Money & Psychology – Part 3

For the next few weeks, I want to discuss money and psychology. What are some of the tactics of marketing that can cause us to consume irrationally?

Podcast Details:

Podcast Title:  Money & Psychology – Part 3

Podcast Series: The Maven’s Keys to Financial Contentment

The Maven’s Keys to Financial Contentment is my idea that true financial contentment can be found when an overlap of money and beliefs occur.  Many people ask the question of how to be “financially content” and this is a discussion to uncover those answers.

Link to Show Episode

So last week we covered 2 ways marketers have used tactics that influence us into decisions on how we spend our money. Go back and listen to episode 25 to play a little catch up as I want to move right into Part 3 discussing two additional tactics.

“Pavlovian” Association

“Pavlovian” Association -This is the idea of associating a product or idea with something we are already familiar.

I think the biggest exploitation I’ve seen is when athletes (or celebrities) are used to promote products. I’ll be dating myself here, but back in the day, Reebok came out with this pump technology for their basketball shoes.   And apparently the idea was that the pump gave you a more secure feel around your foot and ankle making the show inherently more comfortable–essentially a tighter shoe. But I know my peers were thinking they could jump higher and all types of things just from wearing this shoe. Well, then Reebok was wise enough to get Dominique Wilkins to endorse this product which obviously affected sales positively.

(1989 Reebok Pump Commercial – featuring the “Human Highlight Film” -Dominique Wilkins)

Social Proof

Social Proof – This idea is closely tied to “Association” in my opinion, but it takes it to another level when our peers say that something is good.

Right? I looked up to Dominique Wilkins as an aspiring 15 year-old wanting to play in the NBA, but when the captain of my basketball team in High School is wearing the same shoe….well I had felt like I needed a pair!  (I wanted to dunk too!!)

Animated GIF  - Find & Share on GIPHY

(Needless to say, I didn’t need the Reebok pump to pull this off…)

Social proof is how companies like Amazon or Google use “reviews”. These are your peers telling you that the product is good or bad…they are providing these endorsements based on what they have experienced. If we aren’t careful we’ll consider all social proof as objective advice which it is not–but marketers are counting on the fact that we will.

Next week we’ll put a nice bow on all this and talk about how we use all this to make better decisions with our finances that affect our life.

 

#finlit
#behavioralfinance
#behavioraleconomics
#moneymindset
#psychology

 

Helpful Links:

Rob Cialdini’s Influence Book

Charlie Munger Talk on YouTube

About Me:
Dominique Henderson, CFP® is founder of DJH Capital Management, LLC., a fee-only, registered investment advisory firm specializing in comprehensive financial planning and wealth management.

#FinancialLiteracyBootCamp

Sound bumps provided by www.bensound.com

Strong Considerations During Career Transition

No matter how hard we try, we all inevitably face career transition. Having had experience with my fair share of career transition, I thought I’d share some of the things that successful career-changers have implemented…

Podcast Details

Podcast Title:  Strong Considerations During Career Transition

Podcast Series: Financial Literacy Boot Camp

Link to Show Episode

No matter how hard we try we all will be inevitably faced with a career transition–whether that be within the same company but a new position, a new company altogether or a complete career change and the ever so famous “starting your own business”. Having had my fair share of career transition I thought I’d share some of the things that successful career-changers have implemented.

Here’s a list for your “consideration”…

They consist of the following:

Consider Cash Flow
This is what will kill a new business quick if you are an entrepreneur. And it is not necessarily your business expenses, but your personal living expenses [that don’t stop] when you are trying to get a new venture off the ground.  Or perhaps you are going to a high base salary to a more commission based job.  Whatever the scenario, you’d do well to have good cash flow management strategies in place prior to your transition. A good rule of thumb for your bank account is to have 3-6 months in living expenses. This can be more but not less.

Consider Your Company Benefits
If you split this into 2 categories–current considerations and future considerations–you might think of things like company benefits such as medical care as something to consider in your career transition. How similar is the coverage between Company A and Company B?  If this is misunderstood, you can be leaving benefits on the table.   In the future consideration camp, consider “deferred compensation” and 401(k) accounts as things to try and maximize without leaving much behind.  A lot of people leave the money in the plan because they don’t know what to do with it but this is not the best choice in most cases. Another thing could be vested shares of stock or options or other types of incentive pay. These all should be carefully reviewed for the ramifications of you leaving or transitioning from the company.

