Psychology of Money – Matt About Money Simple. Meaningful. Success. Fri, 31 May 2019 19:33:55 +0000 en-US hourly 1 9092505 Keeping a Steady Hand on the Wheel Under Changing Financial Conditions Tue, 04 Jun 2019 13:30:12 +0000

The way we buy cars offers a great example of what I call “binge/purge” money management.

For the auto industry, 2018 was a solid year. Some 17.3 million vehicles were sold (the fourth straight year with more than 17 million vehicles sold), with SUVs and trucks leading the way. Auto industry writers, such as Jason Unrau, attribute the strong sales, in large part, to low gas prices. “At the pumps, if the average price of gasoline in America remains under the $3 mark, you can expect larger vehicles to fly off the lot.”

It happens all the time. Outside circumstances change, and our behavior follows.

A common mistake with investing

Binge/purge is standard operating procedure for many investors as well. It can be seen in annual surveys in which investors underperform the funds they invest in. For example, a Morningstar study found that in a 10-year period through the end of 2016, the average investor in diversified equity mutual funds underperformed the average diversified equity fund.

How can that happen? When the market falls, fear prompts a run for the exits. Once they’ve gotten out, binge/purge investors often find it much more difficult to get back in, and usually do so only after the market has exceeded its previous high.

A better way

One of my favorite investment writers is Jason Zweig, who writes the Intelligent Investor column in the Wall Street Journal. After hundreds of columns in which he closely studied the market, one principle stood out.

“From financial history and from my own experience,” Zweig wrote, “I long ago concluded that regression to the mean is the most powerful law in financial physics: Periods of above-average performance are inevitably followed by below-average returns, and bad times inevitably set the stage for surprisingly good performance.”

In other words, bull markets are followed by bear markets, which are followed by bull markets, and on and on. Investing is best done from the perspective of a long-term investor, not a short-term trader. Recognize that something you can control, time in the market, is far more important to your success than the impossible-to-achieve goal of perfect market timing. Find an investment strategy you can stay with in good times and in bad, and then, in fact, stay with it.

The same principle can be seen with many financial decisions, such as buying a car. Just like the stock market, gas prices are cyclical. Low prices are followed by high prices, which are followed by low prices, and on and on. Vehicles are best bought with cash and kept for a long time—long enough to drive them through several cycles of changing oil prices. Buy vehicles you can afford to drive no matter how much gas costs. How will that SUV you’re thinking of buying impact your household budget if when gas goes to $4 per gallon?

No more financial binging and purging

Recognizing the cyclical nature of the economy is one thing. Resisting the temptation to be swayed by especially good or bad times is more difficult. As Zweig cautioned, “…humans perceive reality in short bursts and streaks, making a long-term perspective almost impossible to sustain…”

Developing that long-term perspective is an important part of what it means to be proactive with money instead of reactive, an initiator instead of a responder, a steward or manager—or, as I prefer, a wise builder—instead of a consumer.

Winning with money is about making financial decisions that work well under today’s circumstances, and would still hold up under very different circumstances.

Are you considering a significant financial decision right now? How will you feel about it when circumstances change, for better or for worse? How much would today’s circumstances have to change in order for you to regret the decision you’re contemplating?

What’s an example of a financial decision you’ve made that has held up well under different economic conditions, or one that didn’t hold up so well?

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Profitable Ideas: Buying Happiness, A Simple Career-Building Secret Weapon, and More Fri, 22 Feb 2019 14:30:10 +0000

How to buy happiness (Laura Vanderkam). By now you probably know that experiences tend to create more happiness than things, but using money to free up time is also important.

Building financial momentum when you’re struggling to make ends meet (The Simple Dollar). The importance of taking even little steps in the right direction.

A career secret weapon: Thank-you notes (Reuters). It’s a throwback to an earlier day, which makes it even more impactful. 

The 8 most common 2019 tax return questions, answered by experts (NY Times). With sweeping changes to the tax code that took effect in 2018, there’s a lot to get accustomed to.

Smaller tax refunds surprise those expecting more relief (NY Times). If you’ve already filed your taxes, your expectations may be smacking up against a very different reality. 

What’s the cheapest place to buy groceries online? We compare Amazon, Walmart, Peapod, and FreshDirect (Money). Have you tried any of these services? What’s been your experience?

21 Selling apps to sell stuff online and locally (Bible Money Matters). Lots of good options for making some money from your decluttering efforts.

Here’s how to take $100 and turn it into a business (Inc). It’s never been easier, or less expensive, to set up shop.

Interested in more ideas and encouragement for using money well? If you haven’t done so already, why not sign up for a free subscription to this blog?  

