks is necessary to achieve long run success but we are petrified of losing money in the short run, we won't do it.
None of this makes sense logically, but makes perfect sense if we can understand the emotional state of the person making the decisions.
Emotion Wins
Logically we should do what is in our long term best interest. Since most of our decisions are made emotionally it often doesn't work out that way, though. All the financial knowledge in the world won't matter if you can't get yourself to do the right things.
Getting on the Same Page
If it sounds like your emotions control you and you have no choice, don't worry. We do have some options. The trick is to align our emotions and our logic. We can educate and train ourselves to learn to acknowledge when our emotions are taking over. We can put systems in place so that we know to follow our predetermined process that was set up when things were calm. We can utilize reminders and list reasons for having our plan in place. All these things help to intertwine our logic and emotion.
If we can learn to get in touch with our emotions, by first learning that it's okay to get in touch with our emotions, then we can learn to mange them.
References:
Brad Klontz, Rick Kahler, Ted Klontz: Facilitating Financial Health
Brad Klontz, Ted Klontz: Mind Over Money
Jane Bryant Quinn: Smart and Simple Financial Strategies for Busy People
Carl Richards: The Behavior Gap
--
If you liked this post, consider joining the Money Health community. By signing up you'll get free Money Health eBooks and receive updates sent directly to you so you'll never miss anything.
If you want help help with your emotions around money, or you want to being more mindfulness and simplicity to your financial life, I can help you through Hagen Financial at www.HagenFinance.com.
If you would like to support Money Health and keep it ad-free, you can do so on Patreon.
© 2019 Hagen Personal Finance LLC. All rights reserved.
Read Full Article
  • Show original
  • .
  • Share
  • .
  • Favorite
  • .
  • Email
  • .
  • Add Tags 
"It's not your salary that makes you rich, it's your spending habits."
-Charles A. Jaffe
I'm sitting at my desk, bored out of my mind. It's 2015 and I work in downtown Minneapolis in a building with a discount store in the basement. It's a Marshalls, but it wouldn't matter if it happened to be a TJ Maxx or Ross. I go down there to kill some time. After a few minutes I head to the checkout line with an armful of clothes. I don't need any clothes. How can I help it, though? Everything is on sale!f
The reason I'm buying so many clothes is the same reason retailers like Kohl's print in large numbers the total amount you saved (the amount you spend is small). I would pick up a shirt, look at the tag, and find out I can get a $99 shirt for $33! What a deal!
I never stop to think about whether this is the best use of my $33. Just because I save $66 (I'm being nice and assuming it wasn't marked up), doesn't mean the shirt is worth $33.
How Much Is Stuff Worth
It's really hard to put a value on things. Think about it. How much, in dollars, is a shirt worth? In (some would say) boring economic theory, the shirt would be worth more to someone who needed a shirt than it would be to someone already clothed with a closet full of shirts. But, that doesn't seem to stop people with closets full of shirts from paying top dollar for more clothes.
Since it's difficult for us to figure out what things are worth, we tend to rely on shortcuts. One easy shortcut is to look at the price tag. When we see the price tag we can see how the seller values the product and it's quite easy to decide whether or not we value the item above or below that. When they put it on sale, though, we keep the original price in mind when we consider the value of the item.
It's an interesting idea. We shouldn't care, though, what the old price was. Let that sink in. We spend so much time thinking about how much we are "saving" but the base for that savings is a price at which nobody wanted to buy it. It was a completely inflated price. The new price seems like a good idea because we compare it to the original price. Is it as good a deal if we compared it to other things we could spend our money on? Is giving away my $33 the best use of that money or could it be better used on something else...or saved?
Anchoring Effect (Jargon Alert!)
Our tendency to latch onto the original price of an item has a name that behavioral economists and psychologists use; it's called anchoring. Since we tend to be better at valuing comparisons rather than absolute numbers, we try to find a number to "anchor" to. Most of the time the anchor should have little or no impact on our decision, but we use it anyway.
If you think about a physical anchor, it keeps a boat from drifting, effectively keeping it in the same general area. Once you throw the anchor your boat can only drift within a certain range. That's the same thing with the anchoring effect, except that it usually involves numbers or ideas.
