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Afford Anything | Make Smart Money Choices

The Gap Between Knowing and Doing - with Dr. Stephen Wendel from Morningstar

Afford Anything | Make Smart Money Choices

Paula Pant | Cumulus Podcast Network

Entrepreneurship, Investing, Business

4.73.6K Ratings

🗓️ 23 July 2018

⏱️ 73 minutes

🧾️ Download transcript

Summary

#141: "I'll get around to rolling over my 401k ... next week." "Eventually I'll switch to a cheaper insurance plan." "I really should move my portfolio into lower-fee funds." "Yeah, yeah, I know I should create an estate plan. I'll do it later." ____ We know how to improve our financial lives. We know what steps we ought to take. I'm betting that everyone reading this can name at least one action, big or small, that you could take to improve your net worth. But we don't follow through. Why not? Why do we procrastinate? Why do we ignore the important, in favor of the urgent or the more-pleasant? Why do we act against our self-interests? Why is there a gap between our intentions and our actions? More importantly, how can we bridge this gap? How can we align our knowledge and intention with our behavior? Dr. Stephen Wendel is a behavioral economist and the head of behavioral science at Morningstar, an independent investment research firm. He joins us on the Afford Anything podcast to answer these questions. Here are a few tactics he shares: #1: Automate Set up systems that save you from yourself. #2: Create mental accounts Give every dollar a job. Earmark dollars for specific purposes, so that you don't view your money as commingled in a giant bucket that you can raid. Once you start thinking of piles of money as "my emergency fund" or "my kid's college fund," you'll be less likely to spend it on champagne and luxury hotels. #3: Imagine vivid scenes Our minds are predisposed to prioritize the vivid over the subtle, which is one reason why we suffer from "present bias" -- the tendency to only think about the present, often at the expense of the future. (For example, "I feel like sitting on the couch right now" takes priority over "If I workout, I'll feel better in the future.") In order to combat this, create vivid scenes in your mind that imagine the future in great detail. #4: Create artificial hindsight Imagine a future version of yourself, and from that perspective, look back in hindsight at yourself today. What will Future You regret doing, or regret not having done? This technique is called "prospective hindsight," and it allows you to anticipate the thoughts and emotions of your future self. #5: Simplify If you find yourself drowning in a sea of complex financial decisions, you might lose confidence in your ability to make choices, and therefore not take any action whatsoever. Reduce complexity by making moves that are 'good enough,' rather than perfect. Simplify in order to take action. Dr. Wendel shares more tactics and insights in this episode. Tune in for a deep-dive! Learn more about your ad choices. Visit podcastchoices.com/adchoices

Transcript

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0:00.0

You can afford anything but not everything.

0:11.6

Every decision that you make is a trade-off against something else.

0:15.1

And that doesn't just apply to your money.

0:17.2

It applies to your time, your energy, your focus, your attention, anything in your life.

0:22.6

It's a scarce or limited resource.

0:24.7

And I am not saying this to promote a scarcity mindset.

0:27.1

Of course, I believe in abundance.

0:28.8

But the fact is, there's an opportunity cost with everything.

0:33.0

And that leads to two questions.

0:35.0

Number one, what's most important to you?

0:36.9

What do you value above all else?

0:38.9

And number two, how do you align your daily behaviors to reflect those values?

0:45.2

In other words, how do your actions match your intentions?

0:49.9

Answering these two questions is a lifetime practice.

0:52.2

There are no shortcuts and no easy answers.

0:54.8

That is what this podcast is here to explore in depth.

0:58.6

My name is Paula Pint.

0:59.9

I am the founder of AffordAnything.com and the host of the AffordAnything Podcast.

1:05.2

Joining me on today's show is Dr. Steven Wendell.

1:09.6

Dr. Wendell is a behavioral economist and the head of behavioral science at Morningstar,

1:15.2

which is an investment research firm.

1:17.4

In his work at Morningstar, he leads a team of behavioral scientists to ask and try to

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