The Master(’s) Principle Tue, 13 Nov 2018 14:30:55 +0000

There are countless tips and “tricks” you can use to speed up the process of getting out of debt, save money at the grocery store, and invest more for the future. But if you really want to get the money thing right, you have to cultivate certain inner disciplines. And there is one that rises above all the rest.

At first glance, it will sound completely unappealing. And you’ll find virtually no support for it in our culture. But because it’s so incredibly helpful, I strongly encourage you to find the patience to read on.

One now, or two later

In the late 1960s Stanford University researchers conducted an experiment among hundreds of four-year-olds. One at a time, the children were brought into a room and told they could eat one treat such as a marshmallow right away, or if they could wait until the researcher returned from a brief errand, they could have two.

A few kids couldn’t wait at all. Before the researcher had even finished giving the instructions, the treat was gone. The majority of kids held out for an average of… wait for it… 3 minutes. 3 minutes!

But the remaining 30 percent were able to hang in there, resist temptation, and wait for what turned out to be 15 minutes in order to get the better reward.

Some 12 years later, when the kids were in high school, lead researcher Walter Mischel tracked the kids down to see if there were any discernible differences between the kids who could wait and those who couldn’t.

He asked parents, teachers, and academic advisors about the kids’ ability to plan and think ahead, cope with problems and get along with peers. He also requested their S.A.T. scores.

And what he found was remarkable. The kids who could wait had noticeably fewer behavioral problems at school and at home. They were better able to handle stressful situations, did better at paying attention, and found it easier to maintain friendships.

As for their S.A.T. scores, the kids who could wait scored an average 210 points higher than the kids who couldn’t.

Clearly, good things really do come to those who wait.

A character trait unlike any other

So helpful is the ability to delay gratification that psychologists call it the master principle. They say it’s the most essential psychological skill for effective living.

Think about the financial benefits of patience. Those who routinely save for what they want instead of impatiently buying today on credit can save thousands of dollars on interest. Those who patiently invest over long periods of time stand a much better chance of being able to help their kids pay for college or having enough money for their own retirement.

The marshmallow experiment kids who could wait were the ones who clearly saw that their future reward would be much better than the immediate reward. Having no doubt that the waiting would be worthwhile motivated them to be patient.

The ultimate form of delayed gratification

The Apostle Paul said something very similar about heaven. He said everyone who has placed their faith in Christ has “the firstfruits of the Spirit,” meaning that the presence of the Holy Spirit gives us a glimpse of heaven. And he said this taste of our future inheritance naturally leads to two responses: A yearning for heaven and the patience to wait for that reward (Romans 8:22-25).

Do you yearn for heaven? When I first thought about that, I had to admit that I don’t. When I’m away from home, I yearn to see my family. Every spring, I start yearning for our summer vacation. As for heaven? I’m thankful that it’s real, but I can’t say I’m in any hurry to get there.

If it seems that you don’t yearn for heaven either, consider this: Maybe you actually do.

Think about something you love to do—your favorite hobby, perhaps, or a place where you love to vacation. C.S. Lewis said our longing to spend more time doing what we most enjoy is an expression of our ultimate longing for heaven.

…it (is) not in them. It only comes through them and what (comes) through them (is) longing…For they are not the thing itself; they are only the scent of a flower we have not found, the echo of a tune we have not heard, news from a country we have never visited.

That’s why even the best things of this world only leave us wanting more. As Lewis wrote,

If I find in myself a desire which no experience of this world can satisfy, the most probable explanation is that I was made for another world.

The realization that the things of this world will never completely satisfy our deepest longings is not bad news; it’s good news. It can help us stop looking to them for what they’re incapable of delivering, and it can free us to enjoy them for what they are: Good gifts from God, but not the basis of our identity, security, or ultimate happiness.

The patience to wait for our ultimate reward in heaven is what turns the master principle into the Master’s principle.

As John Eldredge wrote, we express our longing for God best when we “enjoy what there is now to enjoy, while waiting with eager anticipation for the feast to come.” I love that.

Are you looking to something of this world to deliver what only heaven can deliver?

How might your use of money change if you were clearer about what the things of this world can deliver and what only heaven can deliver?

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Navigating The Mixed Messages Of Our Consumer Culture Tue, 23 Oct 2018 13:30:20 +0000

If you’re really paying attention, life can be a very odd experience. Especially when it comes to money.

For example, in troubled economic times, front-page newspaper stories regularly quote economists expressing concern that the personal savings rate is going up.

I still vividly remember reading one such story during a previous recession. I had to blink my eyes and reread an economist’s comment. Sure enough, he was worried that people might start saving more.

