This issue of “Financially Speaking” discusses an idea on why some of your financial decisions may be leading you away from your long term goals. There’s also a fish story (read it to believe it!), some compelling reasons to get more sleep, and a look at low gas prices. Enjoy!
Getting What You Deserve Financially
“I’ve been good. I deserve it.”
If you’ve ever uttered those words, I want you to be honest about what happened next. Did you act in a way that helped you behave, or in a way that sabotaged your prior good behavior?
These two short sentences refer to something that psychologists call moral licensing. You may recognize it in the neighbor who everyone else sees as a pillar of the community, but when nobody’s watching, doesn’t pick up after his dog. It’s not so much hypocrisy as it is using our good behavior to justify our not-so-great behavior.
For instance, I have a friend who readily admits that she has to fight the whole buy-2-get-1-free deal, particularly when it comes to books. “I tell myself I’m saving money, so it only makes sense to buy two books so I get the third,” she said. The problem with that logic is that she’d save even more money if she only bought one book. But because it feels like she’s doing something good (saving), she feels O.K. doing something bad (spending more).
See what a contradiction it creates? But we’re really good at it, in large part, because it’s a habit for many of us.
Think about how it plays into our financial decisions. We saved $100 extra this month. Of course we deserve to spend a little more on our next shopping trip. We skipped buying coffee every day last week. Of course we can splurge on that shiny new gadget.
Many financial decisions are about tradeoffs, but the tradeoffs shouldn’t lead to bad behavior because of unconnected good behavior. If we didn’t budget to spend more on our shopping trip, saving $100 extra shouldn’t give us the green light to do it anyway. The same goes for not buying coffee. Unless we explicitly chose to save that coffee money for our gadget, we’re simply moving our spending around.
So how can we counter our moral licensing? It comes back to something I believe is the cornerstone of a well-behaved financial life: mindfulness. Yes, it sounds New Agey. But, it’s really about making sure we put our decisions in context and show awareness of why we’re doing what we’re doing.
Part of the reason moral licensing becomes a habit is that we stop thinking about it. We just act. However, we can interrupt the habit, with mindfulness, by asking ourselves a simple question: If I hadn’t done X, would I still feel O.K. doing Y? Using the earlier example, if I hadn’t saved $100 last month, would I still feel O.K. spending more on the next shopping trip? Why am I using that one good action to justify more spending?
In most circumstances, I believe this question will bring us to a screeching halt if we’re relying on good behavior to justify bad behavior. Now, we may still go through with it anyway, but I suspect it won’t be nearly as enjoyable as before when we thought we deserved it.
Special thanks to Carl Richards, author of “The Behavior Gap,” for sharing this.
“You cannot have a positive life and a negative mind.”
–Joyce Meyer, American Poet
Client Lands a Big One!
Congratulations to our client, Jack McGuire, who caught a 482-pound Pacific halibut off the coast of Alaska!
It was a fish so big it took a gun, gaff hooks and five men to haul it into the boat, the Orange County Register reported. The 76-year-old McGuire of Santa Ana was on weeklong trip when he hooked the catch of a lifetime near Glacier Bay. “I hollered out, ‘I’ve got a big one,’ because I could tell right away this was a hog,” McGuire told KTLA 5.
The underwater beast fought to escape as the experienced fisherman cranked the reel on his fishing pole and held on tight. “It was a back-and-forth battle,” McGuire told KTLA. “During that battle, I was putting a hundred-percent strain in. I was trying to wear him out as quick as I possibly could.” The boat’s captain helped haul in some of the line, and eventually shot the quarter-ton fish in the head to keep it from flopping around and injuring anyone onboard. McGuire, three friends and the captain dragged it aboard with the help of steel hooks the size of salad plates.
“That’s a catch of a lifetime,” McGuire told the Orange County Register. The 8-foot-long halibut was 30 pounds heavier than a record 452-pounder caught in 1996, but the International Game Fish Association doesn’t recognize fish brought in with the help of firearms or other fishermen.
That’s fine with McGuire, who was just thrilled to see the whopper finally out of the water. “I wasn’t planning to catch a world record,” he told the Orange County Register.
This will probably be the last Alaska trip for the angler who’s caught big ones all over the world. He divided up the fish with his friends and headed home with plenty of memories. “I still feel very appreciative of the fact that it wasn’t my miracle way of fishing — it was the same bait everyone else uses and all that — so a lot of it has to do with sheer luck,” he told KTLA. “Being Irish helps.”
Shared with Jack’s permission.
The Surprising Benefits Of Sleep
Are you and the other members of your family getting enough sleep? How do you know?
In a study (see it here) conducted by researchers at the University of Pennsylvania and Washington State University, different levels of sleep were prescribed for four groups of healthy men and women. The first group had to stay awake for two days without sleeping. Group two slept for four hours a night for two weeks, while group three slept for six hours a night over the same time period. The final group was asked to sleep for eight hours a night.
