Sep 242012
 

What is your risk tolerance?

I’ve been giving some thought to the notion that we must take chances – or better yet, informed chances – in order to succeed sometimes.  There are times when situations can offer potential benefits that make the risks worth taking.

Nevertheless, many of us have a low tolerance for risk that can manifest itself in many situations.  Some examples of such situations are:

  • Investing conservatively instead of pursuing higher returns
  • Staying in our comfort zone instead of trying for a “stretch” job that pushes us and offers potential
  • Being afraid of speaking up with a novel idea, worried that we may be ridiculed instead if people don’t like our innovation

I also think that being risk-averse (side note: think of grammar and wealth, and PLEASE do not ever say “risk-ADverse”) is rooted in fear of loss or of some potentially negative consequence.  It seems to me like a defense mechanism that many of us take on in order to protect ourselves.

Personally, my big financial motivation, deep down, is to avoid being really old and needing to work for money.  Generally, we don’t get more energetic or healthier as we get older.   I really don’t want to be struggling financially at an old age.  Not that I am now, but the thought of things going bad is a something that helps light that fire of motivation to get me hustling. I know this might sound more defensive that aspirational, even though I clearly do have aspirations as well. However, this fear is probably the leading motivator, while not being the only one.

That being said, intellectually I believe something that rides a bit counter to that motivator. Intellectually, I think that a smart approach to handling finances and prioritizing time is to remember that we need to make money before we can save money.  Why spend most of our personal finance efforts on pinching pennies, when the ROI on our time is often better when oriented toward income generation?  That’ s not to say that saving money is a waste, because anybody who has read this blog and especially the squirreling gone wild series knows that I often celebrate extreme efforts to save. But, while we need to focus on making and saving, it’s the making money part that should get more time.

Do you see the dichotomy?

While on the one hand I am saying that it’s better to spend more time on income generation than on frugality, on the other hand my biggest motivator is fear-based: being old someday and not having enough money. That defensive primary motivator guides behaviors that support it, which are often risk-averse.

That brings me these questions:

  1. Does risk-aversion harm one’s finances, or is it a good thing?
  2. Is it more profitable over the long run to err on the side of being a risk taker, as opposed to being risk-averse?
  3. How would you characterize yourself in this regard with money? Let’s use a 1-10 scale, where 1=very risk averse, and 10=having a very high tolerance for risk (or even seeking it out)
Sep 032012
 

Do you like to travel? Do you get enjoyment out of seeing different places, visiting different landmarks and cities, and simply exploring the world?

Join the club.

I’m one of those people. I’ve been to 47 of the 50 states (Alaska, Hawaii, Maine are the missing 3, in case you’re wondering), and have been to every major city in the U.S. Well, I don’t think I’ve visited Memphis, TN – but aside from that city by the Mississippi River, I’ve been to every other major one.

Canada? Been to 6 provinces.

Outside of North America? Been to Europe and Asia (including both China and India).

So, all told, I think I’m someone who has enough experience to have an informed opinion on the value of travel for the average person.  And what is that opinion?

Well, I think traveling is overrated by many.  As is being “location-independent” (I’ll get to that later).

Traveling

So, if I obviously like to travel, why do I think it’s overrated by some? Why am I bringing it up here in a personal finance-oriented blog?

Well, I think traveling is overrated by certain people because its allure causes people to spend a lot of money they probably can’t afford to. Almost as if some folks think that they become much wiser, more worthy of status by virtue of having seen famous or even exotic locales in the world.  I bring this up because so many people either spend a lot of money on traveling, or aspire to live a life full of constant traveling.

Not that there is anything wrong with traveling a lot. Who am I to judge? Again, I like traveling (though I have little time for it now).  However, some people seem to view traveling as some kind of necessary expense. As if, everybody deserves a vacation annually where they fly somewhere. No, nobody deserves any such thing. It’s a want, not a need.

Also, traveling is seen by a few folks I’ve talked to as either A) an expense that is different than other forms of entertainment, and B) a status symbol they can brag about.  To me, traveling is something done for fun – meaning, it’s done for entertainment. Just like some folks might drop money on seeing movies, buying season tickets to their favorite sports team, or other similar forms of fun – traveling is no different. It isn’t more noble, it isn’t purely “educational”, etc – it’s entertainment.

