My brother recently got a new job with much higher pay than he was previously making. After getting the job, he bought himself a motorcycle, something he’s wanted for a while, and he’s incredibly happy with it and proud of it, even driving it to work to save on fuel costs. For him, it was a good purchase - he’s worked hard and has desired a motorcycle for a long time, and acted on it when the situation finally presented itself.

Naturally, this whole experience got me thinking about my own purchases and I made a pretty interesting realization.

The single biggest change I made to my spending habits is that I finally became aware of the total experience of a purchase.

When you buy something at a store, many people think that the experience of the purchase ends as you walk out the door or as you’re enjoying the product. Not so. The total experience of a purchase ends when you’ve completely recovered the value spent when you made that purchase. Let me give you a clear example from my own past, in mid-2005 (before I had my financial crisis and was still spending without much control).

My Total iPod nano Buying Experience
In September 2005, Apple rolled out their iPod nano. I was already an iPod owner at the time, but the new nano models were so small and neat that I just felt compelled as a gadget lover to run right out and buy one, blowing $200.

That initial purchase rush was quite fun. I gave over the $200 and got my nifty new iPod, which I quickly loaded up with music and pictures and took around to show my friends so they could be suitably impressed by my new gadget. Those first few days were pretty fun.

But, you see, I already had an iPod, and besides that, I didn’t even use that iPod a whole lot. I would use it while walking around, but I did most of my music listening directly from my computer or out of my stereo system at home.

I also found that after just a week or so of light use, my nano was already developing little scratches. I started storing it in a pouch, which helped, but at that point it began to seem indistinguishable from my older iPod, except with less storage. My positive feelings were definitely beginning to mellow.

Of course, I’d bought that iPod nano on credit (much like many of my other purchases during that period in my life). So when the credit card bill came in, I didn’t have enough to pay it off, even though there was a nice new $200+ charge on the bill. Instead, I made the minimum payment and a bit more and felt pretty sick to my stomach about my rather large credit card balance. Yep, more negative feelings as a result of the purchase.

The next month came and went. My nifty new iPod didn’t get used very much. I couldn’t find the charger for it for a while, so it sat unused while I primarily used my old iPod. I’d see it sitting there, unused, and feel bad. Another credit card bill came, packaged up nicely with some more negative feelings.

It took me almost a year to get that credit card paid off. All told, that nano probably cost me $250 - and the net feelings and use that it generated were negative.

Using That Experience Today
That experience, along with several similar ones, has left me with a very strong sense of the whole picture of what I’m actually buying when I make a purchase. I’m not just taking home something nifty to enjoy - I’m also taking home the bill. I’m not just taking home something to play with today - it’s something that I should be enjoying over the long haul if I’m putting significant money into it. Could I perhaps get this item cheaper elsewhere, or do I even need it at all?

Is this purchase going to be a net positive, or is it going to be another iPod nano?

I ask myself this each time I go to make any kind of purchase that might even be slightly unnecessary. That thought process has talked me out of countless purchases over the last couple of years.

In the past, I’ve strongly advocated using the ten second rule whenever you’re considering buying an item. The questions above are the questions I ask myself during those ten seconds - and they usually talk me right out of buying the product.

The more I dabble in investing, the more I realize that it’s something of an “opposite world” compared to the principles I use in day to day life. Things that make intuitive sense in the real world are actually failures when it comes to investing. Here are ten great examples of that phenomenon.

Be the best - settling for average is a loser’s game.
In real life, it’s always helpful to strive to be the absolute best person you can be. Putting in the sincere, concerted effort it takes to be the very best at what you do is a strong path towards success, as the lion’s share of the credit and respect go to the people who are the best. The basic principles for being the best are consistent over time: work very hard, respect and care for others, step up when leadership is called for, and handle difficult situations well. No matter what situation you’re in, those tenets will guide you towards being the best.

In investing, constantly striving for the absolute best returns will often lead you down a dangerous path. In order to achieve those kinds of “best” results, you have to take on a huge amount of risk by reducing your portfolio diversity and buying heavily into a small number of investments. Doing that puts you at a big risk - if one company runs into trouble and you’re heavily into their stock, your gains go away very quickly. The actual truth is that you’re far better off as an investor trying to get the average return at the lowest cost possible over the long haul, and that usually means being very diverse and very steady with your investments, not seeking the big win.

Self-confidence can get you far.
In real life, the appearance of success often implies the presence of success to others. Dress in an expensive suit, drive an expensive car, and act with confidence, and people will believe that you’re successful at what you do and place some confidence in you, whether founded or not.

In investing, self-confidence often leads straight to failure. Self-confidence causes you to believe you’re an expert investor and that everything you touch turns to gold. No one has the Midas touch - not even Warren Buffett or Peter Lynch. You will suffer failures as an investor, and if you’ve been too self-confident about your investment choices (resulting in behaviors like putting all your eggs in one sure thing basket), you’ll get burnt badly.

