Fixing Your Broken Financial Behavior w/ Dan Egan #911

22 snips

Nov 27, 2024

Dan Egan, Director of Behavioral Finance at Betterment, shares key insights on the psychology behind financial decisions. He explains why despite simple wealth-building principles, many still struggle to become millionaires. Egan emphasizes the dual role of behavioral science in managing temptations and setting achievable financial goals. The conversation also touches on the impact of technology in personal finance and the balance between rational investment strategies and emotional insights. A refreshing discussion on ‘Coast Fire’ and practical budgeting tips rounds out the chat.

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INSIGHT

Prospect Theory

Our financial decisions are relative to our current situation, not just absolute amounts.
We take more risks to avoid losses than to achieve gains, influencing our investment choices.

ADVICE

Fixing Biases

Acknowledge your flawed financial behaviors and set up systems to change them.
Create external tools and accountability to overcome bad money habits.

ANECDOTE

Performance Reports

A German brokerage study showed that sending performance reports led to better investment decisions.
However, the brokerage stopped because clients traded less, reducing their profits.

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Why aren’t there more millionaires? The basic formula is straightforward: spend less than you earn and invest the surplus in low-cost, diversified index funds. It’s not an exaggeration to say that if you stick to these simple steps, you could be sitting on millions by the time you retire. It’s truly that simple – but simplicity doesn’t always mean it’s easy. As it turns out, the biggest obstacle to building wealth isn’t external factors, it’s us. We are often our own worst enemies when it comes to achieving financial success – or any other goals in life. To help us unpack this idea, we’re joined by behavioral scientist Dan Egan. Dan is the Director of Behavioral Finance and Investing at Betterment, and today we’ll dive into how human psychology shapes our financial decisions, the first steps to correcting money mistakes, the power of setting meaningful goals, managing expectations, and much more!

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