Podcast
The psychology behind buying habits
The psychology behind buying habits
Darryl Lyons is a certified financial planner and behavioural financial advisor, who is considered to be an expert in the area of personal finance as well as authoring several books. His latest book, “18 to 80: A Simple and Practical Guide to Money and Retirement for All Ages”, his company, PAX Financial Group has made the Inc. 5000 fastest growing companies in the country. He’s an author, entrepreneur, community leader as well as a family man. He knows what it takes to plan for financial freedom, which is what his first book is about.
In the book “18 to 80: A simple and practical guide to money and retirement for all ages”, and every single chapter of the book is an age, so if you go to 40 it explains what you need to be thinking about at age 40, then at 23 what you need to be thinking about, 50 and 70, and so on, it gives you a playbook and how to think about your money.
When it comes to behavior, studies show that we have only 13% of results and the remaining 87% are based on decisions we make, they are things that we can control, we have to then consider why we are making bad decisions and how can I make that decision making, and there’s only so much we can blame others.
Many of the decisions we make are based on a point of reference from our Facebook friends or Pinterest pictures, how much of that influences the way we buy things or where we go or what we eat, and the research is clear, it influences us much more than we would’ve ever given it credit.
Every age has hope, you have to recreate the way of thinking and work through some of the challenges, and the book is written in a way in which you can open any page of the book and say, “I can do this”.
The idea of budgeting is a bit overwhelming, especially at a young age, so at 18-19 years of age the book talks about creating a new habit, basically creating a pause in our purchasing, stopping and thinking “do I need it?”, “do I love it?”, “will it make me money if it’s a business decision?”. A lot of financial mistakes we make are not rational.
Money behavioral mistakes
- Overconfidence: I’m sure I can pay it off.
- Emotional biases: I buy it because I grew up with it.
- Selective perception: I look for information that backs up my decision to purchase.
- The gender gap: Women are better investors than men.
Your financial behavior really impacts your marital relationship, your friendship, finance is not a separate thing from who we are, it’s an integral thing to who we are. When start to come to grips with some of these things and begin to understand them and make the changes necessary you’re going to find more openness and honesty in your other relationships as well because our relationship with money is so foundational to who we are.
The love of money is the root of all evil, not money itself, that’s important to differentiate, but we can’t ignore money, we have to recognize that historically humans and money, currency and transactions play an integral role, we have to be mature about having very difficult conversations, ignoring them is not the answer and then we have to take inventory of some of our behavior and biases.
One of the filters we have to use when making a difficult decision can be “Did I ask a child, a friend and a Sage?”, the reason this question is important is because if you’re making a financial decision and you can articulate that decision to a child in a simple way, then you’ve grasped it pretty well, if you’ve asked a friend, someone who knows you, and then if you can ask a sage, somebody who’s wise, then collectively you should get an answer that’s more rational not emotional.
One of the key elements of being a business owner that helps is beginning with the end mind. Many business owners have no idea on how to exit the business. Beginning with the “end in mind” means that you can start with something transferable, that may be changing the name.
Creating a business that has accelerating positive net income for three years is much more attractive to an acquirer than a good name or a clean office, or a bunch of customers, it shows a trend and they'd want to jump on, they'd want to be able to take advantage of it.
It all starts with an attitude beginning with the end in mind.