Consider Your Biggest Asset–Your Home
Buy/Sell/Rent my home?
Check out another version of this explanation from my Facebook post.
One of the best financial decisions I made before starting my company was to refinance my home mortgage from a 30 yr loan to a 15 yr loan. This freed up some monthly cash flow and ultimately was the best decision for me and my family based on our long-term plans. I’d highly recommend reviewing your long-term housing plans prior to career transition to see if it makes sense to find a way to reduce interest, make improvements, etc before you take a pay cut.  I often get clients caught in whether they should rent, buy or sell when they are forced to move to a new city. Well, there is some math to this. If you decide to rent out [a previously purchased home], consider if the all-in cost of renting will be less in what you could charge. And if so, is that difference big enough for you to become a full-time landlord or pay someone to manage the property. If not, save the land lording for a game of Monopoly and look to sell your home.

What if you are upside down?
When you are underwater on the mortgage, it may be best to just rent our previously purchased home because you have no other choice.  But if you’re in a career that has you moving frequently and you haven’t purchased a home, you may consider renting until you get more stationary. Believe me, I know the hassle more than most being a military brat, but at some point, you have to be smart about your finances. And buying and selling homes without making any money is not a smart financial transaction and it will negatively impact your net worth.

Consider Your Mate
Hopefully, it goes without saying that if you are in a marriage relationship, you need to get your spouse’s support on any move.  If you want to add unnecessary stress to your relationship, just ignore my advice here.  Having been married for over 20 years, there hasn’t been any major move I’ve made in my career without the support of my wife.  When things are not looking rosy, you’ll need the support of your significant other in those times especially.

#financialplanning #careertransition #newjob #finance #financialadvisor #financialtips #financialadvice #episode55

Helpful Links:

About Me:
Dominique Henderson, CFP® is founder of DJH Capital Management, LLC., a fee-only, registered investment advisory firm specializing in comprehensive financial planning and wealth management.

Sound bumps provided by www.bensound.com

Money & Psychology – Part 2

For the next few weeks, I want to discuss money and psychology. What are some of the tactics of marketing that can cause us to consume irrationally?

Podcast Details:

Podcast Title:  Money & Psychology – Part 2

Podcast Series: The Maven’s Keys to Financial Contentment

The Maven’s Keys to Financial Contentment is my idea that true financial contentment can be found when an overlap of money and beliefs occur.  Many people ask the question of how to be “financially content” and this is a discussion to uncover those answers.

Link to Show Episode

The 5 Ways to Spend Money

So last week we discussed the 5 ways to use money.  And I invite you to go back and listen because you’ll need context for today’s discussion.
Today I want to start uncovering some of the hubris that plays a part in that “manipulation”.   A lot of what I’ll be discussing going forward will be the synthesis of things I’ve heard from a couple of sources primarily and that is a speech given by Charlie Munger at Harvard back in 1995 and some things I’ve read in Bob Cialdini’s book “Influence”.  I’ll put links to both in the show notes.
Basically, both describe how we as humans fool ourselves into bad judgment and poor decisions because of cognitive biases we have.  Here are some examples of our irrationality…

Psychological denial
Psychological denial – The premise is that our reality is too difficult to bear, so we make up something to justify our behavior.
I think the most common instance of this being used against us in when people play the lottery.  So statistically speaking, you have a better chance of being struck by lightning than playing the Powerball.  I don’t have to even get terribly scientific to prove that either.  There are 300 million people in the US so that means there’s at least a 1 in 300,000,000 chance for starters, but when you factor in that people buy multiple tickets…

Consistency and Commitment Tendency
Consistency and Commitment Tendency – This is the idea that we as humans like to be consistent and stick to our word.

Which in and of itself is a great thing–we want people to honor commitments (especially the ones they have made to us).  But what if what you are sticking to is just DEAD WRONG.  I’ve covered this in a previous episode of the FLBC, where I’ve seen investors that own a company stock and they hold on to that investment even though it is losing value and this is because of a bias they have.  Marketers realize this and they know that even if they sell you a bad product or service you will continue to buy because of your commitment to what you have said you will do.
 
