Why We Do Dumb Things With Money

“How could I be so stupid?”  Maybe you’re looking at a bulging credit card bill after over-spending during the holidays, just hoping your tax refund is enough to pay it off.  Or maybe you’re looking at a budget that simply won’t balance—for the 77th consecutive month—wondering how you made it this far in life without being able to master the simple math of addition and subtraction. 

Why is it that informed, educated and even brilliant people can be so dense when it comes to basic matters of personal finance?

I’m reading a book called The Checklist Manifesto by Atul Gawande, based on his fascinating article, “The Checklist,” in the December 2007 edition of The New Yorker.  On his way to making a compelling case for the use of checklists to ensure accuracy in even the most multifaceted procedures—like emergency room surgery or skyscraper construction—he gives us some insight into why we’re capable of doing dumb things in seemingly simpler processes.  In his words:

Two professors who study the science of complexity—Brenda Zimmerman of York University and Sholom Glouberman of the University of Toronto—have proposed a distinction among three different kinds of problems in the world: the simple, the complicated, and the complex.

Zimmerman and Glouberman give us a tangible example of each type of problem.  Simple is to baking a cake from a mix as complicated is to sending a rocket to the moon.  The latter requires “…multiple people, often multiple teams, and specialized expertise.”  But once you’ve marshaled the necessary manpower and know-how to send a rocket to the moon, the exercise can be successfully repeated.

This is not the case in complex problems, however.  The example they give for a complex problem is raising a child.  “Expertise is valuable but most certainly not sufficient.  Indeed, the next child may require an entirely different approach from the previous one.”  As a parent of two, this news was both heartening and frightening.  But it also helped me realize something groundbreaking, at least to me:

While many matters of personal finance seem so simple on their face, they’re actually quite complex…because WE’RE complex.

Even as a single person with no dependents or pets, our innate proclivity for self-deception is remarkable.  But within the context of a couple or family, it’s easy to see how the “simple” discipline of cash flow management, for example, can become quite complex.

Further complicating the problem is that most areas of personal finance require perpetual decision making, in which each individual decision to save, spend, buy, sell, re-allocate, contribute, distribute, insure, reduce coverage, file, expense, deduct, bequeath, endow, receive or disinherit is its own fertile ground for success or failure that could compound positively or negatively to impact the whole!

So let’s all enjoy a collective “WHEW!” as we momentarily enjoy the fact that making mistakes with money doesn’t mean we’re a complete nincompoop.  Of course, this is an explanation, not an excuse.  We’re still responsible.  Here are three ways we can all keep our financial decision making as smart as we are:

1)     Be cognizant of things financial.  Be present and deliberate when dealing with your money.  Keep these topics at front of mind by reading a good financial blog or two (ha, ha).  And consider reading my friend and colleague, Carl Richards’, new book, The Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money.  (It’s the only financial book I know of that is strewn with pictures!)

2)     Develop good habits.  We often need to force ourselves to be cognizant because personal finance either bores us or is loaded with self-deception.  The development of good habits, beginning first-and-foremost with a functional cash flow system, will help us develop the behavior we’d prefer.

3)     Be accountable to someone or something.  Some are willing and able to develop their own system to maintain accountability, but for many, a healthy relationship with a professional financial planner is the key.  In my Forbes post this week, “Hey Financial Planners, Do Your Job!” I gave advisors a gentle nudge, encouraging them (us) to make financial planning a simpler, more client friendly process that eliminates complexity instead of creating it.

What are some other ways you’ve been able to keep from making dumb financial decisions in your life?

Persistence and Procrastination

by Jim Stovall

Down the street from my office is a very large media complex containing a TV station, several radio stations, and a large conference center.  At one corner of the massive building, there is a large fenced area where several radio and TV broadcast towers soar hundreds of feet into the air.  Thousands of people drive by this complex every day and have seen the towers so many times they don’t even notice them any more.

Several months ago, a troubled young man—for reasons of his own—decided to scale the fence and begin climbing one of the towers.  By the time anyone noticed this young man perched on a precarious ladder hundreds of feet in the air, it was too late to stop him.  Police, ambulances, and emergency rescue workers were called to the scene and began efforts to persuade the young man to climb down from the tower.

