Set yourself up for success

Many of you reading this are parents, and familiar with the wide disparity in child car seat pricing. You can spend $60 on a car seat, or $500 on a car seat. Branding and trends account for some of the difference, of course. But car seats all meet the same safety standards, so the $500 seat isn’t any safer than the $60 one. It’s just easier to use, correctly, each and every time.

Birth control is another example: there is as much as a 10% difference between the potential effectiveness and the actual effectiveness of some methods - because the potential effectiveness rate relies on perfect usage, each and every time.

I sometimes work with people who want to reduce their debt, particularly credit card debt. There are lots of ways to go about that, and I analyze the various balances and interest rates to come up with a strategy that works best. Maybe it’s the one that attacks the highest interest rate first, or maybe it’s the one that kills the small balances first. But really what works best is the strategy the client can stick with over time, and that might not always be the mathematically best option. It’s the one that will actually get the debt paid off. If the client abandons the plan, it’s worthless, even if the numbers were right.

Yesterday I attended an Advisor Growth Community call with Dr Daniel Crosby, who is one of the leading voices in this industry helping us tie behavioral insights to good planning. This topic came up on the call as well in the context of managing investments, as Dr Crosby reiterated the wisdom that the best portfolio is the one you can live with over time. You have to stick with the strategy, each and every time, even when it’s hard, even when the best thing to do is nothing at all, for it to work. Understanding what gets in the way of humans doing that, and setting up the mechanisms around that, is the key to setting yourself up for success.

This relates also to the life planning work I’ve been begun pursuing via the Kinder Institute, which attempts to marry clients’ life goals to their financial goals, and ensures the financial plan is built in a way that allows them to be truly successful. Ultimately the purpose is to identify the roadblocks - external or internal - that might stand in the way and help remove them. I think that begins with understanding motivation and what will keep someone on the journey, rather than abandoning the plan altogether.