Navigating the Neurological Challenges of Changing Behaviors | Ask My Man Manny Podcast

Embrace the path to financial empowerment as we, Dr. Abby Durkin and Manny Henson, CFP, guide you through the harmonious interplay between behavioral change and your financial dreams. Unlock the art of setting realistic yet ambitious financial aims, sidestepping the pitfalls of self-doubt and the all-too-common comparison trap. Our unique XY axis framework is your new secret weapon, helping you categorize your goals by skill and motivation, whether you're taking your first tentative steps or striding confidently towards action.

Navigate the seas of financial management with us as your trusty compass. Accountability, be it through the watchful eye of technology or the personal touch of a professional advisor, is the cornerstone of any successful financial strategy. We unpack the complexities of prudent budgeting, saving habits, and the often misunderstood intricacies of portfolio management. Discover how tailoring your approach to your individual needs can spell the difference between financial contentment and chaos.

Rounding out our enriching dialogue, we tackle the potential upheavals of Black Swan events and the sheer unpredictability of financial markets. Learn why the sage counsel of financial experts is invaluable during these tumultuous times and how specifying long-term goals can anchor you against the temptations of get-rich-quick illusions. As we part ways, remember that our insights are the map to your financial literacy journey, equipping you to weather both the predictable tides and the unforeseen storms of economic life.

Transcript

Speaker 1: 0:06

People that I look up to. They have a masked X amount in their portfolio and they just make it look so easy. Why can't I do that? And what happens at that point is the person then starts to demotivate themselves, and that is the last thing that you want to do, especially when you are approaching a task that is complex and novel for yourself. So part of these conversations helps the client gain a bit of self-awareness and self-compassion that hey, it's okay if something feels hard for you. It doesn't mean that it's going to be hard for everybody and that is normal.

Speaker 2: 0:41

The content presented and discussed is purely intended to be general and educational in nature and should not be construed as specifically tailored investment, financial planning, tax, legal, psychological diagnosis or other professional advice.

Speaker 3: 0:56

Hello, hello, hello. You are all listening to a new episode of Ask my man, manny, with our great host, dr Abby Durkin, as well as myself, manny Henson, cfp, and we have a really great extra special subject for today which is front and center of every aspect of your life that you can think of, and that is changing behaviors. And so I want to hit it off to Abby and kind of get your views like what is especially in this month, given that it's New Year's. What are some of the things that come to mind of you and what do you think has worked and hasn't worked over the last for many of us?

Speaker 1: 1:39

Yeah, great, great topic, manny. So this has come up because I've been using this a lot with my coaching clients and people are always interested in how to set goals, how to achieve goals, what the obstacles are that basically get in the way of them achieving their goals, both internal and external. And in my work I came across a great article. It's called the Neuroscience of Goals and Behavior Change. It's by Elliot Berkman and it was published in 2018, and in that article he has provided this XY axis that my clients absolutely love because it's relatively simple. So on the vertical, it's the level of skill, knowledge or ability required by an action, and then on the horizontal, it's the level of motivation required to do an action. So the very bottom left quadrant is simple and routine tasks, things like they don't require a lot of motivation, they don't require a lot of skill, like walking to the mailbox and then, above that, complex but routine. Those are like high skills are needed, but you don't really want to do it necessarily. That's like navigating an unfamiliar situation. And then on the right side, we have complex and novel tasks. That's super high skill, super high motivation. Like you want to write a book. You know, you've got a passion, you've got an interest. It takes a lot of skill, but it's something that you've never done before. And then rounding it out is the simple but novel right the low skill, high motivation, like changing a diaper for the first time. It doesn't take a lot of skill, but it's new.

Speaker 1: 3:15

The reason why I bring up this particular graph idea is because when people say that they have a goal that they want to achieve, they have to figure out how to organize themselves. And organizing themselves means understanding where that goal fits in relation to your own skills and your own motivation. And then the coaching part comes in, when you realize, hey, this is a goal that I really want to achieve, but my motivation it's not quite where it should be. And so, financially, if you have a goal of, let's say, you know, I want to have a million in savings by the time I retire, that's something that nobody has done before.