The young man either ignored them or periodically threatened to jump.  As will happen with any large gathering, the media was soon on the scene.  TV, radio, and newspaper reporters began around the clock reporting of the ongoing activities of the young man who became known as The Tower Guy.

This went on for days and, somehow, the reporters found things to talk about.  The young man became dehydrated, sunburned, and appeared to be disoriented.  Finally, one heroic rescue worker was able to communicate with the young man and talk him into coming down.

The final media reports described how persistent The Tower Guy was in remaining on his perch for many days.  It’s important that we don’t confuse persistence with procrastination.  It is easy to think that persistence is doing something repeatedly or constantly while procrastination might be thought of as doing nothing at all.  In reality, too many of us are like The Tower Guy in that we persist in doing nothing of importance which, in reality, is procrastination as it relates to the things in life we know we should be doing.

Practice does not make perfect, in spite of the old adage.  Practice makes consistent.  Only perfect practice will make something perfect.  Persistence is only a virtue if we are persisting at doing things that matter to us and make the world a better place.

Most people perform activities today because they performed the same activities yesterday and will do it all over again tomorrow.  Before you do anything as a regimented part of a routine, make sure you know why you are doing it, what it will accomplish, and when you will be done.

As you go through your day today, make sure you’re investing every moment wisely and not just repeating mindless activities because that’s what you’ve always done.

Today’s the day!

10 Ways Budgeting Saved My Marriage

Eleven years ago, my wife and I sat across the table from an experienced married couple squirming in their seats uncomfortably as though they feared we were about to deliver some terrible news.  But the source of their discomfort was the bomb they were about to drop on us.

You see, we were not yet married, but engaged, and the couple across the table was our mentor couple in our pre-marital class.  Upon review of our personality profiles and piles of personal baggage, they felt it their duty to discourage us from further pursuing the sacred vows of matrimony.  They’d never seen a hopeful couple more innately disparate, more inevitably destined for failure. 

We are indeed vastly different, but one thing my wife, Andrea, and I share in common is a penchant for resisting authority.  So with the blessing and support of family and friends, I’m thrilled to report we’ll be celebrating our eleventh anniversary this April with our two wonderful boys, Kieran and Connor, ages six and eight.

We have never forgotten, however, the well-intended admonishment of our mentor couple; indeed, we see much of life from vastly different perspectives, foremost among them our view of things financial.  And apparently, we’re not alone. Over 50% of marriages end in divorce.  Over 50% of those splits cite financial disputes as the primary reason for the break-up.

100% of marriages deal with money as a daily necessity.


This thought occurred several times when preparing my recent posts on budgeting on Forbes.com (How To Spend $1 Million At Starbucks) and TimMaurer.com (A Burdensome Yoke…Or A Path To Peace?).  It struck me that budgeting ranked right up there with prayer and counseling as a precious few factors that have helped keep us together.  Here are the top 10 ways budgeting has saved, and continues to save, our marriage:

10)  Budgeting forces us to collaborate.  It seems that as parents of young children, the level of commitments between work, school, church, sports and the arts leaves us functioning more as independent business partners than spouses.  We’re almost always in short supply of adult conversation and genuine collaboration, and (strange as it may seem) budgeting gives us the context for both.

9)     It offers healthy accountability.  Ronald Reagan famously said, “Trust, but verify,” and while 100% verification of trust in our marriage would be stifling, we’ve found periodic accountability to be a healthy way to build faith and trust in each other.  Our joint budgeting effort means all of our expenditures are accessible to the other.  Scrutinizing every penny spent would be unfair (a-hem, note to self), but knowing everything is visible is likely to encourage us each to spend more responsibly.

8)     It humbles us.  I’ve not found a more helpful tool in the pursuit of a successful marriage than humility, and since the use of money is so pervasive in our lives, small mistakes are the norm, not the exception.  Rarely a weekly cycle goes by in which we don’t each humbly acknowledge that we erred in some capacity, humbly submitting our mistake to the other.  And of course, a good budget is designed to withstand these small mistakes.

7)     It provides an opportunity for reconciliation.  The prevalence of small errors in our budgeting, however, provides fertile ground for a destructive tendency: that we’d develop a scorecard, real or implied, and shame the more regular offender (because there normally is one in most households).  So for us it’s very important that a humility ground-rule is established: Any time an offending spouse submits in humility to an irreversible mistake, forgiveness and reconciliation is the only way forward.