Flip past the headlines to the personal finance section of your paper and you’ll find columnists regularly sounding the opposite alarm: Americans aren’t saving enough!

So, who do we listen to? The economists who seem to think it’s our duty to spend more for the good of the country? Or the personal finance writers who say it’s in the best interests of our families to save more?

A Simple, Radical Idea

A long time, I remember thinking that we would all be a lot better off if we would simply build a strong base of savings and then buy what we need and want out of that.

It’s such a simple idea.

Save for a vacation and then take a vacation that we pay for out of savings. Save for a car and then buy a car with cash.

So simple, and yet so rarely practiced.

Instead, we’ve bought into the lie that we are consumers, and consumers can’t be inconvenienced by waiting. Delayed gratification? Too much work, and not enough fun. Besides, you only go around once, you know? Better grab for all you can right now. And look! As luck would have it, it’s all on sale. We can get the computer, the car, the cruise  — all for no money down and no interest payments until…

The Opportunity

Back when I first had my quaint little idea about saving and then spending, the economy was strong. I remember thinking that if everyone suddenly started saving more, the fears of front-page economists would, in fact, come true. We’d go into a recession. There would be some pain, but maybe it would be short-term pain that brought about long-term gain.

Once people had a healthy savings account and were in the habit of regularly saving a sizable chunk of their pay, they could use a portion of that savings to buy the things they had been putting off.

We’d go back to buying stuff again, but we’d do it differently. We’d go from wanting something, getting it, and then paying for it over the next several years along with a bunch of interest, to wanting something, saving for it while earning interest, and then getting it.

Our household finances would be much stronger, and I’m guessing our country’s finances would be stronger as well.

How to get there

On a practical level, one simple step I’ve found especially helpful in saving for big-ticket purchases is to use separate savings accounts earmarked for specific purposes. For example, for about three years now, Jude and I have been using such an account to save for a trip to Paris to celebrate our 20th anniversary next year.

We’re using another account to save for the replacement of our now 15-year-old van. Despite our kids suffering through the indignity of us owning the only van they know of with manual doors, we’d like to keep it another couple of years. (Actually, they understand that driving older vehicles is a trade-off we’re will to make in order to be able to afford nice trips and other experiences, which are more important to us than what we drive.)

How are you doing with the idea of buying stuff—even big-ticket stuff—with savings instead of credit? And what have you found helpful in being able to do that in the face of a culture that doesn’t seem to support such behavior?

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Profitable Ideas: A Brain Wired for Wealth, Lower the Cost of College, and more. Fri, 03 Aug 2018 13:30:13 +0000

A weekly roundup of some of the best personal finance articles from around the web.

Is your brain wired for wealth? (Jason Zweig). A long read, but worth the effort for anyone who wants to invest better.

6 ways to lower the cost of college (The White Coat Investor). That ACT/SAT test prep course may be well worth the cost.

These are the six things the best mentors never do (Fast Company). Mentoring is one of the best ways to give back, but your success hinges on what you don’t do as much as what you do.

Have ‘the talk’ about finances, estate planning with your parents already (USA TODAY). It’s awkward, but necessary.

Buy things and build things that pay you monthly (Four Pillar Freedom). Multiple streams of income, especially when some are passive, is a wonderful thing.

Our homes don’t need formal spaces (Curbed). Rethinking what you really need in a house.

Boost your chances of getting hired with one simple thing (CNBC). It’s simple, and yet surprisingly few people do it.

The Quantified Spender (The Simple Dollar). This is the part of budgeting most people dread. But it’s so worth it, and it’s relatively easy with a tool like

What are your thoughts on any of the above? Let me know by leaving a comment below.

Interested in more ideas and encouragement for using money well? If you haven’t done so already, why not sign up for a free subscription to this blog?

Profitable Ideas: Money Lessons From Hurricane Maria, Expecting Luxury, and More Fri, 08 Jun 2018 13:30:08 +0000

A weekly roundup of some of the best personal finance articles from around the web.

What Hurricane Maria taught my family about life, money, and community (Wise Bread). A powerful reflection on a forced hardship.

The psychology of money (Collaborative Fund). It isn’t how much you make; it’s what you do with what you make. But the forces that drive what we do with money are complex.

When luxuries become expectations (Four Pillar Freedom). What do you own that you consider essential but that was once a luxury?

The confusing information colleges provide students about financial aid (The Atlantic). For those with college-bound kids, a peak into the murky world of financial “aid.”

60% of parents could be making a big college savings mistake (USA TODAY). It’s great to be saving for your kids’ college, but where you save makes a big difference.

