Episode 45: Behavioral Finance - What it is and Why it's important

ABOUT THIS EPISODE

Emotions influence every decision we make. Financial expert John Browning discusses how he dealt with his emotions on a major purchase, and how you can do the same.

Welcome to the build your life podcast with John Brownie. Build your life as a relaxed and unedited conversation with financial expert John Browning. John's the founder of Guardian Rock Wealth, with offices in Hawaii, Colorado and Illinois. John's also the author of the book build a life, not a portfolio, a guide to your financial future based on your personal values, which you can purchase on Amazon, or stay around to the end of today's show and I'll tell you how to get a free copy maild right to your door. I'm Michael Dlan, your host for the next few minutes as we chat with financial expert, business owner and author John Browning. Hello, John Browning. How's your day going, sir? It's going fantastic. Enjoying lives for love that answer. Thanks for I've being with us on another episode of Building Your Life, not just a portfolio, and today we're talking about something that I really don't understand. So that's why I'm just going to be quiet and ask you tell us...

...a little bit. I help me understand behavioral finance. What what is that? You know, it's a fascinating subject on a lot of coal. I'll call US numbers guys, don't like because it makes us uncomfortable. HMM, it's uncomfortable to think about the and I'm going to say it's a fact that numbers don't solve every problem, because we are complex people and the decisions that we make as people, whether we like it or not, unless we're schizophrenic, are are going to have some emotions built in. Right, right, and it's actually I dedicated party. If you look at page fifty seven on of my book, building a life, not a portfolio, you'll see you'll...

...see it. I'll give you an example from my own life and I don't like to admit that I make emotional decisions. But right when you acknowledge the fact that you do it, just it's free. Just tell yeah, laugh at yourself a little bit and realize that that you're making this emotional decision and, you know what, it's okay because that's why, that's how we were created. So won't try necessarily to fight that. And when you understand that in general, everyone makes emotional decisions, then you're not as shocked when the market take some of its dives and goes up and we hear things like irrational exuberance or oh, how how did the market possibly go down that much in a single day, it's because we're emotional beings and it's not just it's not just here in the United States. This is a worldwide economy. So as...

...we see new shiny objects like the innovation sector and we're like, oh, that's great, and you see money piling in there, once you see a stock skyrock the end, might not be the time to get into it. You know you miss that one, but how else could you capitalize on maybe that same new technology? Is Is, of course, how to really be successful. But the story in the book, it was about when I bought my Harley, first of all really difficult, although I try to justify why I need a harley. Yeah, I have to admit it. Yeah, in my wife would agree that they have to be this. I do not need a harlot. That's the define terms there, right, and even during that buying process I was trying to be logical and I was trying to I wanted to pick this bike that was the better value. Yeah, and it was very similar to this other Dick, but but this Harley had a little...

...bit different sounds to it. It made me feal better and it had this red flake I still have it. The Red Flake paint and chrome everywhere and just had a nice feel to it. I like the grips on the handle bar and, even though the other one was a better value, guess which one I want. I'm guessing the one with the red flake. Yeah, that's the that's the one I have still today. All right, down, that's great. Well, here's the phrase, John, that I just came up with and we've all heard. You know, numbers don't lie, right, they tell the truth. But I said, but I wrote, numbers don't lie, but they don't tell the whole truth, because the truth of that decision was you have emotions that need to be that influence that decision. The number say one thing, but your emotions come to the table and you've got to have both of them. So numbers don't lie, they just don't tell the whole truth. How about that? The other is that is a...

...good, very good way to put that, and it'll help maybe some of US numbers guys kind and get that in our head. Okay, you will agree, fair enough, that people in general as a group are going to make emotional decisions about basically everything, from what you eat in the morning to everything I mean it starts when you two or three years old, right, and he gets progressively more creative as we grow up. So at two or three you want something, you scream until hopefully you get it or you learn that you don't get it by screaming or whatever. You Know Mom and Dad. You know when your teenager, you know mom and dad and you you come up with a whole elaborate, very creative reason that you need a car or something or neither car for that evening. Hey, I can go pick up the milk at the grocery store if only I had my own car. So you get more creative as you get older and then when you're say fifty, you get really creative with your wife or your husband as to why you...

...maybe why I really need those Louis Vatans shoes or or why you really need that Ferrari or Harley, and we just get more and more creative about it. But if the fact still remains is that we were really making these decisions because we want to, and if we acknowledge it, we actually give it less power over our lives, I think, and we understand investing just a little bit better. I think you're right, and giving that power away. Is is like pulling the curtain back behind the guy who's pulling all the things in the wizard of Oz right. You're like, you know, I'm just going to acknowledge I just want the red flak. I feel better on that bike and I'm willing to spend another three thousand dollars to get that. It's okay, yeah, shoot me right. I mean sometimes we just need to be that honest and go I know the numbers don't lie, but they're not telling you the whole truth. I love it. You gotta be you got to get it out in the open, right. Tell that is so.

That is behavioral finance in a nutshell. That very, very it's a very complex subject boiled down into just a couple minutes there. Well, I can get couple menus, because now I get what behavioral finances it's my emotions and I resonate with that because I'm an emotional guy. My Wife's the logical one who has seven reasons why I shouldn't buy the Red Flake Harley, but I really want it. I totally get what behavioral finance is, now that you've explained that, John, thank you good, good. Yeah, absolutely, it's helped out some of the folks as well well? I hope so, and I would encourage those other folks to reach out to you and and go to Guardian Rock wealthcom and reach out to John for a conversation around behavioral finance, around retirement, around building your life now so that you're set to have a great life after work. Well, well later, and every everybody's different. Just have the conversation and talk about as ask him about his red flaked...

Harley, and you'll just have you'll have a friend for life. That's right, John. Thank you so much for being here. Will look forward to the next episode of Your podcast. Sir. All right, sounds great. We'll see you then. Take care. By Bye. By money really is a big part of our lives, and John Browning can help you and your family learn how to keep money in the proper perspective. It's important, but it's only a tool that can help you build the life that you want. If you like, John Emilie a free copy of his book build a life, not a portfolio. Go to John's website, Guardian rockwealthcom, and click the contact US link and send your request. John Will Mell a copy of his book right to your door absolutely free. Thanks for listening to building your life podcast with John Browning. Be Sure to subscribe to this podcast so each new episode will be sent to you automatically when it's released. Have a terrific day.

In-Stream Audio Search

NEW

Search across all episodes within this podcast

Episodes (130)