6)     It gives us reason to celebrate.  For each mistake, there are several successes in each budget cycle.  The long-term success of our marriage is often built on a series of small victories, and we should never withhold an affirmation for completing a project under budget or enjoying the security of a buffer when an emergency arises.

5)     It cuts down on surprises.  So many aspects of our life are subject to variability and volatility.  We can’t necessarily reduce the number of those surprises, but we can certainly reduce their negative impact by being financial prepared for them.  Financial strain, and especially shock, pushes many marriages to (and over) the brink.

4)     It makes us better parents.  All of us parents could probably agree that it’s possible to spend too little OR too much on our children, right?  We’re responsible to determine what the right levels of spending are for our children, and budgeting allows us to deliberately set aside appropriate levels of funding for education, clothing, sports, music and fun.

3)     It shows our dependence on each other.  Andrea and I do think very differently, and this inevitably leads to divisive thoughts like these: “You know, I think I could do this better on my own!”  But this decries the very essence of marriage as an institution in which each partner’s primary objective is to serve the other.  The process of budgeting puts our (literal and emotional) dependence on each other on full display.  That makes us vulnerable, but it’s good.

2)     It preserves a healthy level of independence.  The income production in most households is almost never perfectly equitable.  Andrea sacrificed a successful career in the financial industry when she chose to stay home with our young children.  This has been an incredible blessing in our family, but it’s also a breeding ground for insecurity and manipulation as I might have a tendency to overestimate my contribution to the family’s finances and underestimate Andrea’s.  It is imperative, then, that part of our budget is the preservation of a certain amount of financial independence for each spouse.  To offset this income inequity, we’ve established “His and Hers” accounts with unilateral privileges.  Many shun budgeting as too restrictive, but properly implemented, it actually gives us room to breathe financially, and we all need room to breathe.

1)     It preserves date night!  One of the interactions I’ve enjoyed most throughout my career was with a client who is a generation or two my senior.  He and his wife have five kids(!) and appear to be more in love today than they’ve ever been.  So at the close of one meeting, I got up the nerve to ask this gentleman what his secret to marriage and parenting was.  His answer?  They never fail to set aside time—and money—for each other as a couple.  He made a convincing case that we are better parents when we deliberately setting aside time to be together, away from the kids, and not just for date nights, but also long-weekends and even week-long vacations to remind ourselves that before we were parents we were lovers.  This proved especially difficult for Andrea and me because by the time we got to the end of most months, we’d already spent our discretionary cash on the rest of life and felt like we were taking funding away from other things to line-up a babysitter and enjoy a night or weekend out.  So now, much as we have preserved His and Hers accounts, we also have an Ours account.

Budgeting is not the slightest bit romantic, but it has the ability to promote and preserve the romance in our marriages and keep us on the right side of that daunting 50% divorce statistic.  There are as many good ways to manage this process as there are couples, and I’d love to hear some of the ways budgeting has helped preserve YOUR marriage also, so please share your story in the comments section!

Are Our Gifts Worth Anything?

On my Forbes blog this week, I shared the story and video of the Best Gift I Ever Received and how it surprisingly helped me navigate life and money.  Because that gift has continued to increase in value throughout my life, it led me to this difficult question: Do the gifts I give appreciate in value or depreciate?  I was challenged further, wondering: Do I give gifts out of compulsion—just to check something off my to-do list—or am I really putting my heart into it, making an investment in my loved ones?

My honest answer to both of those questions is less admirable than I’d hope.

So, with Christmas literally upon us, I’d love to learn from YOU: 

What are some of the gifts you’ve received—either tangible or intangible—that, like the best gift I ever received, have continued to accrue in value and pay dividends throughout life? 

And what are some of the best gift ideas you’ve devised that you’ve seen bless others tremendously?

 Please comment below, and have a very MERRY CHRISTMAS!

Exciting News!

The past few weeks have included some exciting happenings, so I wanted to take this week’s Conversation to share the news with you:

First, on Wednesday, November 30th, I was up pretty early poking around on TimMaurer.com to prepare an upcoming post when I saw what I thought was a mistake.  It appeared that by 7am eastern that morning, the site had already enjoyed a flood of viewers—almost 1,500, shattering any past single day record, before most people have even had their morning coffee!