In terms of the status symbol aspect to traveling, I’ve had a few folks brag to me over the years, with pride, about places that they visited.  Almost as if they are somehow more worldly or sophisticated for having gone somewhere. I suspect that there is an element of keeping up with the Joneses when it comes to traveling, where people are willing to spend money traveling in some part (whether they admit it to themselves or not) that they can brag about having been different places.

Bottom line: I certainly like traveling, have done a lot of it, and understand why it is fun to many. But let’s be realistic, it’s purely entertainment, is not truly necessary, doesn’t make us more sophisticated, and is not worth getting competitive over to impress others and say you’ve been places.

Location Independence

Much like with traveling, there seems to be an allure to being location independent. However, this is probably with a much smaller subset of the population.  The blogging community seems to have a disproportionate number of these folks.  There are many people who make a living online or with jobs that can be done at any location, at any time. Simply have Internet access and make some phone calls, and you’re good to go!

The thing is, when the dream of this type of lifestyle is “sold” or at least popularized, it might not be painting a complete picture. The thing is, if you want to be a parent and have a family, can you really be a location-independent nomad? Really?

No, not really. Kids go to school, have friends, and need to be well adjusted. Spouses get used to an area, make friends, and often work “traditional” jobs.  A home might even be purchased.  Or not, but is that a realistic long-term life? Having total mobility without any strings attached?

Maybe for some, it just might work. But for most people, I don’t think so.

Bottom Line: So when I read about location independence and the ability to work anywhere and travel anywhere, based on making an online living, I just smile. I hope people think twice about taking such actions. Personally, I would prioritize financial independence over location independence.

My Questions for You

Do you think that traveling is purely entertainment, or do you think that it’s different kind of expense?

Do you see many people trying “keep up with the Joneses” in terms of where they have traveled, getting competitive about it (even if not overtly)?

What do you think about the whole concept of “location independence”?

Aug 062012
 

In our society where it’s value to push forward to try to get ahead at all times, being happy for what we have can often be construed as laziness.  Keeping a positive attitude, and even happiness, might seem out of place where big success hasn’t been achieved yet.  The thinking is that once we are satisfied and content, we won’t work hard to get ahead. Instead, we’ll get stuck in place.

The message: always keeping driving forward to achieve more and more. There is always more money to be made, a better house to buy, a flashier car to drive, more muscles to build or weight to lose, etc.

Personally, while I do take that approach quite often, I’ve come to believe that sometimes we just have to just step back and take stock of what we have. While doing that, look for the positives and for the things we can appreciate having.

In short, for many of us, there is much for which we can be thankful.

I’ve been thinking about this, as I keep driving forward toward the never ending quest and thirst for achievement.  Sometimes, it seems, we need to stop and smell the roses as they say. Additionally, we might even stop and realize how lucky we might actually be.

  • Think you have a long way to go toward retirement? Well, there are plenty of people who don’t have a sufficient emergency fund, let alone funds for retirement!
  • Worried about not getting ahead in your career? There are tons of people who have fallen into the category of the long-term unemployed, and haven’t been able to find work for a long time.
  • Upset that you’re living in a modest home, while your friends are living in nice homes that they bought? Well, there are plenty of people who lost their homes to foreclosure and have had their lives turned upside down.
  • Frustrated that you still have work ahead of you to get out of debt?  Well, there are people with families that declare bankruptcy and have trouble putting food on the table.

You get the idea.

What I’m getting at, as you see, is that I’ve been thinking that it’s a good time for me to stop and reflect on what I do have, as opposed to what I’m working toward or what I want.  It’s humbling, in a way, to get out of our own ego and truly stop and think about the good things that we really do have.

Thinking of the personal finance hierarchy of needs, I’m thankful to have the base level covered: food, shelter, and medical care when needed. I’m at varying stages with the next levels up, which is something to be thankful for as well. So what if the top of the pyramid is many years away? Things are good now in many ways.

For many of us, when it comes to our money, there is probably at least one thing we can be truly thankful for. Right?

My Questions for You:

Do you take enough time to reflect on what you’re thankful for when it comes to your finances?

What are the things you’re most thankful for these days? Please feel free to share whether money-related or otherwise.

Jun 112012
 

In our own unique way, each of us is a super special person, right?

Well, that didn’t seem to be the message conveyed in a speech given by a schoolteacher in Massachusetts.  According to this article on Yahoo, he delivered a commencement speech that seemed to be an ego deflating discourse that essentially conveyed to the high school graduates that they aren’t so special or remarkable, and are just a number in the grand scheme of things.  In other words, in the big picture, they are one of but millions of people similar to themselves.

