If we accept that behavioural biases exist and can affect all of us, and we learn what those biases are and how to spot them, we can also work to overcome them.
You are Human
Like it or not, we are people, with all the benefits and downsides of our species. For me, the biggest advantage I have over my Jack Russell, Maisy, is that I am able to improve myself.
She is consistently pointless and useless and adds nothing of value to the household. She has no means of changing, though she is extremely cute. On the other hand, I have the intellectual capacity to recognise my own flaws and seek to improve them.
To a large extent, we can choose who we want to be, but we all know that in many spheres of life there is resistance within us to positive change. If it was easy to improve ourselves, I would have a six pack. And I don’t. We all have areas of our life where we accept second best, whether that’s in our health, our relationships, use of time and resources – whatever.
But we have incredible potential, and realising that potential will be easier if we are moving towards goals about which we're passionate. My fitness coach Tracy is always encouraging me to remember why I want to improve my physical health. What’s the why? Simon Sinek called his book ‘Start with Why.’
In the same way, having a clear picture of our financial goals, the why of our money, will help motivate us to improve our behaviour along the way. There are three steps to moving forward so we can improve:
1) Recognise our human flaws and behavioural biases
2) Focus on our goals
3) Move towards them with continual improvement
Commit to Learning About Financial Behaviour
Knowledge is power, and we need to start by learning about the area in which we want to improve. That's why you're here, right?! In the specific area of behavioural finance, I have some book recommendations. My thanks to my good buddy Andy Hart of the Maven Money Podcast for his insight here, and his show is a great source of information on this subject.
The first is The Behaviour Gap by Carl Richards, which is a great intro to the subject. He’s a very gifted American adviser who has a real knack of encapsulating financial truths in little black and white line sketches.
Then you could try The Simple Path to Wealth by JL Collins. I haven’t read this, but Andy calls it the best personal finance book ever – high praise indeed and makes me wonder what I’ve been doing, not having read it!
I’d also recommend a book by a previous guest on my podcast: Dr Daniel Crosby’s book, The Behavioural Investor. It is meatier, so maybe don’t start there, but definitely build up to it.