Speaker 1: 3:57

When you've never had a million dollars before, you know if you set a goal for yourself, financially that is something you have never done, you've never achieved, then that's in the complex, novel task quadrant. That means that there's a lot of skill required and there's a lot of sustained motivation required and that needs to be unpacked into these bite-size, manageable pieces, and we've talked a little bit about changing behavior. But I wanted to break that down again into something that might be more achievable, understandable. So we'd look at stages of change and it breaks down into pre-contemplation, which is when you haven't really yet acknowledged that there's a problem or a behavior that needs to change. And this can come up within families, within couples. Let's say there's a difference of opinion in how you should spend your money.

Speaker 1: 4:50

And we did kind of a funny episode earlier on like Girl Math, boy Math, but this is like that starts to come into your awareness, where your partner says, hey, that wasn't actually free, just because you had cash in your wallet that wasn't free. So that starts that pre-contemplation. And then the next step is the contemplation where the person says, okay, yeah, I can see where you're coming from, but then they don't maybe have the motivation to make the change or they lack the skill. And then they start to prepare. They say it rises to a point where they say, okay, something's got to give.

Speaker 1: 5:26

I have a particular financial pattern in my life that isn't serving me anymore. I want to change it, but I don't know how. And that's when that preparation comes in. When you do that conversation about let's make a determination together, let's make the commitment together and let's really look at the level of skill that's needed for this goal, how much help do you need along the way? How can I be of service as a coach? How can you be of service, Manny, as, like, a financial planner?

Speaker 1: 5:56

and then, activating that willpower to change through that sustained intervention.

Speaker 1: 6:01

And so I thought this would be a really great thing to share with our audience, because it takes these big goals, these big ideas of I want, this pie in the sky thing, and it breaks it down in a novel way of saying all right, this is a perfectly valid, legitimate goal that you have. Let's see where is your financial literacy on this topic. And then where is your motivation on this topic? Right? And I also really wanna footstomp how important it is to have that continuing relationship with a coach or with a financial planner, because of those things that get in the way when someone says, yes, I have this lofty goal, and let's say they have all the motivation in the world, but then a life circumstance changes and it throws them off track. Being able to tap into your support network to regain that motivation, to stay on task on that goal super important. And I wanted to see if, in your world doing financial planning and advising, if you think that this would be of use to the clients that you work with.

Speaker 3: 7:11

Absolutely, and I also wanna take it back and stop back from there is, I think we live in a society where we're bombarded with messages that you don't have what you need or you don't have what you want and you should have this. And so for so many of us, so many people that I'll talk to, they want something that makes them X percentage of money, or maybe they're very abstract, and they say I want to live a life where I can retire at 70, and somebody told me to ask about this investment, and so the biggest thing I wanna have people do is understand what they want and then, yes, also talk about, yeah, there's sustained motivation and there's sustained effort. That's gonna take that, but let's understand why you wanna be there in the first place. It's so easy for a life, for you, metaphorically, to spend all of your time climbing a ladder only to find at the top of it that you're against the wrong type of offense, and so one is all right.

Speaker 3: 8:13

Why is it that you feel that you need this? Why do you feel that this takes X effort? Cause some people will start intellectualizing well, I can't necessarily, I'm gonna work forever, there's no way possible I can retire. Why do you think that's the case? What are some of the ways that you thought about your finances? Where does all these assumptions come from? They kind of work from there first and then yes, all right, this is how much. How much? Let's break it down Like what is it? What is the amount of effort you're gonna take to get to where I think you say you wanna be, and that you know you wanna be, and then work back just from there to the actions that are gonna get you there?

