The Behavior Gap (and an Interview with the Author, Carl Richards)

I rarely read personal finance books.

I find them full of the same standard advice, forecasts, projections, etc. And half of them say budgets are worthless (the other half avoid budgets all together).  That’s reason enough to avoid them :)

But I read The Behavior Gap, by Carl Richards, and I loved it.  It’s a personal finance book that doesn’t talk much about personal finance. It talks about you.

I won’t give a chapter play-by-play or anything like that. If you want to grab an excerpt of the book, the introduction is available here.  I just want to highlight a few points that stood out to me.

Before I get to highlights though…I had the chance to interview Carl and that podcast is posted today, so make sure you check it out (iTunes, or here’s a direct link).  He shares some killer insights into our (dumb, but normal) behavior when it comes to money.

But back to the highlights.

We’re wired to avoid pain and pursue pleasure and security. It feels right to sell when everyone around us is scared and buy when everyone feels great.

How do you shake that tendency? You set up a plan based on your goals and your values and you avoid the flood of information that is there for entertainment purposes (and to sell ads), not to advise us.  But heck, just being aware of this tendency is valuable.

Overconfidence is a very serious problem. If you don’t think it affects you, that’s probably because you’re overconfident.

I just liked that zinger.  Not much else to say to it :)

My favorite chapter, by far, is Financial Life Planning.  I wish that one was available as an excerpt!  It emphasizes the uniqueness of YOU and asks you to decide what makes YOU happy. Then you plan your life accordingly. Your finances, just follow that life plan.  (A plug: budgets are a mini life plan.)

The ability to build and protect wealth is often inversely related to knowing what’s going on in the market. And it’s certainly inversely related to acting on that knowledge.

The implication is that investing is simple (not easy, Carl’s quick to add). You set up a plan, automate away the day-to-day decisions, and avoid news meant to cause anxiety, fear, and greed. “Go for a bike ride” is Carl’s advice. That’s good advice.

And finally, a great blurb on how financial plans are worthless (Wait, what? Jesse, haven’t you been talking about setting up a plan, and then sticking to it this whole time?).

Financial plans are worthless, but the process of financial planning is vital. A plan assumes that you know what’s going to happen—even though you don’t. By contrast, planning in its truest sense is a reality-based process that allows for life’s unpredictability. It requires us to make decisions based on what’s actually happening, rather than making decisions based on what we hope or expect or fear will happen.

It’s the process that’s valuable, and I think that’s a key insight.  This is also why I have no qualms about people adjusting their budgets mid-month. New information, new plan, but always governed by your values.

The Behavior Gap has me thinking about money in a new way.  I loved it.

Oh! I almost forgot, Carl wanted to give every YNAB purchaser a copy of his free print Focus, if they purchase his book (thanks Carl!).  If you do decide to purchase it, send an email to book@behaviorgap.com with your receipt and they’ll get you squared away.

(Disclaimer: nothing to disclaim. YNAB doesn’t stand to make a dime if you purchase Carl’s book.)

6 Responses to “The Behavior Gap (and an Interview with the Author, Carl Richards)”

  1. liz

    What a great intro. I’m in love the idea that being rich isn’t an amount of money, but having things that you enjoy, spending time with people that you love and being happy. It’s an over-used idea, but I’ll take it. I know I’m not a sales person, so I don’t sell. I do what I’m good at, and people notice me. Stay true to yourself. I’m on it.

  2. Lenore

    That bit about financial plans being worthless but the process being crucial is a nice summary to our natural desire to project and then rely on our own projections. “Anything can happen” itself usually doesn’t change our minds; it’s the success of relying on what’s controllable now that made me firmly reject the idea of planning my budget beyond where I’m at now.

  3. Gaz

    Thanks for the heads up Jesse. I’ve ordered this book through Amazon on the strength of your recommendation and the introduction.

    YNAB has solved most of my short term money anxieties over the past nearly 2 years, but I haven’t been so relaxed about my long term investments given the state of the share market and other depressed worldwide economic conditions. I look forward to receiving the book and looking at future investment decisions in a different light.

    Thanks for bringing this book to my attention.

  4. Haakon

    My financial status is horrible, or even beyond that. I have come to the conclusion that I am a Master Procrastinator and used to believe my impulsive mind could only be an asset and a source of fun.
    I haven’t opened my mail in months (last 6 I guess) but somehow I’ve managed to maintain a dialogue so any “foreclosures” have been avoided.

    Anyway, I bough YNAB six months ago and put it away for later use (Master Procrastinator, remember) Just started using it regularly now, it’s a series of “mind-hurdles” which need to be overcome but the trend seems to be positive, i.e. I’m actually entering transactions…

    For someone that hates the chores of personal finances, this book seems like a great possible motivator and a new perspective on what I currently think of as a a never-ending ordeal… :=)

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