The idea is that many kids are coddled and pampered, and told that they are truly special.  But, if everybody is told that and ends up believing that, then who isn’t special? In other words, it’s just not realistic to think that everyone is a star.  Not everybody truly achieves special things, and not everybody wins or becomes wealthy – no matter how much parents want to believe their kids are the greatest and want them to feel special.

I’m guessing that this type of message wouldn’t sit well with some parents. Many people wouldn’t like to hear their kid being told, in a speech, that he or she is truly not special.

Believe it or not, I like the message! The reality is that it’s true.  Not everybody is special.

I bring this up here because the message resonates with me, but also because I can see a money angle to this.  If a kid is told that he (or she) is special, and deserves a good quality of life, comforts, and fun experiences, then he might start expecting that.  Which may not be such a bad thing to some degree, as I do believe our expectations can help shape our success in life.

However, it’s also treacherous to some degree as well.  When people think they are special, and are entitled, they risk making decisions that don’t fit their reality.  You know, like wanting a flashy new car as a young person instead of a more appropriate car for a teenager.  Or, when older, buying a home that fits your needs, instead of buying an unaffordable home that you simply want.  Such types of moves, when taken in aggregate, can impact a person’s life in many ways.

The bottom line is that I like the message conveyed in that speech, as it was described, and based on how it ultimately relates to personal finance.  If we realize that we are not special and not entitled, and that we have to personally earn our lifestyle, we will be in a position to make more sound financial decisions and lead a more fulfilling life.

To the extent that this idea is conveyed early in life, that’s all the better!

What Do You Think?

Do you like the idea that the teacher made these proclamations to the students in a commencement speech?

How would you react, as a parent, if you watched this speech happen with your kid being one of the graduates?

Do you agree with the notion that when some people think that they are special “just because”, it could lead to entitlement and perhaps some less than realistic financial decisions?

May 172012
 

Learning from experience is smart. We should all learn from mistakes as well as simply pick up knowledge and wisdom as we get older. That said, if we can get good advice early on – AND follow it – we should be ahead of the game.

Along those lines, I think it’s good to be able to offer financial advice to people younger, even if old enough that they’re just out of college and just starting out. Some of you might be at that stage now, or may have family at that point in life.  I came across an article on US News that offers some good advice for those starting out, and below I’ll share the tips as well as my own opinion on each.

  1. Save one-third of your income.  You know, at first glance this seems really hard to do for most people just starting out.  I wouldn’t have been able to do it. However, I also made choices that made such an accomplishment unlikely – the primary one being graduating college and then moving to another city rather than going back to my home area. Living at home after college, if that’s an option, can truly help someone save one third of income. In many cultures and/or families, it’s no big deal and very normal to be living with Mom and Dad at that age. Why does it have to be weird and seem like freeloading? I say that despite not doing that myself.
  2. Don’t be stingy with career-related investments.  I tend to agree with this. There are people that tend to think that once a person graduates from college, the need to invest in continual learning is over.  Well, that’s not true, as we need to keep learning to make money. This could mean spending money to invest in yourself to get an edge in your career, or give you time to do so.
  3. Cultivate ambitious dreams.  Again, I agree. With life ahead of you, there are so many possibilities. Why not try to shoot for the stars? If you land a bit lower, it’s still better than where you’ll end up if you aim low. It’s doesn’t get easier when you get older, as you have less time and more responsibilities.
  4. Pay off all but the cheapest student loans early.  Makes sense to me.  After reading about senior citizens with student loans, I think it’s a great idea to eradicate debt and work on becoming debt-free. There’s freedom involved in that situation!
  5. Don’t wait to start investing until you have extra money.  The earlier you start, the better off you’ll be in the long run.  The power of compounding on money is staggering, check it out!
  6. Give back on your own terms.  I agree on both parts of that: giving, and on your own terms.  I of course support helping others, as I’ve gone over here countless times. That said, nobody should force you into it and often times we might want to be careful to make sure that an organization we give to will actually use our money in a way we are comfortable with.

