RIDING THE ELEPHANT: Unconventional Goal Setting - PLANNING FOR LIFE - Simple Money: A No-Nonsense Guide to Personal Finance - Tim Maurer

Simple Money: A No-Nonsense Guide to Personal Finance - Tim Maurer (2016)

Part I. PLANNING FOR LIFE

Chapter 3. RIDING THE ELEPHANT: Unconventional Goal Setting

WHY do I need to read this chapter?

Goals. Do you have a positive or negative impression of that word? For some, goals are highly motivating, but for many others, the word goals sounds like chores.

Whatever your predisposition, I invite you to consider goals simply as the natural outgrowth of our priorities in life, our values (chap. 2). Once we’ve declared what we want to be about, goals take us beyond philosophy to application.

Goals are our values in motion, advancing our dreams from ideation to action so we and those we serve can benefit from them. Goals are the mileposts on the road to Enough.

Carrots and Sticks

Wrestling with his success and failure in achieving human perfection in the early 1700s, Benjamin Franklin may well have been exhibiting behavior that the science of motivation wouldn’t discover for more than two hundred years. Between 1949 and 1969, psychologist Harry Harlow discovered and psychology professor Edward Deci confirmed that “carrots and sticks”—rewards for good behavior and punishments for bad—weren’t the best way to motivate people (or even primates).

So why is the carrot and the stick still the primary way we work, manage, parent, and even discipline ourselves in order to perform that long list of tasks we know we should do?

As Daniel Pink articulates so well in his book Drive, “Too many … still operate from assumptions about human potential and individual performance that are outdated, unexamined, and rooted more in folklore than science.”1

Instead, Pink suggests that the best motivators come from within, not without:

1. Autonomy—the desire to direct our own lives

2. Mastery—the urge to make progress and get better at something that matters

3. Purpose—the yearning to do what we do in the service of something larger than ourselves2

As it turns out, “you can” is actually a better motivator than “you should.”

“Should-Mongering”

Sadly, no one is better at “should” than the financial establishment:

“You should be making more on your CD!”

“You should be earning more in your investments!”

“You should be better protecting your family from destitution with our life insurance!”

This fatal motivational flaw is not isolated to banks, brokerage firms, and insurance companies either. Here are a few direct quotes from some of the biggest names in financial self-help:

“You should have at least an eight-month emergency fund saved up.”

“You should never buy a new car unless you have a net worth of a million dollars.”

“You should never buy without waiting overnight.”

I’m not suggesting that any of these “shoulds” are inherently wrong (or right), but the rampant should-mongering in the financial landscape has simply not worked.

It hasn’t worked for the same reasons that more than 80 percent of the recommendations made by financial advisors are not implemented by those who sought the advice. It hasn’t worked for the same reasons that SMART goals aren’t effective for so many well-intended goal-setters.

The Problems with SMART Goals

The SMART goal-setting system requires that a goal must be Specific, Measurable, Attainable, Realistic, and Tangible to be valid. I have both subscribed to this regime and taught a similar version of it. The SMART system is the goal-setting standard, the rarely questioned convention.

But.

Despite its acronymic ring, it misses the mark.

Why? In short, it is unnecessarily restrictive. It limits our imagination, constricts our potential, and drains our inspiration.

Do you remember our brain dissection in chapter 1, differentiating between the rational, logical thinking brain and the instinctive, subconscious emotional brain? The emotional brain makes 90 percent of our decisions. Meanwhile, SMART goals are speaking only to our thinking brain, ignoring the emotional brain that’s so often driving the ship. SMART goals might tell us what to do and how to do it, but they scarcely address why and therefore don’t effectively motivate us to action. This is why New Year’s resolutions routinely fail and financial planning recommendations are not implemented. We’re talking to the wrong brain.

