Carl Richards - The Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money

INTRODUCTION
Four Pairs of Skis

CHAPTER 1
We Dont Beat the Market, the Market Beats Us

CHAPTER 2
The Perfect Investment

CHAPTER 3
Ignore Advice, Make Fun of Forecasts

CHAPTER 4
Financial Life Planning

CHAPTER 5
Too Much Information

CHAPTER 6
Plans Are Worthless

CHAPTER 7
Feelings

CHAPTER 8
Youre Responsible for Your Behavior (But You Cant Control the Results)

CHAPTER 9
When We Talk About Money

CHAPTER 10
Simple. Not Easy.

THIS is a book about how you can make good money decisions.

I am not talking about which investment to buy or how much to invest in the stock market.

I am talking about decisions that are in tune with reality, with your goals, and with your values .

Why would anyone not make decisions that way?

Well, we get confused. We get scared. We get carried away.

Thats why this is also a book about how to avoid confusion, how to cope with fear, and how to stay grounded when making financial choices.

That sounds hardand as well see, its not always easy. But its pretty simple. In fact, simplicity is one of the keys.

I live in Park City, Utah, where some of us take skiing pretty seriously. One morning some years back, a friend swung by my house to pick me up to go backcountry skiing. I ran into the garage to grab my skis. I stood there for a second looking at my four different pairs of skis, each designed for particular conditions, and suddenly, I was paralyzed. I just couldnt choose.

My friend sat in the car honking the horn Lets go, Carl! Move it! The suns coming up! The snows getting soft! while I stared at those skis. It was ridiculous. Id spent all that money and time and energy collecting these skis so I would be ready to deal with any situationand now I just felt powerless.

That day was a turning point for me. I got rid of three pairs of skis, and kept my favorite pair: the ones that would let me do what I really care about doing, which is to move light and fast through the backcountry.

The skis I kept arent perfect in every condition. Theyre actually a pretty bad solution in heavy snow or in really steep terrain. So what? Theyre a decent compromise in most situations, and they work beautifully in the conditions I like best.

Now I dont have to think about which skis to bring on a trip. I just grab the ones I have and go. I trust my experience and my instincts and my luck to make it through situations when my equipment isnt perfect.

Lots of people think that to make good money decisions you need to have a plan for every situation. You need insurance for every possible setback, and investments for every market condition. All of your assumptions about the future need to be refined to perfection, so that you will never be surprised. You need to know and understand everything about the financial markets, and you need to budget your spending to the last dime.

That kind of thinking is based on fear. We fear (naturally enough) lifes uncertainty, its ups and downs. And so we make plans that we hope will give us the power to control our future. If I do this, that will not happen; if I sell now, I will avoid the coming downturn; if I pick the right investments, I will be financially safe; if I worry enough, I will be ready when bad news comes.

Trouble is, the real world is complicated: we dont know whats going to happen.

That means that most of our plans are useless. When I had four pairs of skis, I was always choosing the wrong ones anyway!

The point is, no plan will cover every situationand thats okay. You dont have to choose the perfect investment or save exactly the right amount or predict your rate of return or spend hours watching television shows about the stock market or surfing the Internet for stock picks. You dont need a plan for every contingency.

So if planning isnt the solution to our money problems, what is? More simply, what can we do to get what we really want?

We can stop chasing fantasies. We are not going to get what we want by beating the market or picking the perfect investment or designing the perfect bulletproof financial plan. In fact, when we try to do those things we get into big trouble.

We can protect ourselvesto a point. Risk is whats left when you think youve thought of everything. Our assumptions about the future are almost always wrong. We can never think of everythingbut we can take sensible steps to protect ourselves from lifes inevitable surprises.

We can embrace uncertainty. Change isnt always a problem. Manyperhaps mostof lifes surprises are good news. If we arent locked down into a rigid plan, we can recognize and seize opportunities when they come up.