Behavioral Finance and Your Portfolio

23Staying on Target to Reach Financial Goals Is Hard

I'd like to live as a poor man, with lots of money.

—Pablo Picasso

When people have a big overarching financial goal that they are working towards there is no chance for immediate gratification. A long-term financial plan is something that's not going to be completed for a long time. That time is probably measured in years, or even in decades. And humans are not exactly patient. With the ups and downs of life and the volatility of the markets, the scale of years or decades is difficult to process and it's pretty easy to lose touch with your long-term financial goal. And if things don't get off to a great start, it may be very easy to just lose faith and potentially walk away or completely give up. Like reaching most goals, it's a one step at a time, one day at a time, one week at a time, etc. process. You can do it!

Intuitively most people know that saving money is a good thing but the desire for material goods and spending on services often overrides otherwise good instincts. Understanding why behavior is so difficult to control is actually quite simple—a lack of self-discipline driven by psychological and/or environmental factors—but solutions are often complex and illusory. In this chapter we start by examining some simple examples of self-defeating behavior, two of which are non-financial and three of which are financial examples. By doing so we can get a common understanding of the challenges of controlling behavior ...