Let your heart lead, not your mind.
In real life, your internal moral code, conscience, and instinct are great guides in leading you through the labyrinth of human interactions. Gut instincts are often the result of watching many, many patterns over time, and because basic human behavior is often at least somewhat predictable, our gut instinct often leads us down the correct response path. Whenever my gut and my mind are fighting over what to do when in the real world, I usually let my gut win.

In investing, gut instincts have the opposite effect. Your gut instinct tells you to make conclusions based on recent behaviors and behaviors you’ve witnessed in the past. Thus, a short-term uptick signals a gut instinct to invest for most people. The only problem is that short term investments in most markets are extremely chaotic. They go up and down for reasons far beyond our quick perceptions, and thus just relying on our natural instincts has very little value at all. In fact, often it has a negative value, because we may interpret a natural fluctuation as being something more than the little trend it is, so we buy on the peak or sell short at the bottom and end up eating our shorts.

When in Rome, do as the Romans do.
In real life, this is an excellent principle to live by. Adopting some of the social norms around you helps you blend in much more quickly and begin establishing relationships instead of appearing as an outsider to the rest of the group. Fitting in can often be the key to defusing a social situation and making it work. Not only that, imitation is a great way to learn a new skill.

In investing, listening to CNBC all day and using their “advice” will get you nowhere. “Fitting in” with a group of people who are recommending stocks either because they’re invested themselves or based on minimal research is not a safe way to invest. Neither is reading the papers and seeing what the “hot” new investment of the minute is. If you’re reading about fantastic results and are thinking it’s time to “do as the Romans do,” it’s already too late to get the big returns - and you’ll often wind up being the one who ends up holding the bag. The same is true when there’s a selloff - the time when everyone is selling is the time for you to buy, not to sell. Do your own homework and pay no attention to the delusions and madness of the crowds.

Listen to the advice of people wiser than yourself.
In real life, it’s a great idea to heed the recommendations of experts in a field. I have a friend who is a tremendously good golfer, so when he recommends golf balls or a golf club or a training item, I’ll listen. Another friend is a tremendously good woodworker - if he recommends a router, I’ll listen. If a friend makes a suggestion about my own life when I ask for advice, I’ll listen.

In investing, listening to most recommendations will usually just lead you astray. The talking heads on television, often described as stock pickers or experts, have notoriously bad track records and often are just recommending whatever stock they have a lot of at the moment. That’s not expert advice. If you want true expert advice on how to invest your money, seek a fee-only financial planner, not someone on CNBC telling you to put all of your cash in Lugubrious Whing Whang (LWW).

A very specific focus will reap great rewards.
In real life, becoming a top person in a specific field can reap huge rewards. Take musicians, for example - one does not become an expert musician overnight. It takes focus, intensity, and dedication to master a musical instrument.

In investing, a focused intensity will keep you from properly diversifying and can leave you very open to sudden downturns. While it’s good to know what you’re investing in, if you focus in on one sector so intently that you lose sight of everything else, you’ll get burnt badly. Just ask the people who got downed by the tech stocks in 2001, or the Enron true believers in 2000-2001.

You usually get what you pay for.
In real life, this is often a solid rule of thumb for purchasing. For the most part, less expensive products are made with inferior parts and tend to wear out quicker. Being an intelligent shopper means knowing how to balance what you get with what you pay.

In investing, the cost of the type of investment advice that might help you squeeze out another percent or two is often more expensive than the financial gains you earn from the advice - not to mention the time reading it, absorbing it, and acting on it. You’re far better off figuring out a simple investing strategy on your own, one with low costs, and simply executing it yourself.

The best way to guess what will happen is to look at the past.
In real life, our previous experiences are what we use to make decisions in life. We remember early experiences and quickly translate those experiences into an educated (and often correct) choice today.

In investing, past performance is no indication of future results. A mutual fund that does great one year might be atrocious the next. A stock that’s been in the basement for years might suddenly catch fire. From 1997 to 2000, Enron’s stock quadrupled, and then 2001 happened. You can’t guess what will happen tomorrow.

Short term milestones work well to make sure you’re progressing towards your goal.
In real life, using short term milestones to move towards a big goal can be a powerful way to get you moving towards something really big. You can mark your progress slowly over time as you add more and more effort to the pot.

In investing, short term investment results are extremely volatile and are hard to use for any sort of indication of progress. Stock investments really only work over the long term - if you’re looking at the short term (and you’re not daytrading), there’s little real meaning there at all. You can’t use a month’s worth of growth or loss in your portfolio as a unit of progress towards your bigger goal. The only metric you can use in the short term is that you’re consistently investing more over time.

If everything’s crashing around you, now’s the time to stand up to the plate and take action.
In real life, the people that take action during a crisis are the ones that are seen as leaders, and they deservedly get much of the rewards for taking on that challenge.

In investing, people who spring into action during a fall in stock value are almost always making a bad move. The only time one should change an investment is when the fundamental reason for owning the investment changes. Did the company itself change? Did the company’s market situation change? Those are the questions to ask, and they have nothing to do with a short term crisis in the value of a stock, which could be caused by any number of reasons. Successful investors don’t immediately act during a crisis - they evaluate the situation carefully and don’t make rash moves.

