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At The Money: Our Complicated Relationship With Cash · Masters in Business

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  Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
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  Speaker 2: We all have a complicated relationship with money. We think
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  Speaker 2: we understand what it is and why we want it,
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  Speaker 2: but very often we have little idea about what money
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  Speaker 2: truly represents. This can lead to disappointment when we think
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  Speaker 2: about how much money we need to be happy. Capital
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  Speaker 2: is a tool, and if we want to get the
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  Speaker 2: most out of it, we need to understand what it
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  Speaker 2: can and cannot do for us. I'm Barry Riddhelts and
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  Speaker 2: on today's edition of At the Money, we're going to
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  Speaker 2: discuss how to improve our relationship with money, how to
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  Speaker 2: have better outcomes when it comes to earning, investing, and
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  Speaker 2: spending our cash. To help us unpack all of this
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  Speaker 2: and what it means for your portfolio, let's bring in
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  Speaker 2: doctor Daniel Crosby. He is the chief Behavioral Officer at Orion,
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  Speaker 2: where he develops tools, training, and technology to help financial
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  Speaker 2: advisors apply behavioral science in their practice. His new book,
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  Speaker 2: The Soul of Wealth Fifty Reflections on Money and Meaning,
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  Speaker 2: is out this month. It challenges readers to think about
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  Speaker 2: money in new ways and to develop a better relationship
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  Speaker 2: with their finance. So Daniel, let's start with a simple question,
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  Speaker 2: what is true wealth? How should we consider things like friends, family, health,
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  Speaker 2: time in terms of our overall wealth versus simply financial success.
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  Speaker 3: Well, very great to be here. When we look at
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  Speaker 3: what true wealth is and what it isn't, it's what
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  Speaker 3: it is is a little harder to answer. What it
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  Speaker 3: isn't is just a number. And if we look at
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  Speaker 3: the positive psychology literature that came out beginning in the
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  Speaker 3: mid nineties, it's really like five things that are the
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  Speaker 3: staples of a life well lived. Martin Seligman did this
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  Speaker 3: seminal research. But it's it's positive experiences. So this is
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  Speaker 3: sort of leisure, like are you having enough fun? It's engagement,
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  Speaker 3: which is deep, meaningful work that helps you sort of
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  Speaker 3: lose track of time. It's relationships. This is the thing
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  Speaker 3: that's most predictive of true wealth. It's meaning working for
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  Speaker 3: something bigger than you, bigger than your net worth. And
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  Speaker 3: its advancement, which is getting better, you know, being better
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  Speaker 3: today than you were yesterday, growing, learning, changing. And when
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  Speaker 3: most of us think about and talk about wealth, we
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  Speaker 3: do it in a very one dimensional way. And even
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  Speaker 3: when you look at you know, how people prepare for
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  Speaker 3: something like retirement, mostly we're trying to hit a number
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  Speaker 3: that would help us have lots of that leisure, right,
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  Speaker 3: we're going to spend it at the shore or at
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  Speaker 3: the golf course, but we don't always account for the
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  Speaker 3: relational piece, or the meaning, or the advancement or the
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  Speaker 3: growth or the work, and all of these are very
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  Speaker 3: much a part of human flourishing. So, you know, soulful
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  Speaker 3: wealth encompasses far more than just numbers on a spreadsheet.
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  Speaker 2: So in the book, you address four common behavioral erarors
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  Speaker 2: that are endemic to finance Ego, emotion, attention, and conservatism.
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  Speaker 2: Explain those if you would.
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  Speaker 3: Yeah, absolutely, So you know, there's well over two hundred
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  Speaker 3: different psychological biases now that impact our money. But in
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  Speaker 3: my research I really said, look, they're not all equally meaningful,
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  Speaker 3: and a couple of them are sort of these meta biases.
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  Speaker 3: Ego is the different flavors of over confidence, thinking we're
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  Speaker 3: better than we are, luckier, better, smarter, more knowledgeable about
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  Speaker 3: the future. Emotion is exactly what it sounds like, sort
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  Speaker 3: of confusing the heart with the head, which is easy
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  Speaker 3: to do with something as visceral as much any Attention
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  Speaker 3: is where the media comes in. You know, the media
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  Speaker 3: diet that we have ourselves on. It's confusing things that
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  Speaker 3: are loud in the media with things that are likely
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  Speaker 3: or high probability. And conservatism is the various ways in
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  Speaker 3: which we're sort of small minded in provincial we're risk averse,
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  Speaker 3: we're status quo prone, we confuse things that we know
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  Speaker 3: with things that are good, and all of these things
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  Speaker 3: can kind of land us in trouble.