It turned out that USA Today had released a review of the book I co-authored, The Ultimate Financial Plan, which, of course, filled me with anticipation wondering whether or not the review was actually…positive.  Practically covering my eyes, I navigated to the online review, overwhelmed to see the headline: “Ultimate Financial Plan lives up to name.”  Jim Stovall and I have believed in this project since its inception, but I must admit my eyes started welling up as I received the hearty affirmation from one of the world’s most prominent media voices.  You can read the full review by clicking HERE.

One of the new realities in publishing, however, is that even after getting positive reviews in The New York Times and U.S.A. Today, we’re not guaranteed any level of success in spreading this entertaining education we believe to be so vital to individuals and households across the country, especially in these difficult financial times.  As you are probably aware, Amazon.com is now the primary driver of the dissemination of books, with and without covers, so I’m going to ask you a rare favor to help us further build momentum for this project: If you’ve read and enjoyed The Ultimate Financial Plan (or its “first edition,” The Financial Crossroads) would you please consider sharing your thoughts by reviewing the book on Amazon?  If you’d be so kind, you can do so by clicking HERE.

Second, that same week, I had the privilege of forging a new relationship with one of my favorite media outlets, ForbesForbes may have published its first magazine issue in 1917, but along the way they have also become a leader in new media, including blogging.  So when they asked me to begin blogging as a Forbes contributor, it was an easy decision for me.  You can check out the new blog by clicking HERE, and if you click on the picture bearing my mug, it will give you the opportunity to “follow” me, receiving updates when I post new content.  Initially, you’ll recognize some similarity between the content on TimMaurer.com and on Forbes, but I will also be creating wholly new content, like this week’s post, “It’s 10pm…Do you know how your advisor is getting paid?”

I’m very thankful for these new opportunities, but especially for YOUR support of my mission to change the way people view and interact with money.  Thank you for reading, commenting, questioning and sharing.  And as always, I look forward to your helpful suggestions about how I can make this correspondence better serve you. 

Welth: Is It Wurth It?

A few weeks ago, I had the privilege of conducting a 40-minute radio interview with one of the great business leaders of our time.  (I’ve split the interview into four ten-minute podcasts, the links for which follow this post.)  Truett Cathy is the founder of Chick-fil-A and the author of several books, most recently, Wealth: Is It Worth It?  He’s well suited to ask and answer that question, because after beginning his restaurant career over 60 years ago with a single eatery, he’s built one of the nation’s most successful and well-loved restaurant chains. But interestingly, an adjective he’s not entirely comfortable putting before his name is “rich.”  He says, “One of the worst things I can imagine someone saying about me is, ‘He’s a rich old man.’”

But it would be hard to argue either of those.  After all, Mr. Cathy is 90 years old and falls at number 375 on the Forbes 400 list, with an estimated net worth of $1.1 billion.  However, he defies his age by going to work nearly every day and carries himself with the humility and grace of a line cook, not the founder and chairman.

Wordplay

Wealth is a hot word these days; especially in the financial services business, everyone wants to be about wealth.  So now, instead of being financial advisors or financial planners, stock brokers, insurance salespeople or bankers, everyone is a wealth manager or wealth consultant.  If you work with them, their commercials suggest you’ll be one of the people golfing all day or travelling around the world on a $1 million sailboat or sitting on the beach (with your wealth manager, of course) toasting the purchase of your new 5000 square foot beach home.  Don’t get me wrong—there’s nothing wrong with golf (except that it’s a miserable sport, chasing that little white ball around); and sailing, for those who know how to do it, is sublime; and if you have the money, right now is a great time to be buying a beautiful beach property—but dangling this utopian envy in front of everyone is what I don’t like about the financial industry’s co-opting of the word wealth.

We tend to believe today that the three words “money,” “riches” and “wealth” are generally synonymous, and I do believe that in the contemporary vernacular, they are.  But that wasn’t the initial intent.  Money and riches, if you follow them back to their original root words in ancient languages, always meant something similar to what they mean today.  Wealth, on the other hand, had a much deeper meaning.  It meant enough.  Contentment.

In Wealth: Is It Worth It? Cathy cautions us of the trappings of financial accumulation, giving us insight into how living through the Great Depression and seeing his own father left emotionally destitute by his inability to provide for his family in that incredibly difficult time informed his own belief system around money.  Far from demonizing dollars, he gives us a framework for virtuous money dealings grounded in Solomonic wisdom.  (Cathy is unabashed in sharing that his money philosophy is grounded in his Christian faith, but he also draws on wisdom from sources neither canonized nor ordained and never seems to get preachy.)