In addition to those tips provided, I have four more than came to mind, to make a combined list of 10 tips.  Here are my own additional four tips:

  1. Don’t give in to financial peer pressure.  People of all ages can be tempted to keep up with the Joneses. I would suggest not worrying about competing with others in terms of how much money they seem to have, where they live, and so on. Be aware of what’s possible, and be inspired. But don’t give in to pressure to keep up appearances, and don’t get sidetracked with unnecessary social competition
  2. Behave responsibly and be nice to people.  Besides being the right thing to do, it’s also smart not to be obnoxious.  With people getting googled by employers, and social media being used as a platform for many things, it’s best to think about ramifications if the world knew about what transgressions you commit. Because, that’s potentially but a few clicks away.
  3. Don’t waste time on Mr. or Miss Wrong.  Easier said than done, I realize :) Of course, many of us have seen people spend inordinate time when young dating or chasing the wrong person. I heard a story of a friend of friend who turned down a massive job offer in order to stay with someone who was dating. Who, of course, kicked him to the curb within 2 weeks. Ouch! Big money and career opportunity gone in a flash.
  4. Build your network.  Don’t burn bridges, build them instead.  The world is getting smaller, so it’s more important than ever to be a giver and think proactively with your network.
Apr 122012
 

What do you think matters more in terms of achieving success: talent or effort? One can say that both matter, and that’s probably true in most cases. However, there are some cases when one matters more than the other. Sometimes, having natural ability matters more.  Other times, persistence leads to success.

Based on what I have seen over the years, persistency and wealth have some correlation. The more persistent you are, the better your likelihood of success will be.  If we are driven and relentlessly pursue a goal, it can really pay dividends. Literally, in some cases:) If we go through the motions and try hard but don’t really push ourselves, we may end up just settling for a consolation prize, to speak. Or, in some cases, failure.

Now, I know that some folks might be quick to point out that just because someone is driven to succeed, it doesn’t mean that they can do anything they put their mind to. I totally agree with that broad statement. There are things that, no matter how badly we want them and are willing to outwork anyone in the world to get, we simply aren’t good enough.

For example: I’m 6’0” tall and of average athleticism. No matter how hard I might have tried when younger, I had zero chance of playing professional basketball. Or, for that matter, college basketball.  It never would have happened even if I worked harder than anybody alive.

That being said, there are other areas in life that don’t require exceptional skills.  Additionally, there are other goals and accomplishments that we can achieve that don’t require any natural talents than what we already have.  Many of these can be achieved through persistence rather than talent.

Examples of situations where persistency can lead to improved net worth:

  • Studying hard to get good grades and receive admission to a good college (since education impacts wealth).
  • Working to uncover scholarships and aid to attend college.
  • Working hard to get into a great graduate school or land a job in your desired field after college
  • Getting that promotion at work
  • Networking to find a better job
  • Pushing an entrepreneurial venture forward

You get the idea. It’s not like all of these things require innate quantifiable and measurable ability in order to succeed.

It seems to me that at many stations in life, there are plenty of people that have the requisite talent to succeed. Some may be a little smarter than others, but if you’re smart enough, you’re in the game. Then, it comes down to other factors, one of which is how much you want to succeed and how much you will do to make that happen.

Think about it all the people you have known who have achieved high levels of success in school, in their careers, or as entrepreneurs. Have they all been naturally brilliant?

I doubt it. Sure, some might have been .  But I’d be willing to be that many were not necessarily more talented than others, but just had incredible persistency.

Sustained, relentless effort – coupled with a sense of knowing where you have a chance to win – seems to be achievable for most of us, right?

My observations of such people are that they take common approaches, such as these 10 aspects of persistency that can lead to success and wealth:

  1. Setting ambitious goals.  It’s important to have a clearly defined goal or sense of what we want to ultimately accomplish.
  2. Visualizing  success .  Envisioning success in one’s mind, orienting thinking to that place and thereby aligning behaviors to that end.
  3. Planning.  Once the goal is in mind, plans are made to reach those goals. Planning – while building in room for flexibility – provides a roadmap and goalposts to shoot for.
  4. Being able to ignore naysayers. There are often people who tell us that something can’t be done, whether they really believe it or just secretly prefer that we don’t succeed in order to make themselves feel better.  Being persistent involves knowing when to ignore such obstacles.
  5. Being resilient.  When roadblocks emerge – which they will in one way or another – it’s important to be able to be tough, get through them, and move forward.
  6. Working hard.  This one is obvious, but persistence involves the willingness to put in the time and energy it takes to reach your goals.  One saying that I have heard a few times is that if you’re not working hard, somebody else is.
  7. Efficiency.  While we all need balance, it’s important sometimes to cut nonessential activities in pursuit of a goal. This could be cutting out that hour of TV at night in order to study, or it could be packing a frugal lunch each day instead of eating out in order to pay down debt.
  8. Discipline.  If you want something bad enough, you will discipline yourself to avoid slacking in order to reach the goal.
  9. Passion.  I think that a big part of actually being able to charge toward achieving something is truly having that burning desire to get it done.   Personally, times where I have really excelled have been when I genuinely, deep down wanted to win and reach a goal that mattered.
  10. Casting aside fear.  This could mean fear of success, or fear of failure. Both could derail people. In the times where I really wanted something and did it, I had no fear of success or failure.