Examples
We've already talked about one anchor, the price tag on merchandise. Another biggie is the MSRP (Manufacturer Suggested Retail Price) of a car. They set the anchor and when you "talk them down" a few thousand dollars, you win because you got a deal. They win because it's still a healthy profit margin. They were the ones who got to set the anchor, though, and we compare the final negotiated price to their anchor, instead of the absolute amount.
Another form is the list price of a house. The listing price shouldn't make a difference when it comes time to value a house, but time and time again research shows that even professional real estate agents fall victim to this.
We can even anchor ourselves to our own behavior. Dan Ariely uses the example in Predictably Irrational that once we buy our first expensive coffee from a coffee shop instead of cheap coffee from a gas station, we have a new anchor set to what coffee should cost. Over time, paying more for coffee becomes easier and easier, because we've anchored to the price of expensive coffee.
When it comes to repaying debt, another anchor that gets thrown is the minimum payment on credit card balances. On one hand, you might be tempted to think that the minimum is there to make sure people pay at least a certain amount; without the minimum people might only pay a few bucks. The alternative viewpoint is that a credit card company wants to make interest and by anchoring your payment amount to a low minimum payment they can nudge you into taking longer to pay off your balance, lining their pockets in the process.
It doesn't even have to happen with straight numbers; it happens with beliefs. If you hold on to a certain belief and new information comes out you still hold on to your anchored belief. You might change your belief, but only slightly because you will still have your anchor attached to the original belief.
A first impression is another example of an anchor. The old saying is that you never get a second chance to make a first impression. This is so powerful because of the power of anchoring. Suppose I was having a really bad day when you first met me. I could have been short-tempered or otherwise seem uninterested. How many times would you have to meet the "real me" in order to convince yourself I'm not the jerk you met? How willing would you be to meet me that many times after that first impression?
The anchors don't even have to make sense. This is how powerful this bias is in our minds. If I asked some of you whether Mark Twain died before or after the age of 103 and then asked you to guess at what age he died, you will likely give higher estimates of his age at death than if I asked you if he died before or after the age of 31.
Take Advantage of It
You can try to use anchoring to your advantage. If you've put together a simple financial plan (like Carl Richards and Jane Bryant Quinn advocate), you might have a spending plan as part of it. Maybe you have a policy on how you will spend money, perhaps if something is over a certain dollar amount or a certain type of purchase you have to check it with your values. By taking a step back and anchoring your spending to your vision for your life, your plan, and your values, you can use the anchoring effect to help you make sure you are aligning your spending with your values.
Focus on What You Can Control
Remember, you should always focus on what you can control. You can't control what the cost of things are and you can't control whether or not someone threw an anchor out for you to latch onto. You can, however, focus on what's important to you and make sure you are using your dollars to support your good life.
References:
Dan Ariely: Predictably Irrational
Dan Ariely, Jeff Kreisler: Dollars and Sense
Daniel Kahneman: Thinking Fast and Slow
Michael Lewis: The Undoing Project
Michael Pompian: Behavioral Finance and Wealth Management
Jane Bryant Quinn: Smart and Simple Financial Strategies for Busy People
Carl Richards: The One-Page Financial Plan
Jason Zweig: Your Money & Your Brain
--
If you liked this post, consider joining the Money Health community. By signing up you'll get free Money Health eBooks and receive updates sent directly to you so you'll never miss anything.
If you want help help understanding how anchoring may be impacting you, or you want to bring more mindfulness and simplicity to your financial life, I can help you through Hagen Financial at www.HagenFinance.com.
If you would like to support Money Health and keep it ad-free, you can do so on Patreon.
© 2019 Hagen Personal Finance LLC. All rights reserved.
Read Full Article
  • Show original
  • .
  • Share
  • .
  • Favorite
  • .
  • Email
  • .
  • Add Tags 
"Let us make a special effort to stop communicating with each other, so we may have a conversation."
-Mark Twain
"There is a difference between listening and waiting for your turn to speak."
-Simon Sinek
"It was impossible to get a conversation going; everybody was talking too much."