Is it worth it?

But Mr. Cathy isn’t convinced wealth is worth it even after you “earn wealth honestly,” “spend wealth wisely and save it reasonably.”  Even then, we still have the capacity to let wealth accumulation overtake us.  He concludes that the only way wealth is really worth it is “…if you give it generously.”

While this resonates as truth, I admit my skeptical self wants to conclude it’s easy for those blessed with abundance, like Cathy, to admonish the rest of us on the value of charity.  Even he acknowledges it’s unlikely that his children or grandchildren will ever suffer from want.  But having now read his personal and financial story and talked with him, I find not an ounce of inconsistency or inauthenticity.  He applied the same approach to money when living through the Great Depression and standing over the grill in his first restaurant as he does today encouraging us to deconstruct and rebuild our view of affluence.  I also cannot think of a time personally, or with hundreds of clients over the years, in which this particular proverb did not hold true: “If I give water to others, I will never be thirsty.”

One of the highlights of Wealth: Is It Worth It? is an interview Cathy conducted with a friend he has forged in pursuit of his campaign for generosity, the venerable Warren Buffett.  He asks, “Warren, how do you define wealth?”  Buffett answers, “Wealth is having enough.”  Interesting, isn’t it, how wisdom changes so little even over thousands of years.  There is plenty of money out there and a lot of riches, but whether among the rich or the poor, we could all use more enough.

There are many more life-giving tidbits you’ll find throughout my radio interview with Truett Cathy.  The show is organized into some bite-size portions below:

1)     Introduction: A blessing to some and a curse to others 
2)     Friendship w/ Warren Buffett; money and children
3)     Truett’s father; living through Depression; discomfort w/ being rich
4)     “Retirement is misery!”; Chick-fil-A’s secret; when to start giving

Check out comedian, Tim Hawkins, hysterical ode to his favorite restaurant, Chick-fil-A!

New and Old

by Jim Stovall

We seem to be constantly on the search for something new to replace something that is old.  We are bombarded with advertisements, promotions, and sales pitches imploring us to experience the latest, best, new, and improved items that may be available.  While, in many cases, new things are better than old things, there are certainly many exceptions in which old things are best.

My late, great friend and mentor Paul Harvey was fond of saying, “Not everything we call new and improved is.”

As a small child, I remember that my mother would divide my toys into two groups.  One group went into my toy box which I would play with immediately, and the other group of toys went into a cardboard box that was stored for later use.  At a point and time known only to my mother, when I started getting bored or my toys seemed stale, she would immediately replace the group of toys in my toy box with those that had been in storage.  I instantly felt as though I had all new toys.  Everything seemed exciting and brand new.

You can have this same experience as near as your bookshelf.  Some of the greatest titles you have ever read are waiting for you to revisit them and delve into the treasures that you have forgotten or simply missed the first time through.  There are some books that, frankly, are not worth finishing, but there are others that bear reading many times.  I re-read some of my favorite authors annually and would swear that they somehow rewrote sections of the book or added chapters while the book was sitting on my shelf, because it seems so fresh and new to me after multiple readings.

All of us enjoy meeting new people, making new friends, and forming new business relationships.  It is great to be actively pursuing new people in our lives, both personally and professionally, but always remember that some of the greatest people you will ever meet in your entire life are people you have already met.  Unfortunately, too often, we think of people we already know like a book we’ve already read.  We let friendships slide and business relationships dwindle away due to lack of attention.  With a little thought and care, along with some of the new social media tools, there is just no excuse for not staying in touch with people who are meaningful to us.

One of the new year’s resolutions I actually made and have kept for several years involved getting together with my parents each week.  Several years ago, I realized that even though my parents live a few miles from my home that I had gone several months without getting together with them.  After making the decision to see them each week, I have found the experience to be imminently rewarding in many ways, and I have learned things about my parents and other people in our family tree that I had never known before and wouldn’t have ever known had I not made the effort to stay in touch.

As you go through your day today, explore new people, places, and things, but don’t forget the treasure of the people, places, and things you can revisit time after time.

Today’s the day!