Struggling With Your Finances

How this psychological behavior is causing you to lose lots of dollars

loss aversion
The pain of losing is twice as strong as the gain

Hey, did you notice an increase in your paystub?  You may want to check it out.   If you did, you are part of the 90 percent of Americans who will have experienced a positive net gain in their take home money.

But have you given much thought to what you will do with that extra money?

Chances are you haven’t given it much thought.  Honestly, I have not done much with mine yet.

Unfortunately, you and I will struggle to save that extra income because it is so much fun to spend rather than save.  Who can relate?

Wait, I have a mental condition?

Yes, we all do!  There is  a psychological behavior that will keep you from saving.  This behavior is known as loss aversion, or the hate of losing.  Loss aversion is a psychological state of mind where the “pain of losing is twice as powerful as the pleasure of gaining”.

We know we need to do something smart with that little extra money and yet we choose to do nothing.   This same behavior is seen  in different areas of one’s life:  health, spiritual well-being, education, and list continues. We know the benefits gained from each of these actions are great, but the pain of losing time, money, relationships, or other resources will keep you from taking action.

Look around your influential circle of friends and you may see the benefits experienced by overcoming loss aversion.   These benefits did not happen overnite.  They probably battled loss aversion at some time yet they did something about it and they took action.

Inaction breeds company and it will have an impact in many areas of your life.

Now that we know that loss aversion keeps us from investing let’s explore the solution

The more steps or actions an activity requires the less likely we are to take a step forward to bettering ourselves.   For example, we need to get in shape and for some reason we believe we need a new workout wardrobe, hire a trainer, and post your accomplishments.  These are but a few things that keep you from taking action.  So many unwritten rules to follow it seems.  But disregard those and get going.

 Let’s look at savings and retirement

The lingo alone will drive one insane!  Annual percentage rate, annual percentage yield, certificates of deposit or CD, bonds, IRA, 401K, etc etc!  That is why your accounts have not grown or you have not started.  According to a report, 50 percent of Americans don’t participate in their 401Ks and reasons stated include: feeling overwhelmed with the many choices, laziness, and struggle with deposits.  I remember feeling all the mentioned emotions as I enrolled in my company 401K.  Trying to be in compliance with company policies, understand vacation policy and now 401K!

The struggle was real and I’m glad I took that plunge. I was afraid to ask questions. Here’s an MBA student who has no idea how to invest, I thought they would say.  I had no idea or direction and no one to turn to.

Don’t let that hold you back! Take action.  My experiences have shown that the first step you take, is the most important one.  Over time you will become more educated and can make wiser choices in your finances.

Turn the challenges into solutions

You might have heard the acronym KISS- Keep It Simple Silly.  Try taking advantage of automatic contributions.   Let the accounts withdraw from your check before you have time to spend it.   If you don’t see it you will not miss it.

Understand as you save more it does not necessarily mean you will spend less.  If you have a budget in place this will keep you focused on your goals.  I’m old school and prefer to look at spreadsheets when using my budget.  There are apps that keep this process simple.  Don’t see saving or investing as a present loss but a future gain or victory.  Keep focused on your goals.

Helpful bits

We are visual creatures.  We like wooing and awwing over beautifully created pictures.  I can spend hours on hours looking through Pinterest and Instargram.  Do the same for  your finances.  Use visuals rather than figures to help you achieve goals.

For example, instead on fixating on a $500,000 retirement, use visuals that that money will help you reach.  Visuals such as vacations, nicer home, or activities you enjoy doing with your family and friends.

Don’t allow loss aversion keep you from achieving your goals.  Learn to focus on the gains and not what you will be losing.  Remember the pain of losing needs to be dealt with.  Keep reminding yourself of the benefits or gains you will be able to enjoy.

How have you been able to overcome loss aversion?  Care to share?

 

Women Outlive Men

How prepared will you be when you retire? Now is the time to take hold your finances.

The Social Security Administration Reported That Women Outlive Men

Women Outlive Men

This Got Me Thinking…

Does Jessica Know What Our Retirement Accounts Consist Of?

I figured women outlived men.    Men are risk-takers and most men would agree that this risk is fun!   I recall my brief thought of being a bull-rider at the age of 23.  That idea lasted for a split second and am grateful it did.

There are the exceptions. My grandfather is approaching 96 years old while my grandmother passed away almost 35 years ago.

According to the Social Security Administration, Jessica is expected to outlive me.  This motivated me to bring her up to speed on our net worth, asset allocation model, taxes, IRA to Roth IRA conversions, etc.

I typically handle the finances but  needed to immerse Jess in investment terminology and options.  Finances are typically seen as a men’s world and the reality is they need to be managed by both spouses.

As a Result I Developed a Cheat Sheet To Guide Her

I have put together a guide that I have used to grow our retirement account.  This includes an overview of different types of retirement accounts, our portfolio and asset allocation model.    

The idea of making more money in retirement than in our working years is a reality and not a dream.   It’s exciting to know that we have changed our family legacy!  My daughters will not have to go into debt to pursue their college education or worry about retirement.

And more importantly, Jess will have been educated on retirement.

I Challenge You To Make Retirement a Reality

I share this cheat sheet not to boast but to encourage and motivate you to start or evaluate your retirement strategy.  Trust me, retirement will sneak up on you and you’ll need to be ready.

Growing up in low-income home I believed retirement and investments were for a select people. That is no longer my mentality and hope you believe the same.

It gets easier the more you investing you do.  You develop your financial muscles 💪🏽.  Investing has been part of our strategy for over 14 years.  There is no reason that you should not be able to retire.

Retirement is for all.  It does not discriminate or is it exclusive to one social economic group.

How A Masters Degree in Business Did Not Provide the Financial Guidance I Needed

While I am proud of having received an MBA degree I was ashamed that my finances were in rubbles.  The degree taught me how to do great research as many papers were written.  And the personal finances class I might have missed at some time.  I had to learn to manage my personal finances on my own and  at a high expense. 

Financial Disruptor

This tagline has brought some healthy conversations.  I believe that anyone can be a financial disruptor.  A disruptor is defined as a person that prevents something, especially a system from continuing as usual.  

That usual was our finances. It wasn’t until we started budgeting, eliminating debt, and investing that we disrupted our finances.  Action was taken and  Financials were Disrupted.  I say we because it is a team effort.  Jess, myself, and the kiddos.

Ready to See What We Are Doing For Retirement

The available guide details our portfolio and asset allocation model.  The model is not unique to our financial situation and can be mimicked.  Most asset models can be duplicated as majority of investors place their funds in large capital, small capital, international funds, and stocks. These terms are defined in the reading.

Feeling motivated?  You can sign up to receive the FREE guide.

Disclaimer:

I am not a licensed professional. I do play one at the Gallegos’ residence and have done well.  Those are the words of my financial advisor.  You can expect the material you read to be educational, informative, and entertaining.