It’s for these reasons that I prefer automatic investing. I just figure out my plan (centered around very broad-based and low cost index funds), set up the automatic investment each week or month, and then just forget about it. I rebalance once in a while, but only in that I change my contributions around so that my investment will eventually turn back into my desired allocation. And that’s it. No listening to the “experts,” no rash picks in a crisis, no believing I’m some sort of super investor. Slow and steady and calm.

It might go against my personal instincts, but it works.

Last month, I was sorely tempted to pick up Mario Kart Wii. Mario Kart has been my favorite video game series of all - I played it for hours and hours with my friends in high school on the Super Nintendo, then burnt countless hours in the college dorms playing it on an N64. Even as recently as last Christmas, I stayed up most of the night playing Mario Kart DS wirelessly against my wife’s family at their Christmas celebration (one person had a cartridge and several of us had DS units - that’s all we needed).

I made an agreement with myself that if I hit a number of very high personal finance thresholds by the end of May, I’d get the game - otherwise, I’d just skip it. I already had Wii Fit preordered (from a Christmas gift certificate) after all, so I didn’t particularly need a new game.

Well, I hit those goals on about May 4, so I went ahead and picked up Mario Kart Wii. I got home, opened the box…

And I felt guilty.

You should have saved that money, my mind told me. Why didn’t you just snowflake it instead? Why not play another game you have? Why not do something else entirely?

I played Mario Kart Wii for a while and even quite enjoyed it, but at the end of each session, that same guilty feeling came back. I spent money on something I didn’t need and, in the end, something that I no longer feel like I deeply wanted.

You could have snowflaked that $50.

You could have used that cash to buy an LED bulb.

You could have invested that cash to save for the dream house.

You could have put it in the new car fund.

You let yourself down.

These are the things that my conscience was telling me, right or wrong. Instead of seeing Mario Kart Wii as some sort of reward or symbol of my success, I instead saw it as a symbol of my failure.

There are many of you who will respond and say that I’m being unfairly hard on myself, that life isn’t living without those little perks, and so on. I agree with the idea that one shouldn’t deny oneself of things that bring happiness.

But sometimes those things bring guilt along with them as well. Sometimes we wind up feeling as though we’ve made a mistake in spending money, even if there are reasons to justify the purchase. Sometimes the bad outweighs the good, and sometimes we’re left with guilt.

When I bought the game, I felt a little tug in my conscience that I shouldn’t buy it, but I shrugged it off. After all, I had plenty of reasons and justifications for making that purchase. In the end, though, I should have listened to that little voice in my head, because most of the time, that voice is right - it cuts through the excuses and stories we tell ourselves to justify things.

If you’re about to buy something and that little voice in your head starts whispering don’t, stop. Your heart is probably trying to tell you something, a message that you’ve tried to pave over with incomplete reasoning and false excuses.

Instead, walk out of the store and do something financially positive with that money. Not only will it bring a financially positive result, but it’ll make you feel better about your situation, too.

Not long ago, I was talking about retirement planning with a friend of mine who was trying to decide what exactly to do to prepare for retirement - he’s 25, but has gotten the memo that he needs to plan now. I ran through a few options, but almost immediately his eyes glazed over - he was bored out of his skull pretty quickly at the first mention of the word Roth.

So I was blunt. “Do you want me to just tell you what to do?” He nodded his head happily. After that, I just asked him a few really simple questions: Do you want to work forever at something or do you want a true retirement? How much do you bring home each paycheck? How much lower could that paycheck be before it would bother your way of life? Do you have any documentation about your retirement plan at work? He answered these and seemed much happier to be talking about things that weren’t complicated plans and confusing numbers.

With that input, I basically described a few scenarios to him. Did he want to work at least part time in retirement doing something he enjoyed? Did he want a full retirement, but not with much free money to spend? Did he want a full retirement with plenty of financial freedom? I ran some numbers and built a simple plan for him - a Roth IRA and a well-funded 401(k).

For him, this was relief. He didn’t want to think about the numbers or the specific plans, not at all. He was interested in retirement, but in a much more conceptual way - he preferred to imagine his own day-to-day life at that stage, which he could envision in detail. He just didn’t have any interest - and perhaps a bit of fear, too - when it came to the actual planning part.

I’m just the opposite. I like running the numbers. I like to imagine my retirement, too, but when I dream about it, it’s very nebulous - I can easily imagine scenarios, but they seem like fiction to me. Instead, the pleasure for me is in the planning.

The difference is in our minds. Most people are familiar with the idea of “left brain” or “right brain” thinking. People who think primarily with their left brains are more logical, focus more on patterns and order, tend to be practical, and like to form strategies - big dreams are frivolous. People who are right brain thinkers tend to do much better with reading people, tend to brainstorm well, and tend to lead with their imagination - plans are boring.

For most of us, the truth is somewhere in the middle, but most people will identify at least somewhat strongly with one side or another. What does that really mean, though?

