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Financial Planning Insights

How Our Brains Sabotage Our Financial Planning – And What to Do about It

By Joe Maier | Johnson Financial Group

6 minute read time

A well‐constructed, thoughtful financial plan is a critical tool in maximizing your happiness. Done well, a financial plan answers three critical questions:

  • What makes me happy?
  • What am I willing to do about that (what am I going to do to maximize my happiness)?
  • What is it going to cost?

While financial planning never feels that simple, at its heart, in its soul, that is what it is: A strategy to maximize happiness. And like all good strategies, a well‐designed financial plan deals with both the short term and the long term. To execute the plan well, your goals need to be balanced. Stated another way, maximizing total happiness might mean making some short‐term sacrifices to achieve long term goals. While none of us loves the idea of sacrifice, we understand the need to give up happiness now to get more later. We may assume that the decision to sacrifice is made in the thinking portion of the brain. But it is not.

How Decisions Are Made

Neuroscience and neuropsychology have developed profoundly in recent years. Based on technology that can show which portions of the brain light up at certain times and in certain situations, scientists now have a much deeper understanding of which portions of our brains perform different tasks. And, in a finding that is surprising to many researchers, it is the emotional part of our brain, known as the limbic brain, that is at the center of decision making.

And that is the crux of the problem. The limbic brain has some consistent challenges that must be understood. For example, it cannot understand the concept of delayed gratification. And it cannot conceptualize words and numbers – it needs visual cues and tangible emotional imagery (mental pictures and narratives) to inform its decisions. Finally, this portion of the brain suffers a loss much more acutely than it celebrates an economically equivalent gain.

Can we become intelligent, long‐term savers and maximize our lifetime happiness if our brains are conspiring against us? Yes – however, several crucial components come into play.

First, Seek to Understand

Understanding how the brain works allows us to override its destructive potential. When we are looking at buying our fourth 4K television for the house, we understand that our desire to spend money on something we do not need as opposed to funding our Roth IRA is neurological. We understand that the portion of our brain making that unwise tradeoff cannot conceptualize the future loss of the unfunded Roth but feels the visceral pain of not having the 4K television in the sunroom. And all of the charts, spreadsheets and graphs constructed to prove the folly of that decision do not resonate; the limbic brain does not care.

Then, Seek Outside Counsel

Understanding is the first step; solving the problem is the next. Fortunately, neuropsychology offers critical insights that can assist us in building and executing plans that will maximize our happiness, both short term and long term. First, what neuroscience makes very clear is the absolute necessity for outside planning help. Can artificial intelligence do all of the analysis and number crunching that the best financial planner can do? Without question. But can a computer have a thoughtful, meaningful, impactful conversation about future happiness and loss? No chance. Just as a personal trainer can impact our physical health and therapists can impact our behavioral health, financial planners have a clear and measurable impact on our financial health.

Develop a Happiness Manifesto

Outside help, while critical, is insufficient. Plans need to incorporate what is known about the limbic brain to overcome challenges and increase the possibility of long‐term financial wellness. For example, we know that the limbic brain is emotional; it is driven primarily by the spectrums of happiness and fear. Therefore, a financial plan needs to connect to these emotions. And while fear is proven to be the more powerful motivator, it should be used with caution. After all, it is hard to be motivated to take action over the long term when the inducement is the most negative emotion possible.

A great plan focuses first on what makes us happy, both now and in the future. In fact, a powerful planning tool includes a happiness manifesto. “These three things make me the most happy, and I am at my happiest when I am doing them.” The plan then focuses not on investment performance or benchmarks, but rather current and future happiness consistent with the manifesto. “Is the plan designed to allow me to do those three things now and in the future?” “Am I saving enough to continue to be happy?” “Are my investments performing like they need to for me to continue to do these three things?” If the answer to any of these questions is no, what needs to change?

Compose a Vision Statement

While outside help, accountability and a happiness‐based focus are critical for success, yet another critical component exists. Again, it is important to remember that our limbic brains are incapable of understanding the concept of future. So an invaluable part of any future‐focused strategy, including a financial plan, is a vision statement. In a financial planning context, a vision statement is a narrative of what will happen in the future written in the present tense. For example, a vision statement may begin, “It is July 1, 2040 . . .” and then describe, in current terms, the future state of you and your family. The vision would then go on to describe what you are doing at that time to maximize happiness consistent with the manifesto. Vision statements, when used wisely, are a powerful strategic planning tool. Experts have historically felt that the reason for their success has to do primarily with a commitment to one's self found in that statement. Neuroscience has added to our understanding of the power of a well‐constructed vision statement. The present tense narrative tricks the limbic brain into equalizing the happiness of the future with current happiness. Doing so allows us to make intelligent tradeoffs without the limbic brain over‐discounting future happiness. A vision statement also speaks to the limbic brain. The portion of the brain that could not care less about facts, figures and numbers happens to thrive on emotional imagery. A great vision statement feeds the limbic brain by painting a compelling picture of happiness. The more compelling and clear the picture, the more impact it has as a critical planning tool. It allows us to smell the ocean at our future beach house.

Neuropsychology has helped us understand why so many of us fail in creating and executing financial plans designed to give us a lifetime of happiness. Now that we understand how our brains work, and at times conspire against us, we know what we need to do. We need to seek outside assistance – partners who will help us capture, and then hold us accountable to, our wishes, hopes and dreams. They can help us define, through a compelling and rich vision, what makes us happy now and in the future. That well‐defined and well‐articulated vision can help us overcome the emotional whims, challenges and barriers of our limbic brains. It is up to all of us to build the trusted team that will help us realize the happiness, current and future, that we want and deserve.


Joe Maier

Joe Maier

SVP Director Wealth Strategy JD, CPA | Johnson Financial Group

Joe has extensive experience helping high‐net worth individuals, family offices, business owners and corporate executives meet their wealth and legacy goals. His areas of specific interest and skill include business succession planning, financial and estate planning, and wealth transfer strategies.

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