Next week I’ll cover 2 more common tactics that are used by marketers as we continue our discussion on Money & Psychology.

#finlit
#behavioralfinance
#behavioraleconomics
#moneymindset
#psychology

 

Helpful Links:

Rob Cialdini’s Influence Book

Charlie Munger Talk on YouTube

About Me:
Dominique Henderson, CFP® is founder of DJH Capital Management, LLC., a fee-only, registered investment advisory firm specializing in comprehensive financial planning and wealth management.

#FinancialLiteracyBootCamp

Sound bumps provided by www.bensound.com

How Do the Rich Really Get Rich?

Today we cover a subject that nearly everyone is interested in and that is getting rich. And more specifically, how that process happens. I provide the “Cliff Notes” version of the actual mechanism on how wealth is generated.

Podcast Details

Podcast Title:  How Do the Rich Really Get Rich?

Podcast Series: Financial Literacy Boot Camp

Link to Show Episode

What is Systematic Risk?
So there is a term called systematic risk. And I have to cover this because it will give context on “how you get rich”. Systematic risk is the risk inherent to a “system”. Think of investing in the stock market and the risk that comes with investing in equities.  There are risks inherent to that type of investment that are unavoidable and non-diversifiable. This would be defined as the uncertainty associated with investing in this system.

This is not to be confused with “systemic” risk which is risk similar to the collapse of 2009 where subprime mortgages almost took down the entire financial system. So if you invest in a system (e.g. commodity, stock, bonds, Bitcoin, etc.) you will have systematic risk. Lowering your total systematic risk will be a function of you accessing the types of risk, isolating them, and attempting to mitigate each individual risk. This is nearly impossible which is why it is inherent to the system.

What is Nonsystematic Risk?
Which now brings me to non-systematic or unsystematic risk. This is risk not inherent to the system but instead is very specific and is able to be diversified.  If you were an Enron employee in the early 2000s and most or all of your 401(k) was in Enron stock you have both systematic and nonsystematic risk, the latter due to the lack of diversification in your portfolio.  Nonsystematic risk can always be reduced or eliminated by spreading your investment dollars across multiple asset classes.

So How Do the Rich Rreally Get Rich?
Well, in short, they have a lot of nonsystematic risk in their portfolio. They have very concentrated positions in their portfolios. They usually use leverage to magnify their concentrated bet also.

Is this safe…?   It totally depends on the person.

In Ashvin Chhabra’s book, The Aspirational Investor, he has a chapter entitled: “How Do People Become Very Wealthy?” he talks about the Forbes 400 list and the 4 categories of wealth that comprise the list.

1) Business Owners comprise 60% of the list
2) Financiers comprise 20% of the list
3) Inheritors comprise 12% of the list
4) Real Estate Veterans comprise 8% of the list

#financialliteracy #financialadvice #financialplanning #forbes400 #wealth #rich #money #episode54

Helpful Links:

About Me:
Dominique Henderson, CFP® is founder of DJH Capital Management, LLC., a fee-only, registered investment advisory firm specializing in comprehensive financial planning and wealth management.

Sound bumps provided by www.bensound.com

Money & Psychology – Part 1

For the next few weeks, I want to discuss money and psychology. What are some of the tactics of marketing that can cause us to consume irrationally?

Podcast Details:

Podcast Title:  Money & Psychology – Part 1

Podcast Series: The Maven’s Keys to Financial Contentment

The Maven’s Keys to Financial Contentment is my idea that true financial contentment can be found when an overlap of money and beliefs occur.  Many people ask the question of how to be “financially content” and this is a discussion to uncover those answers.

Link to Show Episode

The 5 Ways to Spend Money
For the next few weeks, I want to discuss money and psychology.I’m going to begin this series with a concept I read in Ron Blue’s Book “Master Your Money”. And I’d like to use that as context to set up the first part of this discussion. He mentions a lot of things in this book and I highly recommend it for its principles and content.

There are 5 ways to spend money he says:

1) Tax Payments
2) Debt Payments
3) Giving
4) Lifestyle Support
5) Saving

I bring this up because of these 5 ways there are some that are pretty constant…the first 3 ways are going to be “constants.” No matter how much you try, most of your income will be spent in those categories.  Taxes alone can take almost 40-50% of what you make over your entire life span…even when you die!