It’s taken me some time over the years to be able to realize all of this, so I’ve had a mixture of successes and being completely average.  And, times I’ve failed.  For the latter, I’d like to think that when factoring out luck and chance – which does play a role in things – that being truly persistent could have made the difference.  For times where I succeeded, I know it did.  Lessons learned!

My Questions for You:

Do you think that persistency is a key component to success?

Do you agree with the assertion that in a many everyday situations, that truly relentless hard work can overcome better talent?

In situations over the course of your life where you have truly achieved a high level of success, did being persistent play a role in it? Perhaps contrast that with times where you were average or fell short.

Feb 292012
 

We’ve all heard of the phrase “keeping up with the Joneses”.  If you have a personal finance blog, or regularly read such blogs, you might have read advice about how it’s not necessary to make spending decisions based on impressing other people.  I’m with that school of thought, which probably won’t surprise you.

Based on this way of thinking, I tend to get amused with the people who fall into the “big hat, no cattle” category when it comes to money. These are people, as the saying implies, that talk a big game, but have nothing to show for it.  I truly don’t get this way of doing things.

Don’t get me wrong – I do get some of the underlying drivers. They want to feel like they belong, or they want to prove that they’re successful, they want to show that you’re no better than them. And so on. I get the thinking. I just don’t think the way those folks do.

I knew a guy who, back in his early 20′s, bought a brand new SUV. He in no way could have afforded it, as he and I were both modestly paid employees just starting out. But he felt like the “needed” to feel like he had “made it”. Huh? If you’re in your early 20′s, just having graduated college, you haven’t made it yet. Unless you’ve survived some harrowing health scare, or something extraordinary – or are a pop star or athlete – you’re in the category of “just starting out”.  But this guy wanted to feel like he was established, to the point of spending tons of money on something he didn’t need. Good guy, and he seems to be responsible now, thankfully.

Fast forward a number of years, and I’ve seen this with a couple who bought a brand new McMansion in a great new development. They didn’t seem to have jobs that could substantiate that purchase, so I assumed that they must have sizable savings. Actually, I didn’t really care, it just struck me as unusual. Well, a few years later, they put the home on the market and had financial concerns from what I was told. Didn’t seem like they needed the massive new, impeccably furnished house. They just wanted it, and beamed with pride over living that existence. They’re nice people, so I do feel kind of bad for them.

Anyway, these are examples of people who fall for big hat, no cattle syndrome when it comes to money and material things. They take pride in wanting everyone to know what they’ve accomplished, to the point of making harmful financial decision.

Does this make sense to you?

Personally, I like the “small hat, big cattle” approach. Sounds funny, but I think you get the idea.  Live your life modestly, based on what’s visible to the others. If you have money, keep it for security and other needs – and of course to enjoy – but no need to show off. What’s the point?

Of course, I’m not at the “big cattle” stage yet, so I’m living modestly and being quite accurate in how I present myself :) However, in the future, as things continue to evolve (positive thinking here), I would rather live the same way and not let lifestyle escalate in order to show off to others.

This brings me to my questions:

  • Would it bother you if people assumed that you had less money and were less accomplished than you really are?
  • Or, would you take pride in living under the radar so to speak?
  • Or, do you just not care one way or another how you’re perceived by others?

Keep in mind, I’m not talking about workplace situations, where people are undervaluing you. I’m talking about friends or acquaintances, and how they perceive your financial situation.

What do you think?

Feb 152012
 

Let's use that brain and keep learning every day!

Have you ever met anyone that’s especially closed minded, and resistant to change? Someone who can’t handle bigger changes in work, technology, or society – who pines for the way things “used to be” with respect to most things?