When the researchers tested the different groups on their physical and mental performance, the volunteers who received a full eight hours of sleep showed no declines in their cognitive ability, attention or motor skills. They were, in other words, fully-functional, bright and chipper. Meanwhile, the groups who received four and six hours of sleep a night steadily declined in all categories with each passing day. After one week, 25% of the six-hour group began falling asleep at random times a day, and by the end of the two weeks, their performance deficits in all categories were the same as those who had stayed up for two days straight. The four-hour sleepers did even worse.
Interestingly, none of the volunteers noticed their own performance declines. When they graded themselves, they said that their performance might have declined for a few days, but then it tapered off–when in fact they were continuing to get worse each day. In the real world, symptoms of sleep deprivation totally ruins any potential benefits of skimping on sleep and working those additional hours.
The researchers, and others, concluded that to operate at peak performance and stay healthy, 95% of adults need 7-9 hours of sleep each night. Yet at least 20% of Americans sleep fewer than six hours per night.
The article talks about the importance of slow wave (deep) sleep–which helps the body heal itself and recover from hard exercise–and REM (dreaming) sleep, which boosts your memory, facilitates learning and helps the brain’s neurons grow. Both are important, and there is evidence that people who get sufficient sleep live longer in addition to performing better.
So far, researchers have found no substitute for sleeping. I think it’s time for a nap…
“A good laugh and a long sleep are the best cures in the doctor’s book.”
From The Data Bank
43 is the percentage of men age 51 and older with income over $75k who feel very confident about maintaining their current lifestyle in retirement. (OneAmerica)
57 is the percentage of Americans who never carry cash, relying on credit and debit cards for daily expenses. (vouchercloud.net)
84 is the percentage of U.S. small-business owners who say they would still become a small-business owner if they had to do it over again. (Gallup)
$2,300 is the average annual cost incurred by parents when their adult child lives at home. (vouchercloud.net)
The Gas Price Stimulus
Iraq is one of the world’s largest oil producers, so when the ISIS militants rolled in from Syria and took over Iraq’s largest oil refinery, global oil traders and gas companies braced for a sharp spike in prices. Consumers expected to see higher prices at the pump in short order. Instead, oil and gasoline prices are right where they were a year ago. Gasoline prices in different parts of the U.S. fell during the winter and have risen again in the summer months. If you happen to live on the West Coast and suspected that you paid more for gas than the rest of the country, you were right. The prices in California and the West Coast generally are more than 50 cents a gallon higher than the cost at the pump along the Gulf Coast, where the U.S. has the bulk of its refineries. People in the Northeast, Mid-Atlantic and Southern states generally fill up their tanks at cheaper prices.
From a longer-term view, prices hovered around a dollar a gallon for most of the 1990s. (The good old days!) Since then, the price has gradually crept upwards, with greater volatility and a deep price drop during the Great Recession. Since the beginning of this decade, prices have remained fairly level, and indeed today’s gasoline prices are almost exactly what they were in early 2008.
Prices have held steady despite the turmoil in the Middle East, in part because most of the Iraqi oil fields are located in the southern part of the country, a safe distance (so far) from the ISIS insurgency. The other main oil fields are located in Kurdish-controlled areas in the northern part of the country and the Kurds have managed to protect their ethnic border with great effectiveness. A recent agreement in Libya between the central government and a regional militia that will add 150,000 barrels a day to that country’s crude oil exports also helps.
The moderation in prices, from $4.00 at the pump two years ago to roughly $3.60 today, is acting as a kind of stealth stimulus for the U.S. economy. U.S. drivers are expected to use roughly 133 billion gallons of gasoline this year, so the price break adds $53 billion of savings to peoples’ balance sheets. This, added to the lower costs for factories, airlines and electric power plants, could add half a percentage point to U.S. economic growth in 2014.
Inspired Financial held our annual mid-year retreat in August where we discussed the vision for our firm and set long term goals.
Laurie Dubchansky has done such a great job as our summer intern, we offered her a permanent position as Financial Planning Analyst and we are pleased to report that she has accepted the offer. We look forward to introducing Laurie to the rest of our clients in the coming months.
Laurie is finishing up her insurance class in the financial planning program at UCLA and will soon be taking the final capstone class in preparation to take the CFP® exam.
Kevin attended a financial planning conference at UC Santa Cruz that covered such topics as: Retirement Income Planning, Estate Portability (Mark co-taught this class with Ray Sheffield, an estate attorney from San Jose), Decision Architecture, and Succession Planning.
In a bit of end-of-summer fun, Evelyn and Mark put their own twist on the ALS Ice Bucket Challenge (Check out the YouTube video here!) and, on a more serious note, they both spent a late-August day in Sacramento advocating on the importance and benefits of financial planning for all Californians. It was a neat opportunity to meet many of our elected officials and regulators.
We hope you enjoyed the latest issue of our newsletter and we appreciate your comments. We also want to encourage you to share this with anyone that could benefit from the information. As always, we truly appreciate your trust in us. Have a great fall season!
Your Team at Inspired Financial
Note: The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) or strategy may be appropriate for you, consult with your attorney, accountant, financial advisor, or tax advisor prior to investing or taking action.