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Behaviour vs. Math: Why behaviour wins.... at first

While reading this book, it is important to remember that my stance is that an individual will be more successful in understanding, and adapting their own behaviour as opposed to trying to optimize their finances based upon pure math.

Behaviours are very personalized. Think about the behaviours that influence your finances. Both good and bad. For example, you might eat out too much, or you might feel you drink too much.

Be sure as you are reading to note down your behaviours. Write them down as you think of them; especially if you think they are be ‘bad’ behaviours. We are often blinded by the math to make decisions. A 0% interest rate is better than a 10% interest rate. A $30 payment is better than a $50 payment. These are obvious truths, but are they really when you consider human behaviour?

Where math fails

Let’s look at an example where behaviour matters far more than the math behind the decision.

John is looking to save money and knows full well that his problem is eating out. He spends nearly $350 p/m on take-out and only $50 p/m on essential groceries. Truthfully, someone in this situation probably spends much more on eating out but it’s just an example!

The math behind this decision is simple. Stop eating out. Cook at home. Prepare lunches for when you go to work. Not only will you save money but you will be healthier, right?

Here is the issue with this: you have not actually addressed the problem of eating out. Think about it. When you drive somewhere, you don’t magically end up at your destination. You actually have to get in the car, turn on the car, drive the car, make multiple decisions, ensure the car has gas, etc. before you end up where you want to go. The same is true for solving a behavioural problem. There are many steps involved.

A more thoughtful way of addressing the problem of eating out might be to first start with frozen dinners from the store. Eating out might cost $15 but a frozen dinner might only cost you $3-5. You have just cut your cost by at least a third. Is it unhealthy? Sure. It is just as unhealthy as what you were eating out? Most definitely. Is it just as convenient and something you might be able to stick to? Likely.

Will it start building the habit of bringing something from home to eat at work?

Yes.

From there you might look at committing to eating at home 50% of the time, and eating pre-made frozen meals during the other times. Over time, you would be able to make eating out a treat and cook everything yourself.

You see, it is easy to try and solve this problem with math, but it is a much more thoughtful process to try and solve this when accounting for your behaviour. What we want to try and do is aim for behaviour-changing processes rather than trying to jump right to the solution without addressing the underlying problem. Jumping to the solution is very much like trying to quit a bad-habit ‘cold turkey’. It will certainly work for some people, but not for the overwhelming majority.

Now, something that is especially important to understand: almost every single company in the marketplace is selling to us based on our behaviours. The way pricing is set up, the way there are flash deals, the way they arrange and display goods on a shelf, heck, even the colours that businesses use on ‘deals’ is all designed to sell you more. None of this has to do with math. They, instead, play to all your behaviours or rather your emotions, which ultimately influences your behaviour.

Taking Action

As mentioned in the intro, taking action is one of the fundamental principles of this book. Something I have learned is that most people have a fear of failure. In budgeting, the fear usually stems from not keeping a promise to yourself, or having your budget constantly not work. With investing, it is a fear of losing money or not getting the best outcome.

Humans are complacent; change is not something most people like. What we need to do is think outside of our current situation. Think about where you want to go as opposed to where you are currently, even if you do not see an obvious way to get there yet.

Now let’s consider the behaviour of someone eating out frequently, as that is our current example. It is also relatable to many people.

Oftentimes they are doing it because of the convenience of not having to pack a lunch or cook supper, or it may be that they don’t even know how to cook. If the first two problems exist, telling someone to simply buy groceries and cook at home or prepare their own meals will not solve the problem. The same is true if someone doesn’t know how to cook. In fact, it could make it worse.

Obviously, this is one approach. But, there are an infinite amount of struggles people may be having and the solutions can be equally as numerous. The goal is to really take a deep dive into the underlying problem and base the solution off of that. Make sense? I hope so! We will explore this further in Chapter 3.

Key Takeaway

The takeaway from this chapter should be that understanding your own personal behaviours will greatly assist you in finding the solutions for your individual struggles. What we want to do is understand our own behaviours and then look at implementing behaviour modifiers. These changes should be small incremental changes to our lives that will slowly lead to massive change.

Continuing to use our example of an individual struggling with eating out all the time. The small changes they could make may start with frozen dinners/lunches, but eventually replace 1 or 2 meals with homecooked meals. That could then lead to 3, then 4, then the next thing you know eating out becomes a once a month thing vs. an everyday thing.

By trying to force the mathematical approach onto the individual you may inadvertently cost them more. Remember that everyone knows you should make all of the food you eat and that it will save you money. But what we really need to know is why the individual is not doing the 'right' thing. And then, find workarounds to confront the why and ultimately find a long-lasting solution.

This is true with so many habits. Everything from smoking, daily coffees, electronic addictions, clothing, etc. are all examples that are driven by habits. Focusing on why you do these things will provide far better outcomes than simply trying to identify a solution.

By taking the slow and steady approach to our lives you will not only see steady results along the way but you will also be significantly less frustrated when something doesn’t work. We are running a marathon here, not a quarter mile drag race. So slow down, understand your behaviours and go slow and steady.

Practical Exercise

Exercise - Write down the 5 behaviours that you are looking to change and the root cause(s) of the behaviours. Make an action plan to prevent or modify the behaviour.

For example: you may be an impulse buyer. You may struggle with being in stores. A few behaviour modifiers you may want to look at implementing are:

• Making a shopping list.
• Implementing a cooling off period (waiting to purchase anything you didn’t know you needed).
• Avoiding malls.
• Implementing a one-trip shopping every two-weeks policy.
• A look and leave policy

There is no right or wrong answer. Instead, what we want to do is take positive action towards solving the behaviour we deem as undesirable.

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