Jonathan Haidt, the author of The Happiness Hypothesis and professor at New York University Stern School of Business, has no such problem. He talks to both the Elephant and its Rider:

The mind is divided in many ways, but the division that really matters is between conscious/reasoned processes and automatic/implicit processes. These two parts are like a rider on the back of an elephant. The rider’s inability to control the elephant by force explains many puzzles about our mental life, particularly why we have such trouble with weakness of will. Learning how to train the elephant is the secret of self-improvement.3

Sound familiar? Yes, these two parts of the brain that Haidt describes as the Elephant and Rider are the same to which Kahler and Kahneman referred in chapter 1 as system one and system two. In Haidt’s example, the Elephant is the emotional brain (system one) and its Rider, the thinking brain (system two).

Why an elephant and not a horse—or donkey? Because this isn’t a political argument, it’s physiological. The emotional brain’s analogous size advantage over the Rider requires an animal as large as an elephant.

SMART goals assume that the Rider, the master, is the only party that matters, but Chip and Dan Heath dispute this in their book Switch: How to Change Things When Change Is Hard. They think the Elephant gets a bad rap. They write: “But what may surprise you is that the Elephant also has enormous strengths and that the Rider has crippling weaknesses.”4

“To make progress toward a goal,” the Heath brothers suggest, “requires the energy and drive of the Elephant. If you want to change things, you’ve got to appeal to both.”5

You’ve got to appeal to your Elephant.

Unconventional Goals

How, then, can we appeal to both the emotional and thinking brain—the Elephant and the Rider—in the context of goal setting and financial planning?

We begin by appealing to the motivational muscle in our duo, the emotional Elephant in the room, borrowing from Daniel Pink’s logic in Drive:

First, our goals must be autonomous—self-selected. We’re more likely to stay the course when we’re impelled from within rather than compelled by an outside force. This is not to suggest that willingly submitting ourselves to the accountability of an outside force is not beneficial. Doing so may even be an essential ingredient to successfully achieving our goals, but the decision to do so must be ours.

Next, our goals must be authentic—authentically ours—consistent with our individual gifts and proclivities. It must be something that we are capable of mastering. Successories motivational posters might want you to believe that you can achieve anything that your heart desires, but it’s simply not true.

I am five feet seven (and one-half) inches tall. I weigh 137 pounds (soaking wet). I have a modicum of athletic ability, but I’ve never been picked first when teams are made. Regardless of how much I may have wanted to believe that I could be a middle linebacker in the National Football League, regardless of how much I may have practiced, it was never going to happen. I was simply not endowed with the body or innate skill required to compete athletically at that level in that sport.

I am all for “reach” goals—even Jim Collins’s “Big Hairy Audacious Goals”—but we must have the baseline ability to master the tasks necessary to achieve the goal.

When we begin to master an activity that is self-selected, the Elephant and Rider begin to work surprisingly well together. The Elephant is satisfied because it’s doing what it wants to do, while the Rider is able to appreciate the positive outcome. The Rider begins to channel the Elephant’s brawn to even greater effect, creating a circular cycle of proficiency. Everybody’s happy.

fig045

Lastly, our newfound success really blossoms into satisfaction when we are driven by a purpose bigger than us, individually; when we are others-oriented. I could spend several paragraphs justifying this third-goal criterion with statistics and studies, but there’s no need—because you already know this, don’t you? We already know that we’re wired to do something meaningful with others, for others.

We already know that some of life’s greatest satisfaction comes from helping satisfy the needs of others.

Profit as Purpose?

You may not be aware that in the corporate realm there is an ideology insisting that profit is purpose. That a corporation can do no greater good for itself, its shareholders, and society than to profit, which presumably will create jobs, stimulate the economy, and build wealth.

This is precisely the willful, intellectual blindness that led to the financial crises of the late 2000s.

This is hogwash.

Profit is a good thing, but profit is not purpose. It’s purpose fuel.

There are also immense pragmatic benefits to expending our effort with and on behalf of others. First, affirmation from other collaborators on and beneficiaries of our work energizes the Elephant and boosts its endurance. And second, the skilled Rider solicits and receives constructive criticism, further refining the pair’s output.