People with left brain dominance are usually good at devising plans and at running the numbers, but aren’t so good at imagining the big goals. They can figure down to the penny which retirement plan is the best one for them, but they don’t necessarily envision what exactly retirement is.

People with right brain dominance tend to be just the opposite. They can imagine their retirement quite well, but the path to get there is blurry. For them, retirement planning and investment choices are boring.

Good financial writing finds a way to inspire both groups. Some personal finance writing focuses on big-picture issues: setting goals, figuring out your dreams, and considering alternative scenarios. Other writing focuses in on those nut-and-bolt issues, calculating things down to the last penny.

When you read The Simple Dollar - or any other personal finance site - you’ll find things that are boring to you and things that excite and intrigue you. Consider, for a moment, that the very things that bore you are the very things that other readers are thriving on. I find it fascinating to think that the things that bore me are the same things that excite other people.

What else can we take away from this?

It’s powerful to talk about personal finance with other people. Money is often a topic that’s uncomfortable to discuss with others and so we avoid it, but talking about personal finance with people who think differently than we do can often open up doors for all of us. Talk about your money issues with your friends, particularly if they often think differently than you do. A different perspective might be just what you need.

Financial planners do a great job of serving those with right brain dominance. Financial planning works best when you have a goal already in mind - the planning is what needs to be done to reach that goal, and that’s often the part that right brain folks have a hard time with.

Left brain dominant folks need inspiration above all else. They need to be presented with a grand vision and once they begin to believe in it, they’ll find the road to get there.

Left brain and right brain folks sometimes function better on different paths to the same goal. Analytical types will often be happiest with the most efficient path. Others may find that the best path for them isn’t necessarily an optimal path at all, but instead a path that fits best with other choices and aspects of their life. Debt repayment is a great example - Dave Ramsey’s debt snowball (where you start off repaying the debt with the lowest balance instead of the one with the highest interest rate) isn’t necessarily the most optimal, but it succeeds in ways that aren’t directly analytical, but more psychological and empathic in nature.

In short, we all think differently - and when we stop being hindered by those differences and instead use them for our benefit, we all succeed.

I recently read a very, very good personal finance book called Money Drunk, Money Sober (which I’ll review this Friday… oooh… the anticipation) where the authors made a brief suggestion of doing a personal inventory of your relationship with your money. At first, I was expecting it to be a rather boring listing of accounts and the ways you spend money - the traditional nuts and bolts of budgeting that most personal finance books take.

Instead, the authors gave a handful of intriguing thought experiments about one’s relationship with money. They suggested creating a journal with one’s thoughts on each of the topics, perhaps writing out detailed answers to each of the issues each day, then putting the journal away for a while and reading it again later. In other words, it’s almost like self-therapy - you’re digging through the relationship you’ve built up with money throughout your life and exposing the areas that really need work.

I was very intrigued by this and I gave the project a solemn attempt, resulting in some very interesting ideas and revelations even after spending a year thinking about my finances a lot. I began to also see how a lot of these ideas led directly to other ideas, and by the time I was done, I’d developed a long list list of topics that were worth exploring.

Starting a Reflections on Money Journal

Getting started There’s never a bad time to start a project like this one. All you really need is a notebook to write in or a text editor on your computer to type in - nothing else is really required.

What should I do? Start plowing through this list. Ask yourself each question honestly and then let the thoughts flow from there. You might find yourself feeling that the question doesn’t really apply to your life; other times, you might move off on some tangent and really invest yourself in a completely different angle.

The point is introspection - trying to understand your relationship with money as it has built up throughout your life. You’re trying to understand the areas where you’re weak, the areas where you’re strong, and how you can improve the weaknesses and leverage the strengths. This isn’t an easy process - in fact, it can be incredibly painful at times. I know that when I reflect on a particularly painful memory about money, I feel kind of sick inside, and when I think about how close my family came to a financial meltdown, it really hurts.

How long should I take? I found that when I really reflect on a topic, it’s a good idea to think of the topic several times throughout a single day - or even over the course of a few days - before finally writing out my thoughts and concerns. After all, the value is in the journey. Of course, writing down the conclusions you come to is important, too, as it gives you something to look back on later when you’ve grown and changed over time. I suggest spending twenty minutes writing at a shot, just letting every thought in your head on the topic just flow out on the paper.

Why do this? It serves three purposes.

One, it forces you to reflect on your personal relationship with money. This is more important than you might think, because many problems with spending too much or spending too little often come about as a result of some experiences in life or things that you’ve never been able to really think about.

Two, it reveals to you how deep and personal that connection is. Only a small minority of people today have a relationship with money that’s healthy. They see it as something distinct and separate from themselves. In truth, money is a representation of you - your work, your values, and the things that you love. When you cast it aside and make it separate from these things, it becomes abstract and valueless - and it’s often the source of a lot of money problems.