Where you live has a bigger impact on happiness and health than you might imagine (Washington Post). Buying a house is about much more than the countertops and the commute.

Keeping up with the Joneses: Neighbors of lottery winners are more likely to go bankrupt (Bloomberg). Really interesting study on how the way people around us spend money impacts our own spending.

Beyond charitable giving: What’s your currency of giving? (The Rich Fool). Great article that takes generosity beyond the weekly giving of tithes and offerings.

What are your thoughts on any of the above? Let me know by leaving a comment below.

Interested in more ideas and encouragement for using money well? If you haven’t done so already, why not sign up for a free subscription to this blog?

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Profitable Ideas: Making a Prime Membership Pay Off, You Need a ‘Near-Cation,’ and More Fri, 01 Jun 2018 13:30:32 +0000

A weekly roundup of some of the best personal finance articles from around the web.

Here’s how to get an $800 value out of your $119 Amazon Prime account (CBS Money Watch). We’ve been Prime holdouts, so I’d really like to know: Are you a Prime member? If so, what have you done to make sure it’s worth the membership fee?

This huge consciously-curated online marketplace makes shopping ethically so easy (Ecocult). If you’ve wanted to buy products made by companies that treat their workers and the environment well, but find it too time consuming to do the research, this site may be for you.

Head to the career office before you pick a college (Reuters). The importance of knowing how strong a school’s links are to the outside world.

When money isn’t real: The $10,000 experiment (TEDx). How to teach kids the realities of money in a financially abstract world—an interesting 15-minute video.

10 things our minimizing journey has taught us (No Sidebar). How a jarring wake-up call led one family in a wonderful new direction.

Double digit returns are the norm for the stock market (A Wealth of Common Sense). When you take the long view, stock market investing can be a very effective way to build wealth.

How a ‘near-cation’ can save you money this summer (US News). You may not have to travel far to have a great vacation.

The recency bias: How to keep this mental trap from sabotaging your finances (Money Ning). Recent experiences often weigh heavily in our decision-making, often to our detriment.

What are your thoughts on any of the above? Let me know by leaving a comment below.

Interested in more ideas and encouragement for using money well? If you haven’t done so already, why not sign up for a free subscription to this blog?

Profitable Ideas: 9 Signs You’re Money-Wise, The Scarcity Fallacy, and More Fri, 04 May 2018 13:30:16 +0000

A weekly roundup of some of the best personal finance articles from around the web.

9 signs you’re good with money — even if you don’t think you are (Business Insider). Which ones are you getting right?

5 things to do now to prepare your home for summer (Wise Bread). Each season has its own unique set of chores.

Choose a job you love and you will never have to… die prematurely? (Marketplace). Even desk jobs can be hazardous.

The scarcity fallacy: Is less really more? (The BAM Alliance). Great perspective on the minimalism movement.

Should college applicants be concerned about their social media profiles? ( This may be less of an issue than you thought, but it’s still an issue.

Distinction bias: Why you make terrible life choices (Medium). The human brain is miraculous, but when it comes to making wise financial decisions, it can lead us astray.

5 years on from the Rana Plaza collapse, how much has actually changed? (Vogue). The high cost of cheap clothes — this is an issue that concerns me a lot, but it’s complicated. See this related photo essay.

Cost of living: Why you should choose a cheap place to live (Get Rich Slowly). This may be the most underrated tip for gaining a financial life that works. Having moved from Chicago to Louisville in 2012, I’ve seen first-hand how financially beneficial it can be to live where the costs are low.

What are your thoughts on any of the above? Let me know by leaving a comment below.

Interested in more ideas and encouragement for using money well? If you haven’t done so already, why not sign up for a free subscription to this blog?

Money & Marriage: Knowing Where You’re Coming From Tue, 13 Feb 2018 14:30:47 +0000

God’s vision and intention for marriage is oneness. Unity. Each person making sacrifices, dying to self for the good of the other and the good of the relationship.

There are countless factors that get in the way of oneness: Selfishness, in-law issues, the stresses of life, and more. But the one issue that often rises above them all is money.

Whether you’re in a good place financially right now or not, with Valentine’s Day coming right up, this seems like an appropriate time to highlight what I’ve found to be one of the most important factors for fostering financial oneness.

Know Thyself, and Thy Spouse!

This summer, my wife, Jude, and I will celebrate 19 years of marriage. Out of all the steps we’ve taken to get on the same financial page, I’d put understanding each other’s temperaments near the top of the list.