Speaker 1: 8:55

Yeah, and I mean you're tapping into some really important stuff, especially on that motivation dimension, that people can be influenced by their culture, by their family, by their own Internal values, which are a combination of those things, and come up with a really strong statement. And this strong statement is so familiar in that first week of January I'm gonna do this, and they're all fired up and they're ready to go. You know, I'm gonna like. A common one I've heard is I'm just I'm only gonna go to Starbucks once a week, or I'm gonna cut my Coffee habit down, you know, and then I'm gonna save all this and then by February they're back at Starbucks three times a week and they're getting the biggest fru-fiest, you know Seasonal special drink, and there goes their their goal. So motivation ebbs and flows.

Speaker 1: 9:46

But I think that's something that clients, both in financial coaching settings and executive coaching settings, sometimes under estimate is the level of skill required, and sometimes it's because they have a very Individualistic mentality like this is something I've chosen to do for myself, so I have to do it by myself, and that mentality has, I think, shortcut a lot of people's potential to achieve what they could achieve, because they don't factor in that we don't have the time on planet or the time during the day to Get the best set of skills and everything that we want to do.

Speaker 1: 10:25

And it's perfectly fine, like if you are. Let's say you're an engineer and your background and your specialty is in computer science. You've spent a lifetime in your educational, formative years of studying that field. You haven't necessarily spent the same amount of time studying finance right, that's what you're for, man. And they also haven't spent a lifetime, like I have, studying human behavior and motivation, ways to influence patterns of change, right, and so that skill piece. Sometimes people underestimate just how complex and difficult even a supposedly simple Financial goal might be right.

Speaker 3: 11:06

Yeah, and they're in. Our bright brains have evolved over thousands of years to Think of things in two dimensions. Sorry, what are the rewards I'm going to get for a quick and easy Sugar and think carbohydrates, because I want to survive and I want to put out the least amount of effort to do that. And then you have this, just for prefrontal cortex is helping you with executive functions and necessary things, and sometimes our brains Hijackers, you know. Talk about keeping you the.

Speaker 3: 11:35

Yeah, the subject of exercise, and you know, for me, I wanted to lose a few pounds this year and so, instead of saying alright, I'm going to Change everything about my diet. So I use smart goals, specific, measurable, actual, relatable and time-oriented goals related to my fitness, and I know that, hey, if I ask, I'm walking down the checkout corner. You know I wouldn't want to have a snack, but if I say to myself, mac, with macro, all the macro nutrients, I'm going to stay under 1900 calories a day, or I might be able to, you know, make up that time, make up the effort that affords me my, my, your peppermint, pan it, you know, you know, for at the end of the day. And so having a way to reward myself or measure myself and also have an external, external validation. This, this tool, it could be a person, and then it comes to finance students, being a coaching Accountability system for you. Your daily actions and your, your budgeting and a number of different elements are important you to get to where you need big.

Speaker 3: 12:40

For me, it's an app that says many. This is the trend that you're following over this period of weeks and I know, alright, every day may not be a perfect day, but I know, at the track I need to follow to get that end goal in two, three, four, five, six months. And so not not everybody has a self-control to go and say, alright, I know my hey, you know 1900 calories is. Is, you know, half of McDonald's cheeseburger?

Speaker 1: 13:10

Yeah.

Speaker 3: 13:11

It's. It's better to have some kind of external force to say to yourself to keep you accountable. Accountability is all about accountability.

Speaker 1: 13:20

Yeah, and it also comes down to the individual. So, for example, I have one client where saving money is the hard task, it requires the most motivation and it's the most novel and complex for them, because they haven't really had to think about saving before and now they're in this crisis mode of oh my gosh, I have to save and I don't know where to start. So they both don't have the skill to do it. So it requires a lot more skill and it's a brand new thing. My very next client. They have the opposite problem they need to learn how to let go and invest in opportunities in order to achieve their goal.

Speaker 1: 14:04

So what feels easy to one person isn't going to feel easy to somebody else, and that is a pretty important point to make, because we do live in this culture of constant comparison.