So this means that lifestyle support and saving fall to the bottom of the list in priority and proportion of income remaining to allocate there. Further, if you are over-consumptive in nature, you will have even less to save and invest.

And this is where “marketing” psychology comes into play.   I’ll discuss this more in Parts 2 and 3 of this series for you.  But, in short, you have to realize that the greatest marketing companies which are out to sell a good or service understand this hierarchy (of spending) and they are vying for a piece of the pie. They are hoping and putting a lot of effort into the “bet” that you will regard #4 over everything else on the list. Therefore, they use various tactics to make you consume more, when in reality a large portion of that consumption is unncessary at the time you consume it or AT ALL.

Next week, we’ll discuss some of those tactics that are being used “against us.”

#finlit
#behavioralfinance
#behavioraleconomics
#moneymindset
#psychology

 

Helpful Links:

About Me:
Dominique Henderson, CFP® is founder of DJH Capital Management, LLC., a fee-only, registered investment advisory firm specializing in comprehensive financial planning and wealth management.

#FinancialLiteracyBootCamp

Sound bumps provided by www.bensound.com

Listening…The Advisor’s Best Tool

What is the financial advisor’s greatest tool? Hint: You have two ears, but only one mouth.

Podcast Details:

Podcast Title:  Listening…The Advisor’s Best Tool
Podcast Series: Financial Literacy Boot Camp

 

The latest research suggests there are:
  • over 400,000 advisors in the US
  • over 164MM working adults (26-65) or “potential clients”
Based on these numbers, every financial advisor would have about 400 families to serve, and everyone wanting financial services would have an advisor and every advisor that wanted to serve clients would have plenty of clients to make a good living.

Factors disrupting this Utopian like scenario would be…
  • DIY Investors (that will likely never hire an advisor);
  • Robo Advisors (that will absorb some of the need for investment management service specifically);
  • there are bad advisors that don’t deserve 1 client let alone 400;
  • there are good advisors that on their best day can’t serve that many clients
ThinkAdvisor asked Alan Alda (M.A.S.H actor and former financial advisor) the following question:
TA: Why is it critical for financial advisors to communicate well?
AA: “It’s important, not so you can sell people something they don’t need but so you can help them see what they do need if you understand their goals and how they can reach them. If they don’t understand you, your clients are in danger of leaving the way I had to leave my accountant when I couldn’t understand him because he was talking in jargon — for years and years.”

My point on his comments…
Jargon alienates people.  When I go to my doctor I expect him to break down in simple terms what’s going on.  Since he’s a good physician he should be able to use all the medical terms (as if he were with peers) and then switch to a good “bed side manner” as if he were with patients.  To me, this is the mark of a good physician.  He understands that my goal is not to become a doctor, and therefore, I don’t need all those fancy terms, I just want my problem fixed.  Same way with a financial advisor.  Clients just want their problem fixed and they want to know that you can help them.  No need for fancy terms, just solutions.  You can only do this when you listen.
Alda also mentions that some clients will be afraid to ask “what does that mean” when and if they don’t understand something.  Here’s the power of being able to conduct a dialogue with clients versus a monolog.  In many cases, I’ve seen where the advisor is talking so far over the client’s head that there is a disconnect. This only causes the relationship to drift apart eventually and unmet expectations ensue.

TA:  Generally, how does one relate better? 

AA:  “It doesn’t involve staring at someone in the eyes. It involves taking in the whole person. Some research I helped get done suggests that there’s a real advantage in increasing your empathy [stepping into the other person’s shoes] by paying close attention to who you’re talking to, trying to figure out what they’re feeling by observing their face. So there’s a little science suggesting it really does matter.”

My point on his comments…
So this is a really salient point because people really don’t care how much you know until they know how much you care.  Any service professional has the duty to listen to the client and place his or her self in the client’s shoes.  After all, the client is coming to you with a problem because they think you have a solution.  We do well to fully understand the problem before inserting a solution.  I talked about “diagnosing” on Maven’s Keys recently.  So I’ll use the physician analogy again.  Any good physician is going to first diagnose the malady prior to prescribing medicine.  Here’s where the experience factor for advisors really comes to play because after working with so many clients you will begin to diagnose more accurately after listening to the client.  Unfortunately, this isn’t necessarily taught in classrooms, and even when it is, it has to be practiced constantly for the advisor to become good at it.