Temperament is defined as “the prevailing quality of mind that characterizes someone.” Whether you’re extroverted or introverted is one aspect of temperament. Whether you like to keep things open ended or brought to conclusion is another. Whether you prefer to think through decisions or go by gut feel is yet another. All of these traits collectively make up your temperament.

Very often, when you have a disagreement with your spouse, about money or anything else, it isn’t what it seems to be about; it’s a class of temperaments.

There are many different temperament classification systems, but most have their roots in the one devised by Hippocrates, the father of modern medicine. He defined four main temperaments: choleric, sanguine, phlegmatic and melancholy.

Each temperament comes with certain strengths – financial and otherwise – and some weaknesses. And here’s a key insight about temperament: It doesn’t change.

You can learn to manage inherent weaknesses, but devoting your life to trying to change a choleric into a phlegmatic, or a sanguine into a melancholy, is signing up for a life of struggle and frustration. Much better to understand how you and your spouse are wired up and work with what God gave you.

The choleric is the classic type A – a hard-charging, time sensitive, get-things-done sort of person. If you’re preoccupied right now with what’s on your to-do list, you may be a choleric. On the positive side, once they set a financial goal, cholerics will go after it with a vengeance. On the not so positive side, they may be in such a hurry to make things happen that they fail to talk through decisions with their spouse.

The sanguine is a fun-loving, life-of-the-party people person. Sanguines like to be noticed. If you drive a red sports car, you may be a sanguine. On the positive side, sanguines tend to be very generous. On the not so positive side, planning is a foreign concept to many sanguines. Budget? Who has time for that? They’d rather be out enjoying time with family or friends.

The phlegmatic is steady, reliable, and dependable. Phlegmatics tend to be very frugal. They wrote the book on how to stretch a dollar. On the positive side, phlegmatics will consider all the pros and cons before making a financial decision. On the not so positive side, they may never get around to actually making the decision. Planning is a strong suit. Follow through? Not so much.

The melancholy has some of the most natural money management abilities. If you actually enjoy using a budget, you may be a melancholy. Where melancholies can get in financial trouble is they can be perfectionists when it comes to certain things, insisting on having the best brand of clothing or insisting on staying in nicer hotels when on vacation, for example, which can lead to overspending in these areas.

The key to using knowledge about each other’s temperaments is to work together, figuring out how to leverage each other’s strengths and minimizing each other’s weaknesses. If you keep trying to turn your sanguine spouse into someone who loves to use a budget, you’re in for a lot of grief. Just get them to drop receipts in the vicinity of your computer or ledger book where you keep your budget and you do the data entry.

Going Further

This week, in honor of Valentine’s Day, I strongly encourage you to download a simple, free resource that’ll help you identify your temperament and your spouse’s. Just go to my Resources page and click on “Identify Your Temperament.”

In fact, make four copies. Try to figure out your temperament and your spouse’s and have your spouse try to figure out theirs and yours. Then compare notes, talk through the conclusions you came to, and see if the tendencies listed on the download resonate with you. That knowledge may help explain (and hopefully help resolve) some lingering disagreements you’ve had around money and help you put each other’s strengths to work in managing money as a team.

Do you know your temperament? If so, how has that knowledge helped you manage money more effectively?

Profitable Ideas: Money Lies Christians Believe, The Future of Retailing, and More Fri, 26 Jan 2018 14:30:35 +0000

A weekly roundup of helpful personal finance articles.

5 lies Christians tell about money (The Gospel Coalition). There’s a lot to think about here, and pray about, and study.

‘Wait and see’ before using 529s for private school tuition (CNN). This change in the tax law is causing a lot of confusion. Especially if your state provides a tax deduction or credit for contributions, be careful about using the money for K-12 tuition.

Amazon’s first convenience store has gone viral (Fast Company). Imagine retail stores without checkout lines.

If you think grocery stores are playing tricks on you, they really are (Washington Post). Shopping with a list is a step in the right direction, but the odds are you’ll still spend more than you intended.

Ebay CEO: Get used to shopping with your voice (CNBC). It’s becoming easier than ever to place an order, but what about comparing prices?

How decluttering saves me money, time, and stress (Frugalwoods). It took a lot of time and effort, but it proved to be so worth it.

Why it’s so hard to calculate what you’ll pay for college (NY Times). No one should ever pay the sticker price, but from there the pricing path gets murky.

Sitting on the sidelines shortchanges your retirement (Chicago Tribune). No one knows when is the best time to start investing, so if you haven’t started yet, you might as well start now.

What are your thoughts on any of the above? Let me know by leaving a comment below.

Interested in more ideas and encouragement for using money well? If you haven’t done so already, why not sign up for a free subscription to this blog?