Talk to yourself about money

I was at a conference where the speaker posed the question, “Do you talk to yourself?”

My immediate reaction was, “I don’t talk to myself.” So maybe I do. But talking to yourself is a useful way to explore how you are making financial decisions.

One of our clients reminded me of a conversation we had years ago when he owned a large position in a speculative company. The company had done very well, and he was exploring how much, if any, to sell. We talked through the various pluses and minuses, including what he would do with some of the proceeds. Finally, I asked him whether he would feel worse if he sold the stock, and it doubled or if he didn’t sell it, and it dropped in half.

He went home and thought about it, probably having an interesting conversation with himself, and sold most of it. As he recounted the meeting, he told me how helpful that question was for him. I thanked him and asked him what happened with the stock. It eventually doubled. But he had used the original stock to make significant charitable and family gifts.

So he was less focused on what could have been and more tuned to his lack of regret about a decision that could have turned out better financially, but would have caused a lot of ongoing emotional consternation.

Another client owned a valuable piece of one-of-a-kind real estate. Its value had grown disproportionately, so it represented a huge portion of their balance sheet. They also had significant carrying costs for a property they could not regularly use. They knew they could not replace the asset. The question to ask was, “If you didn’t own it, would you buy it?”

This question explored two areas: the feelings around what the property represented, even though the future would look different, and the opportunity costs of what else they could have been doing with the money. The endowment effect is when we have a hard time selling something that we wouldn’t actually buy today. Talking through this with yourself might lead to a different decision than the status quo.

Another client is a car nut. He had his eye on a particular type of car for years, scouring the collector pages for his dream. He finally was in the right place to buy it. And now he is too nervous to drive it.

The question to ask yourself is, “Should you buy something that is too nice to use?” If the car was a piece of art, you might enjoy just looking at it. Maybe the answer is yes, then. But if your imagined long country drives are limited to backing it out of the garage, then you might conclude differently.

Another question to ask yourself is, “Will I be better off having the money or having the experience?” This is certainly an easier question to answer if you have disposable income, but it is good to consider nonetheless.

The question should also not be an excuse to try things you legitimately can’t afford. But we often see clients who end up limiting themselves because of some artificial rules they have created.

One of our clients was considering taking their adult child to a major sporting event that was going to cost an unreasonable amount of money. He ended up going, and 10 years later, they are still talking about what an amazing time they had. Clinging too tightly to your money to protect yourself from what might never happen can be as limiting as having money mindlessly slip through your fingers.