Some years ago, I read about how a pair of Mahatma Gandhi’s glasses were sold at auction for $340,000. While I don’t have an opinion as to whether or not that’s the correct price for his actual glasses, the value of his perspective is priceless.
I love this as a metaphor for the importance of looking at something from someone else’s perspective. That other person doesn’t need to be Gandhi. There’s value in trying to figure out why our partner looks at things the way they do.
Specifically, why they view certain financial matters the way they do. This exercise is designed to help you do exactly that.
Why do this?
Being narrow minded in your thinking is more costly than simply being perceived as stubborn.
You can also pay an opportunity cost.
For example, if you put off investing in your 401(k) plan at work for 10 years because you think it’s a scam, you would have paid dearly.
Start saving at age 35
- Saving $10,000 a year
- You’d have accumulated $1,140,396 at 65
Start saving at age 45
- Saving $10,000 a year
- You’d have accumulated $443,942 at 65
10 years can make a massive difference.
As the saying goes, the best time to plant a tree was 30 years ago. The next best time is today.
We all have biases and blind-spots. The more we can search for and recognize them, the faster we can avoid and get past them.
Here’s what we’ll cover:
- First principles thinking
- Recognize existing assumptions
- Rethink those assumptions
- A practical framework
Let’s get started.
First principles thinking
When Elon Musk decides to disrupt an industry or create a new one, he uses first principles thinking.
A first principle is a basic proposition or assumption that cannot be deduced from any other proposition or assumption. It’s what is true.
Here are some examples of first principles for personal finance and money:
- Spend less than you make
- Don’t run out of money
- Maximize your income
- Pay yourself first
- Play for emergencies/stay insured
- Build your credit
- Save for retirement
- Risks requires a reward
- Money has time value
- Market prices are generally right
- Don’t borrow what you can’t repay
The more we can keep the truth in mind, the better. These principles can serve as guidelines for making financial decisions.
Recognize existing assumptions
We all have and live under certain assumptions and certain systems. They’re all around us.
How we educate our kids. Our five-day work week. The ways we police our communities. Those are three major assumptions and systems which have been called into question as of late.
Many come from our parents, where we grew up, and our lived experiences.
While the purpose of this exercise is to challenge your assumptions around money and finance, I encourage you to think about other aspects of life as well.
Rethink those assumptions
What if the opposite of what you believe is actually true?
It’s a powerful question.
Roughly speaking, half the Country votes Democrat and half votes Republican.
You have the opposite belief from your partner on certain issues. It’s an invaluable question to ask yourself.
Being open-minded is more important today than it’s ever been. Keep in mind that there are three sides to every story (your version, their version and the truth) and three sides to every coin (heads, tails and the side).
Steelperson your partner’s position. The idea behind this is to help one’s opponent construct the strongest form of their argument. Put yourself in your partner’s shoes and think about how to strengthen their position.
A practical framework
Now it’s time to put everything together. I’ll share the framework, an example of how to use it, and then a list of topics to put through the framework.
Step one: Begin with your belief/assumption.
Step two: Challenge the assumption.
Step three: Steelperson the opposing position.
Step one: Bitcoin is a great investment.
Step two: Bitcoin is a very risky and speculative investment.
Step three: One Bitcoin could go to $1,000,000 in value, but it could also go to $0 in value. You shouldn’t have more than 5% of your net worth in any one investment or cryptocurrency. It is a wise decision to learn more about Bitcoin so you can be more educated and comfortable investing in it.
Step one: We should have three months of expenses as our emergency fund.
Step two: We should have six months of expenses as our emergency fund.
Step three: Six months worth of expenses provides enough financial cushion to withstand most any kind of emergency. It will take time to accumulate, but the peace of mind we’ll have will be worth it. Once we have six months saved up, we’ll have the confidence to make more aggressive investments with our other money.
Here are the topics I suggest you put through the framework:
Investing in real estate
Investing in the stock market
Investing in crypto currency
Investing in precious metals
Passive investing (index investing)
Working with professional advisors
Think about points of contention between you and your partner (or potential future points of contention) and put them through this framework. The idea is to help you better understand where they’re coming from. That way, you’ll be able to have a constructive conversation and hopefully move forward together.
The more empathetic we can be with our partners, the better.
Being able to challenge our own assumptions, and to look at things from our partner’s perspective, the greater our chances of getting on the same page.
After going through this exercise, you’ll be ready to have a fruitful conversation with your partner.
If you’d like to dig deeper into this, you can have a no-cost conversation with one of our Certified Coaches.
You can also join one of our two-week online Sprints to help you get on the same page with your partner.
Finally, check out the LifeBlood podcast.
Let us know how we can help you on your path to financial success!
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