Three, it gives you something to reflect on later. The answers you derive will often help you make some difficult choices and changes in your life. Having this account of where it all started can often help you later on, too, as you can read it and realize how much impact those experiences and ideas and reflections really had - and perhaps they can offer more insight to you later as well. When I read my old journals from my teenage years, I’m often amazed at how much I’ve changed as a person, but I also come away with some insights as well - I see the world through a whole different set of lenses.

Twenty Questions to Ask Yourself

Take one of these questions and think about it for a while as you start your day. Maybe reflect on it while you’re taking a morning shower or a morning jog. Then let it pop up again a few more times throughout the day. At the end of the day, jot down a few notes on what you came up with - and what you learned from it. Even better, talk about them with your spouse (if you have one). Most of these questions will teach you something if you let them.

Remember, even if you choose not to write down responses, think about these questions, as the journey is often more valuable than the destination. See what truths these questions reveal to you.

1. What five things do you most truly love doing? Think of things that you both enjoy in the moment and also enjoy looking back on later. Do any of these cost money?

2. What five things that you do regularly do you truly hate doing? You hate thinking about them and doing them in every way. Are these in any way worth the reward you get for doing them?

3. What things are preventing you from doing more of the things you love and less of the things you hate? How can you remove those obstacles?

4. When was the last time you felt guilty about an expenditure? Why did you feel guilty about it?

5. What would you do if you went to work tomorrow and your boss handed you a pink slip? Get as specific as you possibly can. What could you do right now to make that less of a shock?

6. What five people (besides yourself) do you care for most in the world? Do they know this? What could you do to show them that you feel this way? Does your reaction involve money? Does it need to involve money?

7. Have you ever been in a situation where you felt powerless about your spending, almost as if something else was in control of it? Why did you feel that way? What do you feel was driving that spending?

8. Can you think of five ways you attempted to control your spending? Did they work or not? If they didn’t, can you remember the exact moment when you realized you were losing that battle?

9. Do you remember a time in your life where you weren’t concerned about money? What specifically changed between then and now? Is the difference between the two mostly “stuff”?

10. Can you name all of the individuals and organizations that you owe money to, and roughly how much you owe and what the interest is? Which one is dragging on you the most? Why does it drag on you?

11. Where do you want to be in one year? Describe your life in as much detail as you can. Can you name five actions you can take in the next week to lead you to that goal?

12. Where do you want to be in five years? Describe your life in as much detail as you can. Can you name five actions you can take in the next week to lead you to that goal?

13. Do you actually ever want to retire in the traditional sense? If not, what do you want to be doing with your life at the typical retirement age?

14. How much do you actually earn for each hour you work? Don’t just divide your salary by the number of days you work and the number of hours you work each day. Subtract out the cost of commuting, clothes, social events for work, eating out, taxes, and other such expenses, and add in the hours you spend commuting, attending conferences and meetings, working late, and so on. That dollar amount is the exact value you put on an hour of your time - your true hourly wage.

15. Once you know that exact value, what else could you be doing to put that much in your pocket, particularly work that leaves you feeling more fulfilled and happy?

16. What would happen to those around you if you walked out of your house and were hit by a Mack truck and killed? What would happen to those around you if you walked out of your house and were hit by a Mack truck and put into a long-term coma? What could you do differently to cover those bases?

17. Think of ten childhood memories about money. Do these memories point to a healthy relationship with money (saving and planning for the future) or an unhealthy relationship (spend, spend, spend!)?

18. When was the last time you bought something primarily to impress someone else? Did it work? Did you ever buy anything to impress someone and had it completely fail to work?

19. When was the last time you bought something that was completely unnecessary? When you look back on it, do you feel happy about that purchase? Do you feel happy about earlier frivolous purchases? If some make you feel happy and others don’t, what’s the difference between the two groups?

20. When you sit down and send out your bills for the month, are you left feeling good or bad after doing this task? Why? Is there anything you can do to change that perspective?

Yesterday on my way to work, I was tuned into NPR’s Morning Edition and I overheard a story about two researchers using our natural instinct to avoid losses as a motivation to lose weight.

The concept is called loss aversion and is summarized by Wikipedia as such:

[L]oss aversion refers to the tendency for people strongly to prefer avoiding losses than acquiring gains. Some studies suggest that losses are twice as powerful, psychologically, as gains.

Quite often loss aversion is a very dangerous thing when it comes to personal finance and investing. Loss aversion is the explanation for why people get nervous and want to sell stocks when their value is dropping, even if they have good reasons for owning those stocks and it’s a great long-term investment. You have to fight against your natural tendencies to succeed as an investor.

But can this natural tendency be helpful? Here are some ways where loss aversion can actually help with your finances.

Recognize it I realize now that the biggest thing keeping me on my insane schedule of the last two years was loss aversion. I was so afraid of losing something that I threw everything I had at juggling a lot of balls. It was only after some careful reflection that I began to see that I was doing all of this out of an aversion to loss - and that aversion was keeping me from really succeeding. I was so scared of failing at all of these things that often I wasn’t trying with my whole heart to succeed, just to not fail. Once I realized that, it became a lot easier to look at my life and see what was most valuable to me: my children and my family and writing, and I made the powerful decision to leave a “safe” job to really become a better parent and a better writer.

