I’ve seen people with various kinds of behaviors when it comes to financial planning. I find it strange. Perhaps it is not strange. Perhaps it is just their history and their experiences in life that make them behave in a certain fashion. I have seen people living in the moment and not worrying about the future and I have seen people with a lot of assets who could have retired 10 years ago, but wouldn’t. The worst part is that they still worry and stress out about losing their job. I am like, – “Dude, if you lose your job, that is the best thing to happen in your life. You can enjoy all the super huge assets that you have saved up”. Crazy world I tell you or perhaps crazy me (more likely).


What I am about to write are all true stories from the lives of different people I met over the years since my retirement. Please don’t take offense if any of those stories feel related to you. I don’t mean to belittle any one nor am I judging. These are just my observations. Some people behave a certain way when it comes to finances.


Let’s start with this family, who by all accounts, appear to be upper middle class folks. They live in a moderately expensive apartment in a moderately expensive neighborhood. You would think they are earning enough to be spending on the things they own. Perhaps they have a plan for their kids expenses such as their higher education and marriage etc. You might be pardoned to think they might have a decent if not great a retirement plan in their 60s or so. Wrong!


They are actually living in the moment. Their savings are zero. In fact the saving is a negative number because they have a bunch of loans. There is absolutely no plan for any medical emergencies or to put the children through college. So forget about their retirement plan. Their car is on loan. They don’t own a house and they live pay check to pay check quite literally. Since they are freelancers, their income is also not constant month on month and in spite of that, they don’t have any savings.


When I asked them what they do if in a month, the income is lower than expenses. Their simple answer was they would borrow from the bank as personal loan or overdraft (OD) which they actually did. Then I asked what they would do if they maxed their ODs and loans. Their answer was that they would borrow from their parents which they did. Then I asked what they would do if their parents passed away. They were like, well we will move to a cheaper place and live on lower expenses.


I can tell you from my personal experience and from the experience of some of my friends that going up the lifestyle is easier, but bringing your lifestyle down is very painful even for adults. But think about the kids? They are so used to a certain lifestyle, maid and cook, expensive outside food and spending with friends. How can they tell the kids to cut down the expenses all of a sudden? I was also a little taken back when I heard that they borrow from parents instead of paying for their expenses. But again, I cannot judge people because they may have their own circumstances which I don’t know.


On the other extreme, I know people who have amassed incredible amount of wealth, but they choose to continue to work and can’t imagine slowing down, let alone retire early. I don’t understand them either. There is this family who have a goal to purchase a property (real estate) every 3 years. They are a dual income family and all they can think of is accumulating properties. Just imagine how many properties they must have accumulated by now if they worked for 30 years?


Forget the appreciation of the prices, just the rent alone can take care of their living needs. Yet they are busy working like crazy and not knowing when they would enjoy the fruit of their labor. Again, I don’t know their specific situation. May be they like to work. Or perhaps they did not have anything when they were young and want to give all the money to their kid.


Then there are others who don’t like risk at all. One cannot say they don’t want risk. There is risk every where. They worry about what a safe withdrawal rate should be. There is risk with any kind of withdrawal rate you can think of, especially for early retirement. For someone, a 4% withdrawal rate is safe. For someone else it may be 3%. If you look at history of Japan’s stock market you might think 2% is better. But you can’t live in the past, yet you don’t know the future. So it is possible that one can image a future in which the only safe withdrawal rate is 1%. Who knows? In fact the only true safe withdrawal rate is 0%, which means they have to work until they drop dead :). Again, I don’t know what kind of situation they are in. Perhaps they saw a lot of risk in their life and don’t want to see a repeat of that in their future. I don’t know.


Then I have observed people who obsess over returns above all else. They worry about perfect time to invest, the perfect time to sell, the best mutual fund, or the best bank or the best investment vehicle, the best asset allocation and so on. I am a bit of an OCD myself, so I can sort of understand their worry, but you cannot make decisions if absolute perfection is what you want.


There is excellent advice for all kinds of people (including me) in Darius Foroux’s blog post 7 Money Mistakes That Prevent Smart People Getting Rich. I would strongly suggest everyone to read that post. It has amazing wisdom. Here are some snippets from that article to get you started.

  • If you borrow money, you have to pay it back with interest, which means you pay back more than you borrowed.
  • You probably won’t be able to always make money by working. We all get sick or injured. And most of us can’t work until old age. So think about your future earnings.
  • Keep your spending under control. If you structurally spend less than you earn, you build wealth.
  • There’s a lot of herd behavior in society as well. Think of buying cars, clothes, accessories, or going on vacations. We tend to want what others want.
  • If it worked in the past, it will work again.”. Maybe. But it’s not a guarantee.
  • This bias can lead to irrational behavior, such as trying too hard to make money. That can lead to taking excessive risks or becoming overly risk-averse.
  • Some people may be more likely to splurge a tax refund on luxury items rather than saving or paying off debt. Simply because they see it as “extra” money.
  • Loss aversion is the tendency to prefer avoiding losses over acquiring equivalent gains.
  • It’s easy to cherry-pick positive arguments for any investment.