As the circular collaboration between the Rider and the Elephant generates momentum for the self-selected goal, the others-centered orientation begins to add mass that builds and builds into a success snowball.

At this stage, we must not restrict our goal construction to the domain of dollars and cents. It may even be helpful to strip our goals of their direct financial implications to begin with.

The Danger Zone

We didn’t want to stifle the creativity of our emotional brain at the onset of this chapter with the rigidity of SMART criteria. We needed the freedom of autonomy to tap into our drive mechanism—our source of motivation—supported by our unique giftedness.

Now we can borrow some SMART characteristics to crystalize our values and priorities into actual goals. But be warned, this is a dangerous step. Fear sets in and threatens to bring a halt to the goal-setting process for two reasons:

1. We fear that we’ll fail.

2. We fear that we’ll succeed.

By specifying a goal, and especially by establishing a timeline, we generate a measuring stick that we might not live up to. We might just be setting ourselves up for failure. And fail we may.

Indeed,

you

will

fail.

Once you acknowledge that failure is a necessary by-product of goal setting, the fear of failure begins to lose its power. If your goal is self-selected, authentically yours, and others-oriented, failure actually becomes your guide. It helps inform your process and refine your strategy.

But just as powerful, if not more so, is the fear of success. How could this be true when the entire aim of goal setting is to engineer success? It can be summed up in one word:

Change

In order to achieve any goal, change is required. Then, if you achieve your goal, it’s altogether likely that your success will birth new changes. Consider the change required in the case of this single, unrefined goal: “Find my dream job.”

First, you’ll have to expend time and money to identify the job and then gain the education necessary to develop new skill sets. Then, you may have the pleasure of disappointing your current employer and co-workers when you deliver the news.

And that’s all before the big change—starting a new job and often taking a pay cut. Letting the family know that cell phone plans and cable television need to be trimmed. You might have to move, even downsize.

In most cases, the changes required to see goals through are sacrifices. Often they are sacrifices borne by folks other than you. The reward doesn’t come until after the sacrifice, and sometimes no externally apparent reward ever comes. But that is the worthy price of following your dreams.

Adventure

In 2013, my wife and I gave ourselves permission to consider a goal we’d previously deemed unthinkable—to pick up our family of four, leave a lifetime of family and friends in our beloved Baltimore, and move to a place where we knew no one—in search of a lower cost of living, a higher standard of living, and a more deliberate pace of life. We were going to go on an adventure.

Like many, this goal immediately turned into a project, a series of smaller goals, and actions to be taken:

· Research potential new areas, communities, schools, neighborhoods, churches.

· Determine feasibility of a satellite location with work.

· Leak our intentions to family.

· Schedule due diligence visits.

· Seek wise counsel.

· Decide.

· Announce plans to family and friends.

· Arrange move.

· And the hardest of all, leave our home, family, and friends.

It wasn’t until June of 2014 that we moved to Charleston, South Carolina, and the adventure has really just begun.

Pursuing goals is dangerous business. This is why most are content to live within the safe confines of statements that begin with the two words, “I wish.” But adventures begin with a simple yet challenging “I will.”

“I will ________________.”

It is with these two words that hopes and dreams evolve into reality—goals and plans. It’s entirely likely that you’ve begun to develop some goals as you’ve completed the exercises in this and previous chapters, but now it’s time to complete process and refine your goals.

The first three points get the Elephant on board, but now it’s time to let the Rider do his work. The Rider is much more amenable to the SMART process and borrows from it heavily.

Unconventional Goal Setting

Ensure that goals are …

1. Self-selected—yours, not someone else’s.

2. Authentic—consistent with your personal gifting and attributes.

3. Others-oriented—a cause that is bigger than you alone.

Now you’re ready to …

4. Articulate your goals, with as much specificity as possible.

5. Test your goals for attainability.

6. Confirm that the actions required don’t conflict with values or priorities.

7. Schedule next actions and/or establish habits.

By articulating your goal, you slay your fear of failure, success, and change. It can truly be a cathartic experience, whether verbally or in writing. As you affix your statement with a period at the end, you’re able to breathe deeply and acknowledge, “Well, that wasn’t so bad, was it?”