Speaker 1: 14:17

And when you're seeing people or whether it's not just on social media, but in your extended network, on your LinkedIn, on your friends and family it's so easy to say well, my peers, people that I look up to, they have a masked X amount in their portfolio and they just make it look so easy. Why can't I do that? And what happens at that point is the person then starts to demotivate themselves, and that is the last thing that you want to do, especially when you are approaching a task that is complex and novel for yourself. So part of these conversations helps the client gain a bit of self-awareness and self-compassion that, hey, it's okay. If something feels hard for you, it doesn't mean that it's going to be hard for everybody and that is normal. And I was wondering, mani, in your work, what do you think would be an example of a task that's like under, like it's often underestimated as being difficult. So what would you say is maybe a difficult financial goal that people assume is easy?

Speaker 3: 15:24

For one, it's rebalancing. It sounds like an easy word, it's cliche, and that people know what they do, but when it comes down to actually clicking the buttons on your computer at Schwab, you know, pushing through these limit orders and market orders, there are hundreds of thousands of dollars, millions of dollars. Most people say that they do it and they don't, but again, that's what you said. I think, for what I think ours, we have, we have part of a role to play in some of this anxiety. I think for so many of us as professionals, we haven't made ourselves accessible. We talked about all the things we have right, and you know they have all these people that they compare themselves against one. Yeah, we can say, compared to the people of joy, but are we doing it ourselves? Are we? Are we attracting people with challenges? Are we telling them to come as they are? Are they telling you know, and that's what I wanted to do when I started my firm I want to be able to help every specific type of person with their specific issues, and I'll need you to be a half a millionaire up, you know, to go ahead and have a conversation with me. That's meaningful, there's something that I'll get delivered and change and improve a part aspect of your life. Just just a small amount, or sometimes it's really really big. But I want you to be prepared to be open and honest with me about your challenges and go back to your question. Your question directly with rebalancing.

Speaker 3: 16:53

Rebalancing is a fancy way of saying take your profits and reinvesting into things you don't want to buy. Hmm, if you were in a bull market from 1982 to 2000, and you had double digit rates of performance in stocks and you started with a portfolio that was balanced between, say, 60%, 40%, 60% in stocks and 40% in bonds, more often than not at 20,000, right before the market crash, you probably had 99% of your portfolio in equities. If you didn't sell throughout that 18-year period, but had you said to yourself all right, I earned a little bit more money and I'm going to go ahead and sell off my stocks and things are hot, they're doing very, very well and I'm buying something that's relatively safe and on a consistent basis again, that's a fancy way of saying it rebalancing you would not have lost nearly as much in 2001. And what to do and Kate Schiller wrote about this in the paper in 1995, people buy into the up markets and they sell into down markets, and so they're always kind of chasing performance, putting all their eggs in one basket that's another way of saying it and then when they see the profits, they start extrapolating oh my goodness, if I put all of my money into crypto, I'll be retired by next week. Where I put all my money into?

Speaker 3: 18:23

And this generation, my generation, they two generations ago was it was the tech bubble, technology stocks, where half the stocks that were great stocks going into 2000,. None of them are there anymore. Most of them went under 50% of the stock and the stocks are gone from the stock market over that period of time. Then you have GameStop, like two years ago. You know, I see my friends get oh my goodness, let me get all this money with GameStop. Now there's documentaries all over the place and people were mortgaging their houses and I'm not even exaggerating. People were mortgaging, getting cash out, refinancing their houses and putting it into GameStop, and so people get very excited about their profits and you can't tell them any why and I say the worst, people are the people who go to the casino and win the first time.

Speaker 1: 19:20

Yeah.

