“Knowing what to do tells you nothing about what happens
in your head when you try to do it” – Morgan Housel
I love this quote from finance writer, Morgan Housel, because it applies to many areas of our lives, including our finances. Many of us have committed (and recommitted…) to exercising and getting into better shape. We know this is the right thing to do for our physical and mental health but what happens in your head when that 6:00 am alarm goes off, screaming at you to get moving? Maybe you think about how warm it us under your blankets. Or how dark it is outside. Or, if you could just get 10 more minutes in bed, you’ll be ready. Then 10 minutes pass and, really, you just need another 10. You keep rationalizing that you have time until, alas, it’s time to get ready for work or make the kids breakfast or… You know what you need to do but there is a lot going on in your head when you try to do it.
Applied to our finances, the same patterns can be seen. We know we should be saving for a secure future but, if we don’t have an automated plan in place to accomplish that saving, it often slips through the cracks. I recently met with a couple who indicated they’re trying to save more but their paychecks just go into their checking account and, next thing you know, it’s spent. Is it safe to assume they know that automating their savings (which they now have, by the way) will cure this sickness? I think so. But what happened in their head when they tried to do it? They thought – well, how much should we automate? But I don’t want us to feel tight, so maybe we should automate less? But, at the same time, I want to make sure we’re hitting our savings goals, so maybe we should automate more. Well, we have that big thing coming up, maybe we should wait until that’s over and then start. Come to think of it, what did our plan say we needed to save anyway? We have a meeting with our advisor in a few months, let’s just wait until then so we make sure we’re doing it right. You know what you need to do but there is a lot going on in your head when you try to do it.
This isn’t just about saving either. What about those stock options that just vested, or those RSUs you’ll receive next month, or that life insurance you’ve been meaning to get around to? What’s your plan for those?
Think about a big decision that you know you need to make but it’s not urgent. If you’re like me and my wife, you probably bring it up and decide it’s too hard (or you’re too tired, or too busy, or, or, or…) to decide now. Maybe you need more information, but you haven’t had the time to find it. Or you found so much information that you don’t know what applies to you. Or you know the decision you want to make but something in the back of your mind is saying “are you sure?”. So, instead of deciding, you put it off. The decision, and the accompanying worry about the decision, doesn’t go away; it just sits there waiting. You know what you need to do but there is a lot going on in your head when you try to do it.