ca. 1960: Swiss psychology pioneer Dr. Carl Gustav Jung (1875–1961).
The pain of loss affects us not less than twice as much as the enjoyment of gain. This powerful remark by Daniel Kahneman has implications for nearly every area of our lives, but especially for our funds, where losses and gains are so clearly expressed in numbers.
We’ve discussed how financial planning is fundamentally an exercise in error management. But the query stays: “How do we recover from our mistakes?” Here’s a one-step process to get back on course:
1. Do the following neatest thing
Although the recovery movement has mastered this easy maxim, its origins predate Alcoholics Anonymous, as I actually have just learned, although its source nearly anonymous. Would you think that the famous psychiatrist Carl Jung responded to letters from individuals who were in trouble and gave life-changing advice that cost not more than a postage stamp?
In fact, in 1933, Jung answers Mrs V., who’ve difficulty finding direction in life:
“There is no one, clear path for the individual that is prescribed or the right one,” writes Jung.
We have to pause here, because on this one statement lies a truth that we as a community of monetary advisors (which I include your complete financial industry and all of the self-proclaimed financial gurus on the market) have didn’t acknowledge:
There shouldn’t be only one technique to do financial planning.
It’s not the way in which your bank, brokerage firm or insurance company does things. It’s not the way in which Dave Ramsey or Suze Orman does things. It’s not even the way in which your personal advisor does things, since the optimally positioned advisor acts as a guide, not a dictator.
The full profit and purpose of monetary planning shouldn’t be to provide you with a number, but to discover and discover what’s most vital to you in life – after which, and only then, to make use of your many financial and other resources to pursue those goals. But I digress.
Jung continues: “But if you want to go your own way, it is the path you make for yourself, which is never prescribed, which you do not know in advance and which simply comes about by itself when you put one foot in front of the other.”
This jogs my memory of the BAT success triangle – behavior, attitude and technique. While all of us too often go around in circles trying to seek out the right technique or wait for the epiphany that can correct our attitude, the straightforward decision to act (or not), to place one foot in front of the opposite – is crucial prerequisite to any successful endeavor.
So how can we know if the step we’re taking is the suitable one – the right one? “And then you also know that you cannot know,” Jung reminds us, “but just do the next and most necessary thing.”
The implication here is that we all know what the “next and most necessary” thing is. And indeed, the boundaries of wealth management can get extremely complicated, but a lot of the financial mistakes that get us into trouble have obvious solutions. Most of the time, it’s more about doing what we all know than knowing what to do.
The reward for doing the following right thing is usually taken without any consideration, because “… when you do the next and most necessary thing with conviction, you are always doing something meaningful,” says Jung.
And don’t we all know that is true? The first day of a brand new eating regimen, fitness program, job, relationship, or financial resolution at all times feels right. So while I’ve covered the myriad ways to plan for funds on this column and can proceed to achieve this, there’ll at all times be steps two to many, with step one remaining:
Do the following neatest thing.