-Yogi Berra
I'm standing outside in a foot of fresh snow. It's still coming down. It's the fourth snowfall in two weeks. Luckily, we have a small driveway and no sidewalks. "There's not much to shovel," I think, as I keep working. Recently our snowblower broke down and the cost to have it repaired was more than the cost of a new one. My wife and I had a conversation and I loudly make my point that I actually like shoveling and we don't need to spend our money on a new snowblower.
The mounds of snow are getting taller and taller, especially down at the end of the driveway where the snowplow comes; they are taller than I am. This makes it more and more difficult to heave the snow to the top of the pile. Plus, I'm not getting any younger; I get sore!
My wife helps me shovel and afterwards tells me that she thinks we should get a snowblower. What!? My mind jumps straight into the gutter and thinks about all the other things we could spend money on besides stupid piece of equipment we don't even need. I know how to shovel! How can she think about tossing our money out just like that; so easily?
Then, she reminds me that in addition to our driveway with the six-foot snowbanks, we shovel a very long path for our camper, which we keep in our yard and use to go winter camping. She very calmly tells me that one of the things she learned from me is that one of the best uses of money is to buy time. Instead of taking two and a half hours to shovel, I could use the snowblower and be done in 25 minutes. That's a savings of almost two hours per snowfall!
Crow doesn't taste very good!
In an instant I realized that I never took the time to find out why she wanted a snowblower; I didn't look for her point of view. I made some assumptions, and those assumptions turned out to be wrong.
Do you think this can happen with other money conversations? You bet it can!
Money Conversations Are Hard
Why is it so hard for so many of us to talk about money? On the surface this seems like a mystery, but if you take a minute and put any thought into it, it becomes very clear. Money is not natural to us. Our distant ancestors didn't have to worry about it. Money skills are foreign and most of us aren't prepared to deal with it. Money touches every area of our life. If you asked a fish about water it wouldn't have any idea what you're talking about. Money is our water. Money skills are the new survival skills.
When many of us think (or talk!) about money, a lot of negative emotions spring up. Emotions like shame, guilt, embarrassment, anxiety, fear, regret, and disappointment very quickly consume us. We have learned that alleviating these emotions helps us (in the short run) so when we think that a conversation might bring us negative emotions we tend to try to avoid it. After all, if we know bringing up money will lead to a fight, isn't it better to avoid bringing up money, so that we can avoid the fight?
How We Think (About Money)
I have to apologize for the next section on the brain. I know, BORING! However, I will try to keep it very brief and I think it helps understand how and why conversations about money often times blow up.
Our brains first develop a part of the brain that's responsible for our instincts. It develops at about six months old and resembles the brain of a lizard. The next part of our brain to develop is the part of the brain that's responsible for our emotions and resembles the brain of a monkey. It is developed at about six years old. Finally the part of our brain that is responsible for rational thought gets fully developed in our early 20s. I call this our thinking brain. The lizard and monkey brain together make up what we would call our subconscious brain, or what I call the emotional brain.
The thinking brain is what we would call our conscious brain, and is that part of the brain most of us think as "us." Unfortunately for many of us, our thinking brain makes only 1% to 9% of our decisions. We are emotional creatures. The thinking brain, however, does have the important job of controlling the impulses of the emotional brain.
If you've read (or heard of) Danial Kahneman's book, Thinking Fast and Slow, the fast brain is what I have called the emotional brain and the slow brain is what I have called the thinking brain.
Stressful Times = Fight/Flight/Freeze
All that brain stuff works fine together, normally. Imagine an person riding an elephant. The rider knows how to control the elephant just fine...in normal conditions. But, imagine the elephant gets spooked. Now the rider has ZERO control over the elephant. That's the same way our brain works. In times of high stress, our fast brain shuts off our slow brain. It goes into fight/flight/freeze mode (did you know 'freeze' is part of that?). In times of stress, our brains kick into survival mode and does what it needs to do to survive the moment. To do this it can't have a slow-thinking, hyper-analytical part of the brain costing it extra time.
The name for this when it happens during conversations is emotional flooding. When we are emotionally flooded we are not ourselves - we act like children.
Think Like a Parent
If you are a parent or are otherwise around children, you know that they can say some crazy things. Have you ever heard a six-year-old say something that, if said by an adult, would be terrifyingly offensive? When it happens, do you find yourself getting offended and verbally attacking the child? Of course your don't. You recognize that there is some reason the kid is acting this way. Perhaps she is hungry, or maybe he needs a nap. When they need something their brain tries to implement strategies that will work to meet what it needs in the moment. We know this when dealing with kids.