Specificity is your friend here, but we also must acknowledge that some goals lend themselves to specificity and measurability (and tangibility) more than others. Many goals grow in clarity as we progress in this process, so refine along the way.

Lastly, all of this ideation amounts to little unless it is realized in the form of action. If your goal is to make a peanut butter, jelly, and banana sandwich, the chances are good that you’ll be able to lay out a sequence of steps to achieve it. But for many of life’s goals, future actions may be dictated, or at least informed, by the results of previous actions.

This is where I find productivity guru David Allen’s Getting Things Done (GTD) methodology especially helpful. In GTD terminology, a goal is likely a “project.” Many “actions,” or tasks, are required to complete it. While most productivity systems compel you to adopt a detailed ranking system—think A, B, Cs and 1, 2, 3s—Allen finds that effort superfluous, if not counterproductive. He recommends simply glancing at the list of actions and deciding which one should be your “next action.” This not only simplifies and streamlines the process, but it also gives you a regular infusion of Elephant-inspiring autonomy.

This is important because we are entirely capable of creating a system—even of our own volition—that ultimately becomes a force against which we, ourselves, will rebel. If the Rider gets too demanding, the Elephant may veer off course or collapse from exhaustion.

Show Me the Money

You may have noticed that we haven’t touched on money much at all yet. That’s because, as I mentioned in the introduction, personal finance is a great deal more personal than it is finance.

Most of our goals aren’t financial goals anyway—they’re life goals with financial implications. But if you’d like to see this unconventional process at work in the context of a conventional personal financial goal, here’s a great example:

“I want to retire” is a dream held by many, but it’s not a goal yet. First, let’s solicit the Elephant’s motivational might. Why do you want to retire?

“I’ve devoted the majority of my adult waking hours to a job that pays well but that I don’t particularly enjoy. I’m not running from work, but I’d rather devote more of my time to my family, travel, and causes that I’m passionate about.”

Self-selected—check. Authentic—check. Others-oriented—check.

Okay, now we’re getting somewhere. But we need to articulate the goal with more precision:

“I want to retire comfortably in fifteen years,” brings some much-needed specificity to this dream.

“I want to retire in fifteen years and generate $75,000 per year without earned income,” introduces some hard numbers that now allow us to measure our progress.

But here comes the moment of truth—the attainability test. Without knowing where you stand today, and what you will be able to save over the next fifteen years, there is no way to tell if your fledgling goal is attainable. For instance, if you were hoping to generate 100 percent of your income without the aid of a corporate pension or Social Security retirement benefit, you’d want approximately $1,875,000 in your retirement savings to reasonably anticipate generating $75,000 in income per year with any chance of outpacing inflation.

Therefore, if you’re fifty years old and you already have $700,000 in savings, and the ability to save an additional $20,000 per year for the next fifteen years, your goal should pass the attainability test. That’s assuming you’re able to earn an average of at least 5 percent per year on your investments.

“I want to retire in fifteen years and generate a minimum of $75,000 per year from my retirement savings, which should reach more than $2 million by earning an average 5 percent rate of return on my $700,000 nest egg plus an additional $20,000 of savings per year.”

That works. That’s a goal.

But what if saving $20,000 per year became a hardship? What if it would mean working substantially more, or picking up side jobs just as you’d committed to attending all of your daughter’s college lacrosse games? In this case, the retirement goal may conflict with the value of being present for your family.

Goals should not compromise our values or rearrange our priorities.

If we don’t hold to this standard, we are likely to suffer in one of at least two ways. Either we fall short on our goals because we lack the conviction or we allow our values to be compromised.

This final criterion is extremely helpful when making especially difficult decisions. We simply can’t do it all—and we certainly can’t do it all right now. Grounding our goals on the foundation of our values helps us discern what goals to go after and when, and what goals we can rule out.

