Getting more life out of your money
Behavioural Cash Flow Planning is the art of creating a system for our cash flow while remembering how our minds work with regards to money. It integrates the principles of Behavioural Finance in a way that is easy to use and greatly reduces the day-to-day stress around money.
As financial advisors we often see the following situation:
The family’s net income is let’s say $8000/mo), and when adding up all the expenses, it comes to let’s say $6000.. So technically, this family would have $2000 left over at the end of the month. That’s usually not the case though. So the question is, “Where did that money go?”. It seems to have simply disappeared. This is what we call ‘leaking’, and is usually caused by emotional spending.
There are certain categories in our ‘budget’ (whether or not we actually have a budget) where we are at a high risk of overspending – usually depending on the mood we’re in. Most of this happens subconsciously, which is why we don’t know where the money has gone.
In behavioural finance, they talk about a ‘bias’. These biases look at our logic and decision making processes when facing money decisions. Many studies have been done to show the impact of our brain activity on decisions-making.
Here are some great examples:
Selective Attention Bias:
We focus on one aspect so much that we completely miss the bigger picture, as well as other important details. Check out this quick little video called “Selective Attention Test”.
After watching that, check out this on “The Monkey Business Illusion”.
How does the selective attention bias show up in real life? Think about sales: we’re so focused on how much we’re saving, that we don’t see how much we’re spending. Or with cars, we’re so focused on the weekly payment amount, we don’t check out how long the term is for and how much we really end up buying the car for.
Distraction Impact Bias.
This bias shows us how our impulse control goes down if our brain is distracted. When we are distracted, we tend to spend more than we would if not distracted.
One study was done with people in the line-up of a well-known coffee chain: people who were texting or otherwise busy on their phone while waiting for their turn tended to buy a more expensive drink or buy extras they hadn’t planned on than people who were not distracted.
What does all this have to do with a budget?
First, let’s clear something up. A Behavioural Cash Flow Plan (BCFP) is NOT a budget. Budgets are a bit like diets – most people don’t like them and likely to stay with one for long. A cash flow plan, however, will make it simple to take charge of your ’emotional’ spending by combining rearranging and automating payments with giving you freedom in other areas.
No need to keep track, or to limit yourself if you don’t want to. No tedious categories to try and figure out. A BCFP is a plan you can stick with’ it’s a better way to get more life from your money, and reach your dreams faster.
Contact me to see how Behavioural Cash Flow Planning can work for you!