Set goals The more detailed and specific your goal is, and the more attainable it is especially in the short term, the more of a “loss” you feel when you don’t achieve it. Here’s an example: wake up in the morning and pledge to yourself that you won’t spend any unnecessary money today. Put a little card noting that pledge on your pillow. That night, when you see the pledge, you’ll either (a) feel success at your first step or (b) feel a big swoon for having failed this little goal. Eventually, you’ll start becoming averse to that loss of positive feeling - and when you know that the actual route to avoiding that loss is simple, you’ll start doing it.

Use a big carrot Tell your wife that if you guys together can bank $10,000 this year, you’ll spend $4,000 of it and take the family to Disneyworld (or some other prize). You’ll both work towards that goal quite intensely, finding ways to save money and invest it well. The aversion to “losing” that vacation becomes a motivator, and having someone else work with you towards the goal will help, too.

Invest more conservatively If you find the swoons of the stock market make you sick and trigger those “loss aversion” feelings, causing you to make bad investment decisions, consider investing more conservatively. Put your money into bonds that will steadily earn over time. You might want to even keep things in cash in a high-yield savings account. This isn’t a “losing” route, as many people will tell you - it’s a losing route to buy stocks and then sell them when the market goes down and your loss aversion is going crazy. A steady 5% or 6% return, year in and year out, with no worries, is not a poor choice, especially if you’re prone to loss aversion.

In short, knowing that people have a natural loss aversion and recognizing it when it happens is the real key to maximizing that feature of human psychology for yourself.

The single greatest challenge I’ve faced since learning how to turn my financial life around is patience. I want to be debt free now. I don’t want to face the long journey from near-bankruptcy to financial independence. I practice frugality every day and I’m working hard to create more income, but the path from where I’m at to where I want to go is long. It takes patience, and patience is not a virtue that I was born with.

I know many people in this situation, to the point that I believe that a lack of patience is actually endemic in people under forty (or so). We are all out there fighting for at least the level of success our parents had and we want it now. We don’t want the “salad years” where we’re living in a tiny apartment, scraping by and saving for that house. We don’t want to pay our bills and just see a few dollars left in the account. We don’t want to go into work every day for several years and never get a raise, never get promoted, and never get close to our dreams. We don’t want to sit on an index fund for twenty years ekeing out 10% gains a year - we want to hit that home run.

In the end, though, all of these challenges become much easier once we learn a little patience. Patience is a learnable virtue - or, at least, one can learn techniques that make it possible for us to be more patient.
Over the last year, I’ve been working quite hard to develop my own patience. I have two young children who can sometimes use all of the patience in the world - it takes patience to respond calmly when my daughter spits out pureed vegetables for the tenth time or my son has a “terrible twos” temper tantrum. I’m working towards getting rid of a mountain of debts I’ve accumulated in my life. I’m trying to build a writing career without the “proper” background. I’m trying to build up a stable and solid investment portfolio. In a nutshell, I’ve got many avenues of my life that demand patience right now - and so there’s no better time to start.

Here are nine of the most useful techniques I’ve found for teaching myself patience. I use almost all of these on a regular basis to keep myself patiently on task, not jumping the gun, and not getting distracted at a moment’s notice. Try these - they may help you succeed with some big goals that seem almost impossible.

Figure out what your actual destination is.
Whenever you act with impatience, you’re wanting some sort of outcome that isn’t within easy reach. What is that outcome? Simply by taking the time to define where you want to go, you often get some serious clues as to why you’re constantly impatient.

When my son was young, I would go through periods where I was impatient with his crying. He’d get incredibly upset before bedtime, and I’d spend hours rocking with him, calming him, and bouncing him. There would be times during this when I would get incredibly impatient - I’d get so upset I’d have to put him down for a bit and step out of the room. But, when I realized that what I really wanted was for him to be happy (my happiness would follow), I realized my best course of action was to just be close to him and put my own feelings aside.

Another example: a person buys stock in Apple a couple of years ago because they believed the iPhone would be big. In 2006, Apple’s stock dipped quite a bit and the person started to get seriously impatient for the big rise. An impatient person would sell. A patient person would know the actual destination - the release of the iPhone and the resulting bump in Apple stock - and would just wait around for it (and score some serious profits).

Make a “Plan B,” too.
Sometimes, patience isn’t enough. Sometimes you do need to abandon your plans, but you need to understand when to abandon them. Making impulsive choices out of a lack of patience is often the result of not having considered a “plan B” and when you should switch to that second plan.

For example, if my son is being obnoxious, I might talk to him about it, but that doesn’t always work - he is a two year old, after all, testing his limits. I might want to react to his first bad choice by punishing him, but that really wouldn’t work without letting him know clearly what the problem is. So, I choose to talk to him about what he did wrong and then have a “plan B” - a trip to his “time out chair” if he does it again.