When we talk to other adults we lose our ability to recognize that the other person may be under stress and is doing whatever has to be done to get out of the situation. We do get offended. We often times counter attack. This is when fights get started. One person's thinking brain goes offline and the emotional brain takes over. Then, like clockwork, the other person gets offended or otherwise stressed, and that person's emotional brain takes over. Then, we are in a fight/flight/freeze situation (usually fight at this point) full of conversations we are likely to regret.
Author and thought-leader Ted Klontz has said that he thinks conversations would go much smoother if we treated other adults the way we treat six-year-olds - at least in terms of emotional flooding. When someone says something that sounds offensive or otherwise uncharacteristic, it's likely that the other person has entered a time of high stress. In this case, wouldn't it be better to take a step back, let the emotions clear, and try again later?
Acting Like a Six-Year-Old
Emotional flooding causes our thinking brains to become disconnected. If we are under high stress, then we are acting like six-year-olds. We say and do things that we normally wouldn't say because our emotional brain is trying to get us out of the high-stress situation. When connected, our thinking brains are able to control the crazy things that the emotional brain wants to say and do. Unfortunately, when it's kicked offline, there is nothing to control those impulses.
Have you ever had a heated discussion with someone and a half hour later you wondered to yourself, "Why did I say that! What was I thinking?!" That's because there was nobody watching over your six-your-old emotional brain. Then, when your thinking brain came back it got to see what happened when it was away.
The next time someone you love says something that seems like it might be getting close to offensive, ask your self this:
Is it more likely that this person that loves me is trying to hurt me or that s/he is stressed out because a need isn't being met?
You might find that by taking a step back and asking yourself if you think this person wants to hurt you, that you will be better able to figure out what need they are looking for; what caused the emotional flooding.
A Better Way
Have you ever played the game "Telephone" in school (sometimes called "Chinese Whispers")? It's a game where you sit in a circle and one person starts by whispering something in the next person's ear. Then that person whispers that message into the next person's ear. And on and on until it gets back to the person who started. It's a funny game, because it NEVER gets back to the start as the same message.
The same can be true in a conversation with two people. You have something you want to say, then you say something that you think is what you mean. I have to hear what you said and then I make a guess at what you mean. Sometimes the gap between what you meant and what I thought you meant is huge.
With understanding as our goal, we can use something called reflective listening. With this communication strategy you simply reflect back what you thought you heard. It can take the form of, "If I understand you correctly you...," "What I heard was...is that right?", or "It sounds like you..."
Then, the speaker (usually your partner) gets to confirm or make corrections.
Empathy: The Goal Is to Understand
Understand that we are not ourselves when we become stressed out, or get emotionally flooded. Seek to understand what the other person is saying and what needs aren't being met if stress is high. Use reflective listening to try to fully understand what your partner is saying and you'll be able to better empathize and put yourself in his or her shoes.
References:
Daniel Kahneman: Thinking Fast and Slow
Brad Klontz, Ted Klontz: Mind Over Money
Ted Klontz: "Exquisite Listening®" Workshop
Carl Richards: "Talking About Money" Workshop
William Miller, Stephen Rollnick: Motivational Interviewing
Marshall Rosenberg: Nonviolent Communication
Bob Veres: The New Profession
Richard Wagner: Financial Planning 3.0
--
If you liked this post, consider joining the Money Health community. By signing up you'll get free Money Health eBooks and receive updates sent directly to you so you'll never miss anything.
If you want help having healthier conversations about money, or you want to bring more mindfulness and simplicity to your financial life, I can help you through Hagen Financial at www.HagenFinance.com.
If you would like to support Money Health and keep it ad-free, you can do so on Patreon.
© 2018 Hagen Personal Finance LLC. All rights reserved.
Read Full Article

Read for later

Articles marked as Favorite are saved for later viewing.
close
  • Show original
  • .
  • Share
  • .
  • Favorite
  • .
  • Email
  • .
  • Add Tags 

Separate tags by commas
To access this feature, please upgrade your account.
Start your free month
Free Preview