Post on 15-May-2015
How Monkey Brain Chatters in Your Ear - or –
The Five Most Common Psychological Biases That Affect Your Money
Jason HullHull Financial Planning
http://www.hullfinancialplanning.com
http://www.hullfinancialplanning.com
We Think Winning With Money Has to Do With This
http://www.hullfinancialplanning.com
How Many Times Have You Said This?
• “I just have to find the right answer…”• “There has to be a shortcut…”• “There’s someone out there with a secret that
I just don’t know about…”
http://www.hullfinancialplanning.com
If Education is the Answer, Then Why
http://www.hullfinancialplanning.com
Personal Finance Isn’t Just About Math
• Math is immutable
• But behavior isn’t
http://www.hullfinancialplanning.com
My Story
• When I was a lieutenant in Germany, I’d put $1,000 in a savings account and $300 in an IRA every month (limits were lower back then)
http://www.hullfinancialplanning.com
My Story
• Then, I’d put $800 on the credit card…
http://www.hullfinancialplanning.com
My Story
• AND withdraw $500 from savings
http://www.hullfinancialplanning.com
My Story
What I told myself• I’m a saver!• I’m being
responsible!• That credit card
debt isn’t bad.• It’s OK to spend
some because you’re saving.
http://www.hullfinancialplanning.com
The truth was• I was racking up
debt• I was putting
money in savings while carrying a credit card balance
Who is Monkey Brain?
• It’s your limbic system
http://www.hullfinancialplanning.com
What Does Monkey Brain Love?
http://www.hullfinancialplanning.com
A Little Story
• 25 year old couple
http://www.hullfinancialplanning.com
A Little Story
• Earns median family income: $51,017• Will work for 40 years and retire• Assuming – 7.5% annual return – 3% inflation with employer match of 50% up to 6%
in 401k contribution– $4k/month in Social Security @ age 66
• Needs to save 12.16% annually• What could go wrong?
http://www.hullfinancialplanning.com
Anchoring Bias
• Employer says
“We’ll match 401k contributions up to 3%!”
- instead of -
“We’ll match 50% 401k contributions up to 6%”
• 3% reduction in savings because of anchor 19.8% retirement target shortfall
http://www.hullfinancialplanning.com
Status Quo Bias
• Many investors never change their equity allocation as they age
http://www.hullfinancialplanning.com
Dunning-Kruger Effect
• When we think we’re better than everyone else, we try to time the market
• Loss aversion: we’ll risk more to get back to breakeven
http://www.hullfinancialplanning.com
Hedonic Adaptation
• Allowing lifestyle rather than savings to expand
http://www.hullfinancialplanning.com
Hyperbolic Discounting
• We treat our future selves as strangers and discount future pain and pleasure
http://www.hullfinancialplanning.com
(1) http://blogs.marketwatch.com/encore/2013/06/05/more-retire-with-mortgages-credit-card-debt/(2) http://money.usnews.com/money/retirement/articles/2013/05/13/the-baby-boomer-retirement-crunch-begins
Bonus Trait of Monkey Brain
• He wants to know who the people are in his neighborhood
http://www.hullfinancialplanning.com
– This – Is better than this
You make $50,000 per year and your
neighbors make $40,000 per year
You make $60,000 per year and your
neighbors make $70,000 per year
www.hullfinancialplanning.com
What’s the One Asset You Have That Can Never Grow?
The Winning With Money Course
http://www.hullfinancialplanning.com
Lesson 1: Answering the Question WhyLesson 2: Monkey Brain’s Common WeaponsLesson 3: Money Comes and Money GoesLesson 4: Cracking the Whip on Your MoneyLesson 5: Christmas Comes Once a YearLesson 6: A Contract on Your LifeLesson 7: What if You Can’t Work (and Not Just From Lack of Coffee)?Lesson 8: Don’t Pay an Arm and a Leg to Keep Your Arm and LegLesson 9: Long Term Care
InsuranceLesson 10: Investing Doesn’t Mean Playing the MarketsLesson 11: An IRA Isn’t an AccountLesson 12: Retirement – Paying for Knee-High Socks and HammocksLesson 13: How Much Should I Be Saving?Lesson 14: Social Security – Neither Social nor Secure, But It’s SomethingLesson 15: Kids – Raising Them, Feeding Them, and Educating Them Lesson 16: Making Your House Your Home and Not
a Money PitLesson 17: Papers, please! The important documents in your lifeLesson 18: Getting People Who Live in Houses to Pay YouLesson 19: Starting Your Own Gig and Managing the BandLesson 20: Tying It All Together
The Winning With Money CourseWorksheets
http://www.hullfinancialplanning.com
Lesson 4: Measuring how well you stick to your budgetLesson 10: How often you should investLesson 12: Calculating your retirement expenses and your “target number”Lesson 13: How much to save each monthLesson 14: Social Security contributions and taxesLesson 15: How much will your children cost youLesson 15: How much to save for the kids’ college educationLesson 18: Calculating the profitability of potential rental properties
Winning With Money CourseTwo Options
http://www.hullfinancialplanning.com
A Coupon Just for FINCON Attendees
• $100 off of either option• Good through October 20, 2013• MUST use this link:
http://bit.ly/1515Moy
http://www.hullfinancialplanning.com
Not Ready Yet?
• Subscribe to my 52 week Financial Game Plan• At the end of the course, you’ll receive
another coupon for $100 off good for 30 days• You will also receive a free e-book “Four
Places Your Monkey Brain Should Never Live”
http://www.hullfinancialplanning.com/four-places-your-monkey-brain-should-never-live/
http://www.hullfinancialplanning.com
Disclaimers
http://www.hullfinancialplanning.com
• THE INFORMATION PROVIDED IN THIS PRESENTATION SHOULD NOT BE CONSIDERED INVESTMENT ADVICE OR A RECOMMENDATION TO PURCHASE, HOLD OR SELL ANY SECURITIES
• You may not receive returns explained in this presentation– Returns projected using a proprietary Monte Carlo simulation based on
historical S&P 500 and U.S. 10 year Treasury bonds• Certain statements in this Web Site may constitute "forward-
looking" statements that involve known and unknown risks, uncertainties and other factors that may cause the actual returns and values of the Notes to be materially different from any future returns or values expressed or implied by such forward-looking statements.
www.hullfinancialplanning.com
Thanks!
How to Reach Me
• http://www.hullfinancialplanning.com• jhull@hullfinancialplanning.com• (817)476-0584
http://www.hullfinancialplanning.com