#FINANCIALLITERACY #FINANCIALADVICE #FINANCIALPLANNING
#LISTENING#CLIENTSUCCESS #ADVISOR SUCCESS
#EPISODE53

Helpful Links:

About Me:
Dominique Henderson, CFP® is founder of DJH Capital Management, LLC., a fee-only, registered investment advisory firm specializing in comprehensive financial planning and wealth management.

Sound bumps provided by www.bensound.com

Financial Idioms and What They Might Really Mean…

Today, our conversation is on the subject of language and the terms or “financial idioms” we use to describe our finances. Perhaps these statements suggest a picture of our “real” feelings.

Podcast Details:

Podcast Title:  Financial Idioms and What They Might Really Mean…

Podcast Series: The Maven’s Keys to Financial Contentment

The Maven’s Keys to Financial Contentment is my idea that true financial contentment can be found when an overlap of money and beliefs occur.  Many people ask the question of how to be “financially content” and this is a discussion to uncover those answers.

Link to Show Episode

Today, our conversation is about the language we use around our finances. You may or may not believe that words are just containers for our emotional thoughts.  What we speak or say about something is truly how we feel it about.  Note:  Ever been around someone at Happy Hour and they start to reveal “TMI” (aka too much information)????

When it comes to our finances there are several things that we say or have heard others say that are popular in our language (“financial idioms”) and I think these statements have an underlying meaning that could really reveal a lot about where we are financially and/or emotionally.

For example…
  • My spending is “out of control”.  What does that mean?  Well at first glance, you’d say that this person is recognizing a lack of discipline with how much they spend possibly in relation to what they make.  But think about what it looks like when other things are out of control or get out of control (e.g. a car).  To say that your spending is “out of control”, you may very well be dealing with a discipline issue.  But, aren’t you really saying that you don’t know what you are doing? You are likely playing in an area where you need more education/knowledge.  Another saying similar in connotation could be “living paycheck to paycheck” or I keep having to “rob Peter to pay Paul”.  All these statements suggest a lack of knowledge in regards to implementing a strategy to allocate resources properly.
  • I hear a lot of individuals say “they don’t have enough time”.  Similar statements could be:
    • I can’t afford to do that
    • I wish I had more time to do that
    • I’m too old for that

All these statements relate to an issue of stewardship.  Stewardship is just an old word that means to “manage” something–which is by the way, different from ownership.

NEWSFLASH:  You are really the owner of nothing.  

All successful and wealthy people understand this concept which is why they are so content with giving away what they have because they realize they are ultimately stewards. People like Bill and Melinda Gates and Warren Buffett do things like the “giving pledge” because they realize that they are not owners, they are just stewards.  To me, when people say “I can’t afford to do that”, or something similar it tells me they don’t really understand their role as a manager/steward.  Stewards are in control of an asset.  And can manage it to their wishes, but eventually, have to give an account to the owner for what they have done.

Consider your time as an asset, in which you have full control on how you spend it.  Therefore, it is imperative that you utilize or spend that time responsibly since you receive the same amount as anyone else.

#finlit
#behavioralfinance
#behavioraleconomics
#moneymindset
#financialidioms

 

Helpful Links:

About Me:
Dominique Henderson, CFP® is founder of DJH Capital Management, LLC., a fee-only, registered investment advisory firm specializing in comprehensive financial planning and wealth management.

#FinancialLiteracyBootCamp

Sound bumps provided by www.bensound.com

Tools for Your Personal Development

These are things I’ve learned over years of working with individuals that have had great success both in business and personally. These are 4 anecdotes for personal development…

Podcast Details:

Podcast Title:  Tools for Your Personal Development
Podcast Series: Financial Literacy Boot Camp

 

So on today’s show, I wanted to wind-up this series on “Solutions to the Career Transition” by talking about some things I have come across that will be helpful in your personal development.

Understand the difference between the necessary and the important…

  • Very successful people say “no” a lot more than they say “yes”
  • Very successful people prioritize things that are necessary (essential to life or their purpose) and focus on those things.  Important things (relevant, but not essential) receive less attention.  This is key in avoiding distractions and maintaining your focus.