Those days aren’t coming back. Neither is the slower pace of change that may have been a part of things in an era gone by. It sure seems as though the velocity of change keeps accelerating each passing year that goes by. Heck, it’s probably more like each passing month or week that goes by.  Technology, frameworks, processes, and communication platforms are changing rapidly. This isn’t like the telephone was invented, and then decades went by before cordless phones were the “cool thing” for years. Change seems to be happening faster and faster all the time.

Along those lines, I think it’s more important than ever to focus on continual learning. I had included continual learning as one of 15 ways to grow and protect net worth in a prior post.  If we instead keep the mindset of people who just like things “the way they have been”, and are slow to adopt different changes, we risk getting left behind. If we don’t keep up, somebody else somewhere is. Not only that, but others are driving change. Thus, it’s best to keep our head in the game, be flexible, and stay with the changes.

In addition to technological changes, I’ve come to believe that it’s probably a good idea to try to learn from any situation and any job you have. You might be in a job you don’t like right now, and it might seem like what you’re doing is not aligned with your true interest.  Fair enough.

Thing is, not sure about you, but I’ve come to find that I’ve learned lessons from every job I’ve had over the years. Yes, even a few that I had all the way back in high school. One thing is that I don’t ever want to be in that type of job again:) Other than that, and more practically, I learned some communication skills and how to handle customers. One high school job I had was as a customer service representative. At first, I was taken aback by the angry customers who came in to complain; that’s pretty much who I dealt with. However, after a while, I began to learn strategies to handle them, and resolve issues while making them feel like they got something out of the deal. It became a fun challenge to try to turn a skeptical and irritated customer into a happy one.  These foundational skills have come in handy over the years, successfully dealing with certain people in my professional career.

Also, I’ve learned to keep in mind that when you try to learn and do your best, someone is often looking. Your reputation in a job that might seem entry level can carry a lot of weight with people who can open doors for you to better jobs. An approach of continual learning can pay off in numerous way.

Why do I say all this? Well, I think that when I was much younger, I didn’t always try to be an early adopter. Rather, I would get comfortable with a certain way of doing things, or a certain job environment, and be content. It took me some time, but I’ve come to see that my own successes have come by actively trying to learn from every situation, and improve even in some small way as a result.

If change is inevitable, we might was well take an approach of active learning, intellectual curiosity, then and adapt and/or better ourselves each passing day.

What Do You Think?

Do you try to take an active approach to learning from your experience each day?

Do you also think that it’s become more important to embrace continual learning each passing year?

Have you also noticed an accelerating rate of change in our jobs, technology, communication platforms, etc?

 

Feb 082012
 

Anchoring can influence many financial choices

Discounts are often enticing for many shoppers.  The idea of getting something for less than other alternatives – or, the particular item itself at a “sale” price – can bring about the feeling that one is getting a good deal.  Sometimes it might be the case, but other times it could be anchoring influencing your perception of the situation.

Anchoring, as you might know, doesn’t always refer to boating:) Rather, it sometimes refers to the notion of excessively focusing on a particular attribute, or set of information, when making a particular decision. This latter aspect of anchoring can come into play for many of us in terms of our finances. Anchoring can factor into pricing decisions, as well as how consumers handle different choices.

Here are three examples of anchoring:

  1. Shopping. Let’s say you are shopping for a new pair of jeans, and you see a nicely branded pair of jeans at $100 a pair. Pricey, right? For many people it would be. However, what if you saw a sticker noting that the jeans are 50% off! Hey, then you can get the $100 jeans for “just” $50! These jeans that seemed so expensive now seem like a bargain – an opportunity to get an expensive item for $50 less and half price. However, are they really even worth $50 or anything close to it? Would you normally pay that much anyway? A shopper could be impacted by anchoring here.
  2. Dining. Suppose you’re at a nice restaurant, and you see a number of entrees priced at $25 each. Then, you see a hamburger priced at $12. Wow, just order the hamburger and you can enjoy the nice atmosphere and get a bargain. After all, it’s so much cheaper than everything else on the menu! Well, in this case the diner might be impacted by anchoring.  While the burger might seem like a good deal, why does anybody need to spend $12 on a hamburger in the first place? It’s probably not a deal, and might seem so due to anchoring.
  3. Hiring. Imagine that you’re interviewing someone for a job, and you see on her resume that she attended an Ivy League school for their undergrad studies. Also, she’s very presentable, warm and friendly when you first greet her. Based on these factors, you might assume that she’s really bright, talented, and has a lot of potential.  What if she ended up giving mediocre answers in the interview, and didn’t seem to understand the job for which she was interviewing? Would you look past these red flags, and still think that she’s highly capable? If so, you might be falling into a situation of anchoring on to initial impression.