Speaker 3: 19:20

Because if you ever heard of somebody who was a gambler, they go to the casino and then they won the first time. It's like they found a method that nobody knows about. If you tell them that the gambling is not the best thing, that you're just gonna create wealth or a wall. You're stupid. And it's funny is a lot of people who are buying into crypto currency and I try to be the voice of reason so they don't talk anymore. I mean, they were talking a lot about how much money they made and how everybody is just stupid because they weren't going into crypto to hand over fist.

Speaker 3: 19:56

But the truth comes over over a long period of time. Doing the things that you need to do are not usually easy.

Speaker 1: 20:04

Yeah, yeah, and I think one of the powerful elements of talking about this in relation to, you know, novel tasks, complex skill motivation is when someone sits down and actually charts out what is the destination that they want to see. You know, what is their definition of success, what am I going to put in place to actually get there? It takes some of that sense of urgency out that these financial trends can really prey upon. When a person says, all right, my goal is, I want to retire by age 45, and they're 30 and they're having this conversation, they're committing mentally, they're in that very first contemplation stage of saying I've got a goal that is 15 years out and I'm going to work steadily towards that goal. The more specific that they can be with it and the more that they use, like your smart goals example, the more that they're seeing those measurable, achievable, sustainable behaviors actually pay dividends. That actually provides a letter of insulation or a level of protection from being susceptible to these kinds of fad, quick, rich schemes that are floating around. And you also hit on something else that's really important is the influence of those Black Swan events, you know, like the GameStop and like the bubbles bursting and those absolutely they throw the motivation and skill matrix in a tailspin, and it's important for people to recognize when they are suddenly thrust out of their comfort zone.

Speaker 1: 21:42

So let's say that they've sat with me and you and they've developed their matrix.

Speaker 1: 21:47

They know what their goals are, they know what really is hard for them, they know what's easy for them, they know what they need to do to achieve it and then bam, some huge sociocultural political event happens and they are no longer in the position of strength that they were once in.

Speaker 1: 22:03

So the things that used to be considered by this person as simple and routine and easy like, let's say, that they've set up an automated withdrawal system from their profit and that is now going into a shared savings or a health account or a stock of their choice when that Black Swan event comes through, that simple, routine task that they didn't allocate any energy to sustaining is now moved all the way to complex and novel and it requires a tremendous amount of motivation to see that particular goal through. So I think that partnership with people who can see those things, maybe have a little bit of foresight, but also can understand how do you bounce back? How do you bounce back when those Black Swan events happen, how do you regain and reconstitute yourself in order to mitigate the impact of those life-altering situations?

Speaker 3: 23:02

Yeah, and usually what happens? I think one of two things happen. People either become cynics, they start blaming other people, they blame the system, they blame politics, they blame everyone besides themselves and they look at the fact that other people were making bad decisions along with them to kind of change the way they look at themselves and their contribution, of what got them there. That's one group of people and they just don't do anything. They just fall and they freeze and they just don't do anything. And then you have the other people who are like all right, you know what, I'm in a mistake, I need to change something. They either get out of the market completely, or they go ahead and they get a professional, or they read some books. Hey, I don't want to be self-serving. That definitely is possible for you to make good decisions and change your behavior, but you're going to have to make a major change in a way you have been thinking. It's usually not a subtle thing.

Speaker 1: 24:05

Yeah, yeah, and that takes a tremendous amount of motivation and it takes a tremendous amount of skill. And so when people are fun, when they find themselves in that position, like you said, they can fall into a couple of different camps. You know, one is the self-blame. People can become really self-critical, they can go into a shame spiral and freeze and these are serious emotional and understandable responses to something that is traumatic for that person or they can go into that, lashing out angry I can't believe this has happened. I'm going to take my marbles and go home, or I'm going to seek safety, I'm going to reconstitute myself.

Speaker 1: 24:44

Those are all very understandable when you have these big life altering impacts. I was wondering I know it's early in 2024, but have you noticed or can you think of any trends that either clients are saying that they want to achieve anything new and hot that you're like, oh yeah, this would be a great thing for people to focus on, even though it might be complex and new and require a bit of skill. Is there anything on your radar that might be an interesting trend financially for 24 for people to think about?