Similarly, with the Apple stock mentioned above, you can help to control your impatience by defining a very clear set of circumstances where you would abandon the stock. That way, you just simply wait for either the destination or for the situation where you would abandon it. You wouldn’t even need to follow it that closely, taking the edge off of your impatience.

Take the other side’s perspective.
This is a great technique for gaining patience with others. Whenever you feel your blood rising, take a moment to look at the situation from the other person’s perspective. Why are they behaving this way? Would you blowing your top or acting rashly cause them to change their behavior? Just a few seconds of reflection on this is usually enough to calm down.

I really like to use this in traffic when I see someone driving slowly. I might initially get frustrated, but then I’ll glance over at the car and see a little old lady behind the wheel, and I imagine my grandmother driving. Her primary concern is to make it to her destination safely - time’s not very important to her. And then I smile and I don’t feel as impatient with that driver.

What about a situation where a friend of yours asks you for a loan - again? You might just flare with impatience here, but look at it from their eyes. They haven’t yet figured out how to manage their money or their life and thus they’re asking for help in the only way they know how. You don’t have to give them the loan (in fact, you shouldn’t), but you might at least gain some patience with them.

Break down big goals into tiny ones.
Right now, I’m working on the big goal of freedom from debt. I have a mountain of over $200,000 in debt to get through and there are times where I look at all that debt, shake my head, and wonder how I’ll ever get through it. I get tempted to just say “forget it,” bust out the plastic, and buy some new toys.

I keep on task by breaking it down into microgoals. Each month, for example, I plan on paying off a certain percentage of the debt. 0.5% of that debt would be about $1,030, something I can accomplish with effort, so each month I elect to reduce that total debt by 0.5%. This makes this giant goal very immediate - my little moves each and every day, like not stopping at a coffee shop, add up to reaching the small goal for the month. Continually reaching that monthly goal means I’m continually making progress towards that giant goal, and I can see, bit by bit, that I am getting there.

I used this technique well with building The Simple Dollar. I had some big dreams in mind when I started - dreams of a million page views a month. I got there not because of that lofty goal - one that would have left me losing patience and perhaps giving up - but because I broke it down into tiny steps. I set a goal of a 15% increase in page views each week over the previous one, on average. Week after week, I kept doing it, watching my page views go from a handful to a basket full to a bushel to the current levels I now enjoy. I no longer use that as my microgoal for The Simple Dollar, but I still use similar things to keep the momentum going.

Wait. Just a little.
This is a brilliant technique to use no matter what obstacles you’re facing. I’ve even identified this technique in the past, discussing the ten second rule and its many applications. In a nutshell, whenever you’re running out of patience or temptation is about to claim you, stop for ten seconds and think about the choice you’re about to make. Is it the right one? It’s often enough to get you back on track.

Let’s say I’m at the bookstore and I have a new bestseller in my hand. I already have several books at home to read from PaperBackSwap and I can easily get on the waiting list for it at the library, but I still want it, so I head for the checkout. If I just stop for ten seconds and think about it, I’ll probably make the right choice and put it back on the shelf.

This technique works in all aspects of life - signing up for extra options with your cell phone, buying into a hyped mutual fund, signing up for a credit card, and so on. Don’t be impatient and just run in headfirst without thinking - take ten seconds and give such decisions some reflection.

Recognize that there are some things that you simply can’t control.
Life deals us unexpected things all the time. Someone passes away unexpectedly. Someone rear ends us on the way home from work. Someone’s late for an appointment. Someone’s computer breaks down. Someone’s sick. These things can’t be controlled, and blowing up due to impatience as a result of these things doesn’t help anyone.

Just yesterday, my son had to use the bathroom just before we were about to leave to go grocery shopping. Since he’s in the middle of potty training, it meant we wouldn’t get on the road for another twenty minutes or so. I was already running later than I wanted to and I started to get frustrated, but when I realized that I couldn’t control the fact that my child needed to use the restroom, I just kind of smiled and helped him get his shoes off.

Similarly, you can own a stock when something unexpected happens. Let’s say, again, that you’re an Apple stock owner. What would happen if a meteor fell out of the sky and felled Steve Jobs? Apple’s stock would go down quite a bit in response - and there’s nothing that you could do about it. Remember, if you can’t control it, there’s no use getting mad or impatient about the results.

Think about the things that make you react on impulse.
In all of our lives, there are things that we do impulsively. I impulsively get very frustrated with myself if I get into a writing drought and can’t come up with the words to express what I want to say. I also often act impulsively when I get hungry - sometimes I don’t make the good choices I might make if I thought about it a little.

I used to eat impulsively very regularly and it caused my weight to balloon. It took a while to realize that I acted in a very impatient fashion when I was hungry, and when I finally realized it, I spent some time seriously thinking about it. Why did I just seek the fastest thing to eat? I thought about the many reasons that was bad for my health and not necessarily good for my taste buds, either. After plenty of reflection, I began to look at my hunger choices in a different light - and I started dropping pounds.