There are many other situations that can be impacted by anchoring.  Some of these involve money, and some might even be relationship-centric. Either way, it’s important to recognize when we might be anchoring, and then apply critical thinking to make a more informed, logical decision.

My Questions for You

Can you think of any times where you have noticed attempts by businesses to incorporate anchoring into their pricing strategies?

Have you ever fallen into the trap of getting anchored to a certain price or attribute when making a decision?

How do you avoid letting the concept of anchoring impact you when you make decisions?

 

Feb 062012
 

Be patient, my friend

Many of us get so fired up to achieve our goals, that we can get a little bit impatient sometimes when things don’t happen right away. With information and applications at our fingertips more and more each day it seems, the bar has been raised in terms of expectations of instant results.

Nevertheless, it’s sometimes good to sit back and let things take their course. Not by being lazy, of course. Being passive and delaying an outcome by indifference isn’t a winning solution.  Rather, putting a plan in place and executing it sometimes requires patience for success to ensue. In these cases, it can be better for the result as well as your stress levels to just resist the temptation to change directions or try new things, and just let things play out.

I mention this because I’ve had a certain goal in mind of late that I’ve been getting a bit impatient to achieve. It’s been gnawing at me a bit, and I feel like I’m not seeing the traction I want to see as of yet. It gets annoying sometimes when things don’t go according to your plans for success right away.

But as I’ve had these thoughts, I remind myself of a totally different goal I had some years ago, and how things at first seemed to be failing – but turned out to be successful. I just had to be patient and let things play out.

Here’s what happened. Some years ago, I was trying to sell a condo, and had purchased another place that was a little bit bigger out in the suburbs. The condo I was selling was kept in absolutely great shape – it looked just like new according to people who saw it, and was situated in a popular area for young adults. I worked with my realtor on doing all the research and due diligence, and felt that it was priced, staged, and marketed well. Keep in mind this was during a better real estate market.

Anyway, after the condo went on sale, I couldn’t wait for an offer to come in. I felt that I’d make a little money on the place, and given the market activity at that time, I thought it would happen within the first 2 weeks. This was typical at that time.

Well, the first few weeks went by with some showings, but no offers occurred. No sweat, I thought. Maybe by the end of the first month, something would happen.

Nothing happened in that first month. No offers.

As the second month went on, there was a decline in showings.  By the end of that month, I was getting antsy. I had plans to move out to the suburbs, and assumed that this place would be sold in time for that to happen. I felt that based on the market situation, our pricing, staging, and marketing plan – we would have been achieved success. However, this hadn’t happened and things were dragging along.  At the time, I started to question everything, and considered dropping the price and even potentially looking for another agent.

Then, just as the 2nd month ended, I got a call from the agent. Good news – we got an offer! Even better, we got two offers!

As it turned out, two people made separate offers on the same exact day. They both really liked the place, and actually ended up bidding full price for it. So what did we do? We then went back to them and told them the situation, and asked them to submit their best higher offer. In other words, we had a 2-party bidding war!

The net result of all of this is that I ended up selling the place, and even got a little bit more than I asked for.

Had I let my worry and impatience get the best of me, I might have lowered the price or gotten another realtor. That could have resulted in less money for me, and delayed things further. But I stayed the course, followed the plan, and it worked out to be the success for which I planned. It’s not like big money was made, but it was still a small profit that wouldn’t haven’t been there had I changed plans.

My lesson: Sometimes it’s best to be patient, keep doing things according to plan, and your efforts can totally pay off.

Now to be fair, there’s something to be said for being flexible and changing plans when needed. I do think that we can’t be rigid or static in our thinking. Plus, it’s important to recognize sunk costs and be able to act based on the present and future.

However, it depends on the situation. Sometimes we should make changes, other times we have to have belief in our plans and efforts, and stay patient. Good things can happen, and sometimes patience is a virtue with money. It could be selling a home, or it could be landing a job, getting customers for your business, getting published, or even accumulating assets for a financial goal. Whatever the case is, just keeping at it can be the right move sometimes.

My Question for You

Have you ever had a time where you just kept at it, stayed the course, and reached a goal that was money related? Or, even non-money related?

Do you find that patience is a virtue sometimes?

If you’re like many of us, and impatient to reach goals sometimes, how do you manage this?