This past Sunday evening, I sat down to write this blog. I turned on my laptop. Opened a blank document and then . . .
Stopped briefly to check an e-mail.
Took a quick peek at my Facebook feed.
Got up and refilled my water.
Double checked who was leading this week’s PGA golf tournament.
Ran outside to move my daughter’s soccer goal out of a mulch bed.
And, finally, sat back down to being typing.
Procrastination is natural and often the result of present bias, just one of many side effects of our brain’s ongoing war with itself more commonly known as cognitive bias.
Cognitive biases are the tendencies we all have to filter decisions and actions based on our individual likes, dislikes and experiences. These leanings have a constant impact on our lives, big and small. They’re only natural and the very essence of what defines human nature. For a comprehensive list of the spectrum of cognitive biases and how they impact us every day, click here.
Thinking about thinking is the focus of many disciplines and the subject of many books. Two of my favorites are Thinking, Fast and Slow by Daniel Kahneman, who (as a client reminded me) is actually a psychologist who impressively won the Nobel prize in Economics, a field outside his own, and You Are Not So Smart by noted blogger David McRaney.
With our personal finances, making decisions about saving for the future, how to invest, when to retire, etc. is not as intuitive in the moment as it may seem. As the video below does a great job of explaining, our current selves have an incredibly difficult time doing anything to benefit our future self, even though we know we’ll be fully accountable in the long run. We don’t have the ability to take more than one or two emotions into account at any moment, so concerns for the future quickly and commonly lose out. We can talk a good game, but often fail to back it up with any regularity.
So, what’s the secret? How do we avoid all of this? Fix our brains and live a life free of all these potential hurdles? I have some bad news. You can’t, at least not completely. It’s called human nature for a reason.
The goal, then, isn’t to beat these biases, but to increase self-awareness and create processes that limit the ability for impulses to do significant damage to otherwise well laid plans.
A very basic example of this is automating contributions to a college savings plan, 401k or other savings vehicle. It’s not rocket science, but automating these processes eliminates the potential to forget, to be tempted into spending on other things, or to rationalize why saving isn’t a good idea in the first place.
A significant part of the work we do with clients in building financial plans, creating streams of retirement income from portfolios, etc. revolves around creating these processes and acting as a sounding board and filter for ideas that may be under the influence of these natural biases. Having an unbiased third party with your best interests at heart can be an invaluable tool in ensuring your goals and best intentions are realized.