Habits and Next Actions

Of course, your work has only just begun once you’ve established goals that meet the necessary criteria. How, then, do you move forward? It is through establishing habits and identifying “next actions.”

First, let’s recall the fully-formed goal:

“I want to retire in fifteen years and generate a minimum $75,000 per year from my retirement savings that should reach over $2 million by earning an average 5 percent rate of return on my $700,000 nest egg plus an additional $20,000 of savings per year.”

The habit required to meet this goal is saving $20,000 per year. But where and how? That’s where next actions come in. If you get a match to your 401(k) contributions at work, it’s likely best to use that receptacle as your primary savings vehicle. If not, and depending on your tax bracket, it may make sense to use a combination of your 401(k) and your Roth IRA. (More on those in chap. 11 on retirement.)

Your actions, therefore, may be to do the following:

1. Increase the automatic monthly 401(k) contributions to 6 percent of salary.

2. Open a Roth IRA account.

3. Establish an automatic Roth contribution of $300 per month from checking account.

Your next action: “Go online to increase 401(k) contribution to 6 percent of salary.”

“Next action” is a term made popular by GTD-guy David Allen, who differentiates between the majority of ambiguous to-do list items and optimal next actions: “The Next Action definition (if you’re really getting down to having no ambiguity about the next visible physical activity required to move something forward), actually finishes the thinking you’ve implicitly agreed with yourself that you’ll do.”6

Therefore, the word retirement written down as a bullet on a legal pad is not a next action. Even “increase retirement savings” falls short. Allen pledges that we’ll preserve more available space in our brains by putting as much information as is necessary in our stated to-dos. “Go online to increase 401(k) contribution to 6 percent of salary” should pass GTD scrutiny and ultimately save you time.

Here’s what your goal might look like now on paper:

fig054

Simple Money Journal Entry

Compound what you’ve learned in this chapter by writing out a fully articulated goal or two.

Thanks to the tangible nature of this retirement goal, you will be able to assess whether or not you’re on track over the next fifteen years. The biggest challenge will be to navigate the temperamental nature of the financial markets.

This is not an uncommon phenomenon in goal setting and management, however. In many, if not most, examples, there are forces upon which our success is determinant. Some of these forces are within our control, others we have no power over. Our job is to control what we can and adjust to what we can’t.

Of course, while we lack control over many elements of investing, we can exert control over some, a task that we tackle in depth in chapter 9 on investing.

But what do we do when a goal is especially lofty—seemingly out of reach, even?

1. Break it down into subgoals.

2. Generate next actions that are within our control.

3. Establish habits that can lead to future success.

Your Plan

This entire chapter—frankly, the entire book—is guidance, not ideology. My “system” is really a synthesis of thoughts designed to help you create your own plan. I am your advisor—you’re the boss.

You are autonomous, the master of your own domain, and brimming with purpose, fully capable of creating goals that are self-selected, authentically yours, and designed to put your personal and financial resources to work serving others on the road to Enough.

Simple Money Goals Summary

1. Goals are our values in motion, unambiguous dreams. The SMART goal-setting system—suggesting goals should be specific, measurable, attainable, realistic, and tangible—is a valuable resource, but fundamentally flawed.

2. The carrot-and-stick motivational methodology has been proven not to work—but we’re still using it. In his book Drive, Daniel Pink introduces us to a better way to motivate, through the tools of autonomy, mastery, and purpose. As it turns out, “you can” is a better motivator than “you should.”

3. Our goals must appeal both to the Elephant and its Rider. The Elephant represents our emotional brain and is responsible for making 90 percent of our financial decisions. The Rider represents our rational, thinking brain. We need to enlist both of them in order to give us a chance to achieve our goals.

4. As we move from brainstorming about goals to actually creating them, two barriers rise before us: the fear of failure and, surprisingly, the fear of success. Fortunately, failure is a necessary by-product of goal setting. And it’s not really success that we fear but the change it brings.

5. Unconventional goal setting satisfies the Elephant and then directs the Rider.