To get a “return” on yourself, you have to “invest” in yourself…

  • Very successful people have invested and continue to invest large amounts of time into their personal development.  This is done consistently and intentionally.
  • Personal development is in direct correlation to your personal wealth. If you aren’t as wealthy as you want to be, then spend more time developing yourself.

Always be accountable to a higher standard…

  • Very successful people don’t allow their character to limit their opportunities.  Opportunity won’t take you where your character can’t sustain you…  You can’t be “two-faced” while rising to the top…not for long.
  • Very successful people have people around them that they trust and respect that call out their “blind spots”.  Not being aware of blind spots causes some of the worst traffic fatalities.  This is also true for career or personal failures.

Your energy for anything will be tied to how passionate you are about it, so FIND YOUR PURPOSE!

  • Very successful people have found their reason for being on this earth and this affords them the highest level of fulfillment/contentment you can find in life.  If you chase money, your level of contentment (if attained) will be fleeting, but if you chase a passion that is tied to helping others, you will always be fulfilled.
  • Very successful people realize that we as humans are designed to be in community with other people because a natural energy transfer comes from those interactions.

#financialliteracy #personaldevelopment #careertransition #success #episode52

Helpful Links:

About Me:
Dominique Henderson, CFP® is founder of DJH Capital Management, LLC., a fee-only, registered investment advisory firm specializing in comprehensive financial planning and wealth management.

Sound bumps provided by www.bensound.com

The Social Cartographer Series: Monitoring

How important is it to have a map when traveling to a destination? Using maps is a very reliable means of navigation. We also use mental maps to navigate our lives. This series is a discussion of our financial maps.

Podcast Details:

Podcast Title:  The Social Cartographer Series:  Monitoring

Podcast Series: The Maven’s Keys to Financial Contentment

The Maven’s Keys to Financial Contentment is my idea that true financial contentment can be found when an overlap of money and beliefs occur.  Many people ask the question of how to be “financially content” and this is a discussion to uncover those answers.

Link to Show Episode

So last week we talked about “PRESCRIBING“…and today we’ll cover “MONITORING”.

So a brief recap…

In DIAGNOSIS we have to have a DESTINATION DECISION and DESTINATION ADJUSTMENTS.  This is inevitable.  Although possible, it is rare when you are traveling long distances that you won’t have to make an adjustment to the route and/or itinerary.  Well, the same with reaching your financial destination.  Inevitably, some life event, job change, or recession (God forbid!) will happen to cause you to make route adjustments to your financial map.

This is the reason we put a plan in place!
In PRESCRIBING, it’s important to realize this is all about behavior adjustments.  This can only happen after you realize that the results you are getting aren’t the ones you want.  You have to first acknowledge this and then change your belief system so your behaviors change.
In MONITORING, we are trying to maintain a steady pattern of progress on our way to FINANCIAL CONTENTMENT (if you are not already there.)  The tricky thing about this is that as we begin to have success, it is human nature to get distracted.

Often the path that creates success is not the path that sustains success.
We do so much as it relates to discipline and focus in order to build momentum that will carry us towards success.  But then as we begin to have it, we will begin to let “success” take over.  An example being, more hours at work means less time with family and other relationships.  So how do I as a financial planner help with this paradox of GOAL ACHIEVEMENT equals SACRIFICE of [insert here whatever you value]?
Well, the answer is with care because it can be difficult.  Take a corporate executive that values the PRESTIGE of his or her position versus the PEOPLE you can reach in the position.  Which do you think is easier to maintain?  How long before it becomes evident to those around this person that PRESTIGE is valued over PEOPLE?  And which is easier to marshal your resources behind?  A team will always rally behind the cause of “serving the customer” instead of your climb up the corporate ladder.
This is where my formula for financial contentment really helps.  Because to be content you can’t chase success (of any variety) as the goal.  The goal has to be DEEPER.  This is so you never end up sacrificing what you believe or value for the success.

#finlit
#finance
#financialadvisor
#moneymindset
#behavioralfinance
#behavioraleconomics

 

Helpful Links:

About Me:
Dominique Henderson, CFP® is founder of DJH Capital Management, LLC., a fee-only, registered investment advisory firm specializing in comprehensive financial planning and wealth management.

#FinancialLiteracyBootCamp

Sound bumps provided by www.bensound.com