A similar phenomenon happened with investments. When I first dipped my toes into buying stocks, I was very impulsive. I would switch things around over and over again, trying different configurations, particularly if I didn’t immediately see results. It took some time for me to realize that you don’t invest in stocks for the immediate return unless you’re a day trader or a hedge fund manager. I thought about it, did some reading and research, and thought about it some more - and eventually I came to realize that just sitting on a well-planned investment works much better.

Recognize when you do act on impulse.
Quite often, I didn’t even realize I was acting on impulse until later, and I’d beat myself up over it. I’d change my investments, watch my old choices go up in value, and get very frustrated with myself. I’d get hungry, eat some fast food, then feel guilty later. What I didn’t realize is that the moment when you recognize an impulsive choice is the best time to reflect on it, not to beat yourself up over it.

Forget the results, enjoy the process.
For me personally, this is the most important technique of all for learning patience. For almost everything, the journey to get there is most of the fun, and it’s something I didn’t understand until the last couple of years.

Take frugality, for example. I used to be very impatient and I would throw money around to solve problems. When I started trying frugal living, I would often get annoyed if I found myself investing time in things. My epiphany came one day when I was making my own laundry detergent - I started off just looking for a way to save money, but I found out I was enjoying the process. Now, I quite enjoy thinking about frugal ways to live, from preparing my own meals to doing preventative maintenance around the house with my son tagging along. The process itself can be a lot of fun, and that just makes the eventual outcome more sweet.

Becoming a parent was perhaps the best teacher of all. I might get impatient with my son goofing around during potty training or my daughter crying beyond consolation, but it turns out that these moments are among the best times to really bond with my children. Now, I don’t mind sitting in the bathroom with my son talking about how big boys use the bathroom, or bouncing with my daughter and holding her close as she cries. These are the moments that make for a great relationship.

All you need is just a little patience.

When I was freshly out of college with my first high-paying job, I would constantly insist on paying for everything. Meals out with friends, lattes at the coffee shop, even sometimes shopping purchases - I felt this deep need to step in, bust out my plastic, and say, “I’ll take care of it!”

This burning desire to always save the day led me down a path to a lot of debt. Even as the credit card bills rolled in, I didn’t worry about it too much - I figured I was earning good money and would soon be earning more and thus I shouldn’t worry about the bills. I kept being the superhero until I was drowning in quicksand myself.

It took many years, but I finally realized that I don’t need to be the financial hero all of the time - or even much of the time at all. Being the credit card-bearing Superman, like in that video above, doesn’t lead to being a hero - it leads to overspending, a sense of guilt, and a false image presented to others that you must keep up.

Over the long run, doing this over and over again leads to unhappiness. You might feel great when you’re doing it, but later that credit card bill will come in and you’ll feel sick as you pick up that envelope and open it. It’s just like the thrill of buying something new - it’s exciting at first, but very painful when the bill itself comes in.

Even worse, you damage the relationship’s dynamic by buying everything. When you repeatedly engage in a certain behavior, people come to expect it from you. It comes to define you. When you regress from that behavior, then people’s expectations are hurt. Don’t let yourself be defined as “the person that buys everything,” even if you’re tempted to - eventually, something will have to give and it won’t be good for whatever friendship or other relationship you’re trying to maintain.

Here are some of the tactics and ideas I used to break out of this mindset and learn to keep my credit cards in my wallet when those opportunities arose.

Recognize that you don’t have to buy stuff to be seen as successful and valuable to others. Most of the people you associate with don’t value the fact that you can buy things - they value you and the unique characteristics, personality, and charm that you bring. Friendships and relationships aren’t about buying stuff (at least healthy ones aren’t), so don’t actively try to make it that way. They already like you for who you are, not for the stuff you buy.

Commit to not buying anything when you go out. Whenever you go out with a group of friends, don’t buy anything (other than a bare minimum of your own food or drink) when you go out. In other words, practice the opposite of your previous behavior where you would feel compelled to buy everything.

Engage in activities that have fewer buying opportunities. Instead of going shopping and out for dinner, why not go to a free concert or go play disc golf at the park? Your activities don’t have to revolve around spending, thus you don’t have to feel the strong urge to be a superhero.

Don’t worry about losing a “friend” who expects you to buy their way. If anyone stops spending time with you because you’re not buying, that means they weren’t your friend - instead, they were merely milking you for what they could get for free. Let it slide - don’t feel guilty about it. They weren’t really friends with you, just your bank account.

Talk about it to your inner circle. This was a big step for me - I talked about it to my wife, then to a few of my friends. They were unbelievably understanding and supportive, to the point that they would basically yank receipts away from me and such. Your friends and family will help you with things like this - just open up to them and trust them a little.

I still like taking my parents out to dinner, but it’s no longer because I need to fulfill some inner desire to be a hero, it’s because I love them and they make great dinner companions. The time spent together enjoying wonderful food - and the guilt-free pleasure of my parents as they’re eating the meal - remind me of why I do it. It’s not so I can be a hero, it’s so that we can all enjoy a wonderful evening together without guilt, either now or later.