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  Speaker 2: Money can indeed buy happiness if spent on meaningful experiences
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  Speaker 2: and values. Let's discuss that because it flies so counter
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  Speaker 2: to what we're so often told.
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  Speaker 3: Yeah, so you know, the money and happiness literature has
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  Speaker 3: changed even in the last ten to fifteen years, and
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  Speaker 3: there's just like a few things that we know. First
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  Speaker 3: is that it matters how you measure happyess right, some
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  Speaker 3: ways to measure happiness sort of moment to moment. Right,
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  Speaker 3: they have a beeper and they you know, they beep
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  Speaker 3: you at various points in the day and they say, hey,
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  Speaker 3: how are you doing when you're measuring sort of like
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  Speaker 3: how are you doing? Moment to moment? Happy? Happiness plateaus
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  Speaker 3: rather quickly with respect to money. But when you ask
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  Speaker 3: people about their self appraisal of their life, like Hey, Barry,
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  Speaker 3: how you live in man? Like? How are things? Greater
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  Speaker 3: wealth tends to correspond with greater sort of qualitative descriptors
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  Speaker 3: of being self satisfied and happy, up to even like
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  Speaker 3: half a million dollars a year. So there are we're
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  Speaker 3: introducing some more nuance into the money and happiness conversation.
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  Speaker 3: The other thing we're finding is that certain ways of
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  Speaker 3: spending money really do buy happiness, like getting out of
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  Speaker 3: stuff you hate buys happiness. I will never mow my
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  Speaker 3: yard again because I hate I live in the Deep South.
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  Speaker 3: It's too nasty, there's too many bugs. I hate it.
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  Speaker 3: And the money that I spend to let some high
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  Speaker 3: school kid cut my yard is some of the best
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  Speaker 3: money I ever spend.
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  Speaker 2: Let's talk about the flip side of spending and instead
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  Speaker 2: focus on the importance of delaying gratification as a form
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  Speaker 2: of wealth building. To discuss why sometimes we should not
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  Speaker 2: engage in immediate gratification.
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  Speaker 3: Well, this is you know, this is one of those
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  Speaker 3: things that's just kind of a lesson for life. You know,
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  Speaker 3: delayed gratification will get you far across a variety of contexts.
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  Speaker 3: If you look at the ways that people screw up
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  Speaker 3: their lives, whether it's you know, whether it's an affair
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  Speaker 3: or an addiction or whatever, it usually has immediate gratification
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  Speaker 3: at its core. And if you look at the way
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  Speaker 3: that people get the bank, the bank account, or the
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  Speaker 3: body or whatever that they want, it usually has delayed
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  Speaker 3: gratification at its core. And so we are wired profoundly
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  Speaker 3: for the here and now. And so I think one
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  Speaker 3: of the ways that we have to really work for
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  Speaker 3: this is by casting a vivid, visceral vision of the
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  Speaker 3: future and that future enjoyment in that future state. That's
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  Speaker 3: why I harp on purpose so much and meaning because
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  Speaker 3: without that, without that thing to look forward to, the
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  Speaker 3: pull of the here and now just becomes far too powerful.
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  Speaker 2: Does this relationship to immediate gratification change as we age?
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  Speaker 2: How does this evolve as we all get older?
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  Speaker 3: Yeah, we get a lot nicer as we get older.
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  Speaker 3: So a lot of the rough psychological edges tend to
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  Speaker 3: be sanded off through much of adulthood. It's really kind
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  Speaker 3: of fun to watch the sharp edges get sanded off.
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  Speaker 3: People get better at delaying gratification, they get kind or
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  Speaker 3: to get better with people. And then, of course in
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  Speaker 3: later age we start to deteriorate. But you know, I
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  Speaker 3: think that is an underdiscussed and underappreciated benefit of middle age.
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  Speaker 3: Easy for two middle aged dudes to say, but you know,
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  Speaker 3: I think that is an underappreciated privilege of middle age.
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  Speaker 3: Is that you just tend to calm down a little bit,
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  Speaker 3: and it's quite nice. And I'm living it, Barry, I'm
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  Speaker 3: living it and I'm loving it.
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  Speaker 2: You know. One of the interesting things we've discovered in
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  Speaker 2: the office is that getting people to pivot from being
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  Speaker 2: savers and investors when they hit a certain age to
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  Speaker 2: being spenders and donators. It's a very challenging psychological turn
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  Speaker 2: to make a lot of people, Hey, you spend twenty
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  Speaker 2: thirty forty years working and saving and working in investing,
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  Speaker 2: to tell people, hey, you have a ton of money,
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  Speaker 2: go on that trip by that beach house, spend time
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  Speaker 2: with your grandkids. There are a lot of psychological obstacles
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  Speaker 2: to effectively embracing that. Discuss that if you would.
