There are hundreds of thousands of financial advisers in the United States today, but McKinsey predicts that we’ll face a shortage of 100,000 by 2034.
The demand for people to give financial advice in wealthy countries is nearly insatiable. The reason is not necessarily that money is a complicated topic, although that can sometimes be the case. It’s actually because financial decisions are emotionally stressful, and we’re prone to massive blind spots.
Having a third party advise you on even the simplest financial topics can prevent you from making bad choices out of ignorance or fear. A bit of outside perspective goes a long way and can help significantly reduce the stress many people have around these important decisions.
I don’t offer any financial services, and I have nothing to sell you. I’m simply here with free advice from my own experience. Although many people could benefit from a financial adviser, my main goal is to empower you to recognize your own blind spots so you can mitigate them as best you can.
7 Financial Blind Spots
I’ve listed seven blind spots I come across most often in my conversations, and my “quick fix” advice for each.
1. Fear of Loss Outweighing the Potential for Gain
By default, most people experience more emotional pain from losing something than joy from gaining an equivalent amount. When it comes to regularly investing, the fear of losing our investment keeps us from investing early and often.
Quick Fix: Automate your investing so a small, consistent sum is invested each month, no matter the market conditions.
2. Lifestyle Creep Going Unnoticed
Most people see their income grow over the course of their careers, but that extra money is often blindly absorbed by a host of new expenses that become the new baseline.
Quick Fix: Track your expenses so that you can see at the end of each year how much you spent relative to your income.
3. Identity and Ego Shaping Money Behavior
Oftentimes, the “right” financial decision to reach our goals is obvious, but it’s just not easy to make for emotional reasons. We may see our friends upgrading their vehicles and going on nice vacations, and we don’t want to feel left out. We get torn between wanting to do what feels good now versus what our past and future selves agreed was the better path.
Quick Fix: Consider hiring a financial adviser who can help you make decisions aligned with your goals, not your short-term feelings.
4. Assuming That the Future Will Be Like the Recent Past
People are often too cautious after a financial crisis and too exuberant when markets reach all-time highs. In other words, we tend to get carried away with excessive pessimism and optimism, resulting in less optimal decision-making.
Quick Fix: Don’t rely solely on your own personal experiences to make big financial decisions. Use your favorite artificial intelligence chatbot and ask it for base rates and long-term averages to make informed choices.
5. Making Emotional Decisions During Times of Stress
One reason people overestimate their financial savvy is that they consider only their behavior in good times. It’s relatively easy to make good choices with your money when times are easy, but in times of fear and uncertainty, a large number of people panic and make trajectory-changing choices they will later come to regret.
Quick Fix: Decide in advance how you will act in different situations, and then get others (such as a spouse or financial adviser) to help you stay accountable.
6. Avoiding Boring but Effective Decisions
The modern world has trained our brains to expect excitement and reward behind every click. That sets an unhealthy expectation around our finances and pushes some people to treat their investing more like gambling.
Quick Fix: Set aside a small percentage of your wealth to scratch your “excitement itch” and make all other decisions in a boring, calculated manner.
7. Satisfying Immediate Desires at the Expense of Your Future Self
The age-old problem of delaying gratification applies especially to our financial decisions, in which the rewards and stakes are higher. The easier you make it to “start tomorrow” or make an exception “just this one time” without recourse, the harder it becomes to break the pattern.
Quick Fix: Buy yourself a prepaid Visa card at the start of each year for “impulse” purchases. This allows you to have fun without getting carried away—it’s a way to compromise with yourself.
Many blind spots can be eliminated simply by becoming aware of their existence. Others are a bit harder to root out because they reveal themselves in our weakest moments, such as when we’re under stress. Although stress is an unavoidable part of modern life, it’s made worse when we panic and make poor choices that can lead to even more financial difficulty and eventually take a physical toll on our health.
With these seven quick fixes, I hope that you can start taking small steps to protect against financial downside and steadily reduce the financial stress in your life.