The Behavior Gap by Carl Richards
Simple ways to stop doing dumb things with your Money
This is the second book of Carl Richards I have read and I like it even more than his earlier book The One-Page Financial Plan. This author works professionally as a financial planner and writes in simple language to explain us important concepts about our personal finance with his sharpie diagrams.
The book explores how our Brain plays a very important part in creating or destroying our financial life. This is because we (our brain) take financial decisions so if we understand our self we could manage our financial life even better.
The term Behavior Gap leads to the Gap between the Investment Results and Investor’s Results.
The author coined this term “The Behavior Gap” to describe all kinds of situations where our behavior leads us to subpar results, and the author has drawn many sketches to help his clients and readers understand what’s really driving their actions.
Some of the nuggets of wisdom from the book are-
- Self-exploration can be a painful process. Be patient with the process. Keep reminding yourself that it’s not about the money. It’s about your life.
- Planning for your financial future is a balancing act rather than a single-minded pursuit of the highest return.
- Real planning requires thought, frequent course corrections, and, above all, an effort to keep things in balance. Finding that balance is a different process for everyone.
- Financial decisions almost always are life decisions. Before you decide on your financial goals, you need to choose your life goals.
- Investment decisions should be made based on what we know, not how we feel.
- YOU’RE RESPONSIBLE FOR YOUR BEHAVIOR (BUT YOU CAN’T CONTROL THE RESULTS).
- Happiness is more about expectations and desire than it is about income.
- You want investments that work together to close the gap between you and your financial goals. You also need to make sure that what you own doesn’t expose you to more risk than you can handle.
- Do what you can, and then relax.
- You aren’t in charge of everything.
- Will Rogers’s advice: Focus on the return of your money instead of the return on your money.
- Develop a checklist of questions to ask before you make major financial decisions.
a. How are you feeling? b. Are you acting out of fear or greed—or do you have a clear take on what’s going on? c. Are you reacting to the media? d. Are you doing this because other people are doing it? Are those people good role models? e. Does this decision flow naturally out of your plan and support your goals? This checklist approach works for pilots and doctors. (The Checklist Manifesto)
- Whatever you have to do to gain self-knowledge, do it. Find out who you are and what you want. Then you can stop wasting your life energy and your money on stuff that doesn’t matter to you—and start making financial decisions that will get you to your true goals.
- One should draw a line separating the time that you spend focused on planning for the future and the time you spend living for today. Planning for the future is very important, but it needs to be done in isolation to avoid overshadowing the joy of today. Think about setting aside time each month to evaluate your recent financial behavior.
- People worry a lot about things they simply cannot control. The solution: focus on the things that
- matter to you and can be influenced by your behavior.Forget the rest.
The book is an easy read and I highly recommend you to read it if you are struggling with taking money decisions.