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  Speaker 3: So, first of all, I'll just commiserate. I recently, for
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  Speaker 3: a project we were doing at Orion, I interviewed over
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  Speaker 3: four hundred couples and we basically ask them what they
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  Speaker 3: fight about when they fight about money as a way
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  Speaker 3: to sort of ascertain what are some of these fundamental
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  Speaker 3: personality dimensions of the way that people view wealth. And
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  Speaker 3: the number one source of disagreement was whether money is
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  Speaker 3: better used to enjoy today or to secure tomorrow. And
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  Speaker 3: there are two very pronounced camps there, the Yolo camp
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  Speaker 3: and the like save for Tomorrow camp. And like never
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  Speaker 3: the twain shall meet. Like they they are very in
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  Speaker 3: the they're deeply embedded. Like the people who see themselves
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  Speaker 3: in the best use of cash as fun and seizing
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  Speaker 3: the day have a, you know, a very high opinion
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  Speaker 3: of themselves. And the same is true of people who
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  Speaker 3: are are so diligent at saving and putting off for tomorrow.
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  Speaker 3: So I don't know that there's a trickier problem in
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  Speaker 3: all of finance than than the one you're talking about.
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  Speaker 3: The only thing that I have seen work again is purpose.
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  Speaker 3: You know Covey talks about in his book you have
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  Speaker 3: to I'll butcher it. But basically you have to have
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  Speaker 3: a yes burning inside of you that's bigger than the no. Right,
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  Speaker 3: So there's there's this no like no, I don't want
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  Speaker 3: to see the number go down, or like no, I've
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  Speaker 3: been in saver mode for decades, and like, I don't
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  Speaker 3: want to see that number go down. I think the
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  Speaker 3: only way that we overcome that very fundamental psychological tendency
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  Speaker 3: is to introduce a love or a passion or a
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  Speaker 3: purpose that is bigger than that fear. Maybe that's the grandkids,
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  Speaker 3: Maybe that's the philanthropic gift of choice. Maybe that's time
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  Speaker 3: with the family in at a time when time is
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  Speaker 3: increasingly short. I think that's the only weapon we have
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  Speaker 3: in that fight though.
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  Speaker 2: And our final question, how important is a good financial plan?
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  Speaker 2: And what are the key elements that go into creating one?
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  Speaker 3: Well, you know, one of like the blocking and tackling
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  Speaker 3: of a financial plan. You know, there's all the usual suspects,
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  Speaker 3: but I'll talk about one of the things that again
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  Speaker 3: I think we get wrong the most. And Carl, who
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  Speaker 3: was previously mentioned, has done really interesting work with Michael
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  Speaker 3: Kitsis on this. We're really prone to mimesis, right, Like,
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  Speaker 3: as a human family, we're really prone to imitation and
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  Speaker 3: doing what other people do. And people are both highly
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  Speaker 3: mimetic and don't have a great sense of what they want,
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  Speaker 3: and they can tend to kind of just want what
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  Speaker 3: their neighbor has you know, like, you know, what's your
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  Speaker 3: financial goal like well, to have a boat like my neighbor,
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  Speaker 3: to have a house like my brother in law. And
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  Speaker 3: so getting it right in a financial plan means going
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  Speaker 3: a lot deeper with someone on what they value and
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  Speaker 3: their vision of the good life and their vision of
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  Speaker 3: a dream existence. It means going a lot deeper than
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  Speaker 3: we usually do. I think we typically as a profession
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  Speaker 3: ask very shallow questions and get very shallow answers and
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  Speaker 3: then come up with financial plans that are lack some
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  Speaker 3: efficacy because they're serving a very a very sort of
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  Speaker 3: weak sauce copy of a copy of someone's dream. So
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  Speaker 3: I think the first step is getting laser focused on
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  Speaker 3: that vision for the future, that purpose, that why, and
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  Speaker 3: until we have something that's emotionally laden and visceral and powerful,
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  Speaker 3: I don't think any of the black and tackling in
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  Speaker 3: the Monte Carlo simulations matters much at all, and it's
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  Speaker 3: always going to kind of fall flat.
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  Speaker 2: So to wrap up, yes, we have a complicated relationship
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  Speaker 2: with money, and we often fail to understand what it
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  Speaker 2: can and cannot do for us. But if we're thoughtful
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  Speaker 2: in our spending and try and create memories and experiences
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  Speaker 2: and use our money in a way that's purposeful. It
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  Speaker 2: leads to very good outcomes. I'm Barry Riddholts and you're
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  Speaker 2: listening to boombones at the Money