Sunk Cost

Another logical trap that costs us time and money: The Sunk Cost Fallacy:

It’s human nature. When we’ve invested so much into something, it becomes hard to quit if it’s not working out. It’s appealing to keep trying to make it work, even if it’s no longer worth our time.

One way to avoid this problem is to ask yourself whether you would start the project from scratch if everything you did got erased.

If it’s an obvious no, then you have your answer.

Planning Costs

Economists used to believe that our decisions are made purely using logic. However, they found out that there are psychological tricks that prevent us from making logical decisions.

Planning Fallacy: One study showed how people doing construction believed that it would be done on time and within budget, but when asked about their friend’s similar project, they said it would take longer and cost more than expected. This was due to being unrealistic and overly optimistic about their own project.

Goals vs. Habits

Set big goals! Dream big!

How does starting tiny not contradict this great advice?!

They are addressing totally different stages.

In the planning stage, dream big.

You need a goal to aim for if you want to get there, and big goals help you get big results.

Then there’s a different stage: implementation - when you start working toward that goal.

The way to do that is by starting tiny.

It may be counter-intuitive, but it works.

Tiny Habits

Do you want to change your money habits or install a new one?

Great. Start small.

Open an investment account with the minimum balance necessary. Don’t wait until you have every step figured out to start.

Need life insurance? Start by just writing down the phone number of an agent.

Of course, if you’re motivated to do more now, do it. But if you’re not starting since you feel overwhelmed or confused, just take that first step.

This is what the Baalei Mussar teach us regarding Kaballos, and Lehavdil it’s what the latest research supports.

For more explanation see

https://jamesclear.com/habit-guide

Actionable Finance

Over Psach I talked with a few people about the frustration many financial professionals feel when their clients won’t change their habits despite the professional’s advice. Big problem? Yes. In fact, I think that this is the problem in personal finance.

This encouraged me to double down on the Actionable Finance approach. This approach uses science-based techniques to change habits (such as by starting small or just taking the first step). It also enables people to improve their finances without changing their behavior (such as automation or making a 1 time decision).

Actionable Finance is the only concept I will be focusing on since all that matters to me is the bottom line. Knowledge is nice but if our finances don’t improve it didn’t accomplish anything.

Budget or Not?

Financial expert David Bach argues that budgets don’t work (for most people) since they are inconvenient and therefore a difficult habit to maintain.

Instead, he recommends paying yourself first and making it automatic. This means deciding how much to save each month to reach your goals and then having that amount go automatically from your checking account to a separate account.

Once it’s set up it requires no more work and therefore gets done.

He adds that it’s still important to keep an eye on your transactions so that you can find more places to save.

While not getting involved in an argument between him and other experts who do encourage budgeting, I will say that at the very least it’s a huge improvement from not having a savings plan at all.

Just in Time Information

“Focus on just in time information, not just in case information.”

This advice, given by author Tim Ferris, employs the 80/20 Rule (see blog post #2 for more information).

Don’t try to learn everything about any given area (unless you want to be an expert).

If you want to excel in your finances with the least amount of time and effort, just learn the basics and have friends or professionals more knowledgeable than you who you can ask questions to. You’ll have access to all the information you need - just in time for when you need it.

You don’t have to be an expert yourself to have the finances of one. You just need access to the proper information when you need it, on top of your basic knowledge.

Then spend the rest of your time on what’s important to you in life.

Failure vs. Sucess

“Failure isn’t the opposite of success, it’s just a step on the way.”

This is a quote I heard from a keynote given by business author Alex Banayan.

In other words, true failure is not even trying.

When things don’t work out as you’d like but you keep on trying, that can’t be called failure.

When it comes to finance you should know that not everything will work out as you’d like.

At times you’ll make mistakes, you’ll be working with incomplete information, and other factors beyond your control will impact you.

That’s the truth about finances. About life too.

Focus on what you can control - to keep trying.

Success is not an end point, it is a way of acting.

Psychology of Money

I am currently reading The Psychology of Money by Morgan Housel.

It is extremely insightful and I recommend reading it if you are interested in spending more time learning about the topics we explore in this blog. (But even while reading books you can always focus on the 20% that will make the biggest impact)

Here is a quote that really hit me:

“Like everything else worthwhile, successful investing demands a price. But its currency is not dollars and cents. It’s volatility, fear, doubt, uncertainty, and regret - all of which are easy to overlook until you’re dealing with them in real time (p. 158).”

This applies to all of your finances as well.

Budgeting. Saving. Investing. Negotiating.

All require overcoming laziness and facing the unknown and the fear it brings.

The good news is that half the solution is identifying the problem and that we just took another step forward.

Finances are Simple, Not Easy

“Life is simple, people are complicated.”

That’s how Rabbi Simcha Wasserman described dealing with life’s challenges.

The same applies to money.

Yes, noone is born knowing about finances, but the principles of personal finance are pretty simple.

In my opinion, the main one is:

Spend less than you make.

That’s it.

If you just do this, you’ll be in better shape than most.

Sounds simple, doesn’t it?

But we’re not robots.

And we’re not supposed to be.

Being human means we have emotions, irrational beliefs, and inner conflicts that influence our behaviors in every single area of life.

Finance is just 1 of them.

This is the source of most of our financial issues.

To maximize our returns for minimal time and effort, we will target this area to improve our finances.

Let’s continue on our journey.

80/20 Finances

This rule can change your finances. It can change every part of your life.

It simply states that a disproportionate amount of results flow from a portion of inputs. (80% and 20% are just common examples)

Let’s see how this plays out with your money.

The majority of your financial success will probably come from a small amount of your actions.

Even if you aren’t aware of it, this rule is already effecting you right now.

Most financial issues you may currently be experiencing flow from a small set of actions and feelings.

The good news is that by finding them you can solve most of your issues quickly and simply.

Easy? Not necessarily. Simple? Yes.

Welcome to the Journey

Finance. Budgeting. Saving. Investing.

Do you feel overwhelmed?

That’s normal.

Anything that’s important to you that you don’t know much about will cause overwhelm.

There are 2 solutions I know of:

You can devote years to learning about finances, but maybe you aren’t interested. Maybe you just want healthy finances without spending a lot of time on it, so you can spend your life on what’s important to you.

Do you wish there was a way that could maximize your finances with the minimum investment of time and effort?

Here at Gelt Made Simple we will explore simple, powerful frameworks to maximize your financial health with the minimum of time and effort, without requiring you to become a money expert.

This is my first post. Welcome to the journey.