Speaker 3: 25:15

I think a lot of people are looking at their budgets and saying, alright, the gravy training from the pandemic is over. Alright, let's look at how we're spending money. Let's try to save up because it's just been so good for so long. The S&P 500 was up 24% last year. People were not expecting that. You have the fact that inflation started to come down. It made the expectations going to be lower in the future and does, and typically what happens over some period of time, that that retreats and that deflationary period means a cooler down on stocks returns. And then there's the inverted yield curve. This is a symbol, typically when you have short term rates, interest rates on treasuries or T-bills that's shorter than the long term treasury, the 10 year, which is what you usually would look at. That has, in a high probability, been the a predicator to a bad economy into the stock market.

Speaker 3: 26:16

You also have 2025, where a lot of during the 2000 teens, interest rates were really really low, and so a lot of companies who increased their top line growth of their businesses. What they did, it was they borrowed money in a short term to refund their long-term debt liabilities, and so what that debt did was it made their interest costs really really low artificially and so every couple of years they were refund that, refund that with short-term debt. Now that you're looking at a refunding rates that were the federal funds rate was zero to a quarter percent target in 2020 or 2019, now it's five to five and a quarter. They have to compete with that guaranteed money and so a lot of commercial debt they matured in 2025. The question is, how do they refund that debt with new debt issuances where they can afford the interest costs for those and what does that do to the overall economy? If you're paying more, paying more in interest, you think that hurts. Imagine your boss paying more money in interest. So commercial real estate you know, think about it. In 2020 hit and people had created those contracts 2019 to launch their long-term real estate.

Speaker 3: 27:38

Usually you have a lease for maybe five years. You're 2020, you had COVID 2019, 2024 is coming. That five year obligation to lease that building is do you go ahead and you buy? You're gonna go up into another lease, given that you know your business can manage with a remote team? Do you pay for all that extra money Now that you have interest rate costs and other obligations that they're competing? That is the backdrop and so many people don't look at the macro picture. But I'm trying to get them to look at that and say, look, maybe you made money in real estate, maybe you made money some other different ways. Let's look at it. Being a little more conservative, that means also looking at their budget and their risk budget.

Speaker 1: 28:21

Yeah, yeah, this idea of risk. You know, and it's interesting to me that one of the complex and novel tasks that you're describing is taking less risk, and I think for the layperson, they would think complex and novel means more risk but in reality financially, because we are facing such a time of uncertainty coming up, maybe the complex and novel hard thing to do is really take less risk.

Speaker 3: 28:48

Yes, and it's hard to do it because you're thinking markets are going up. Let me borrow, let me leverage up. Let me buy a new building. Let me buy a new rental. Let me buy, buy, buy, buy. You know signs are there. You know history doesn't repeat itself, but it rhymes.

Speaker 3: 29:04

Yeah, and we can continue this conversation forever. Hopefully that market doesn't turn too much. Yeah, I think we've been lighting up a little bit on our side, the equity market getting a little more cautious. I can't wait to hear you all talk to you all again in the next couple of days and they're in our next episode and until then I wish you the best.

Speaker 1: 29:25

Thanks everyone, bye.

Speaker 3: 29:27

All right bye.

Speaker 2: 29:34

The content presented and discussed is purely intended to be general and educational in nature and should not be construed as specifically tailored investment, financial planning, tax, legal, psychological diagnosis or other professional advice. Any data cited is valid as of the date of presentation, but please know that such data are frequently subject to change. Any investment performance referenced is purely past performance, which is no guarantee of any future performance. Nothing contained in this course should be construed as an offer to sell, a solicitation of an offer to buy or a recommendation of any security or other financial product or investment strategy. All investment tax and financial planning strategies involve risk that you should be prepared to bear. Investment, financial planning, tax, legal and other professional advice is specific to each individual and entity.