Outside the Box: Admit it, your finances are a mess. These experts know how to fix them

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In an honest moment, you’d admit that you could improve your money management skills. You just need some guidance.

So let’s pull back the curtain to examine what the experts do in the privacy of their own home to save and spend wisely.

Here’s a hint: They reject impulsivity (no rushing into time-sensitive “order now and get a free gift” offers!). They engage in open communication with family members (no hiding their extravagant purchases!). And they set sensible ground rules (no draconian spending limits!).

Who are these experts? They are masters of a relatively new field of study called behavioral finance. Because they understand the role that psychology plays in our financial decisions, they possess a heightened awareness of how irrationality leads us astray.

For Daniel Crosby, smart spending revolves around calm contemplation. When weighing whether to make a big purchase, Crosby presses the mental pause button.

“I’ll wait a few days and then ask myself if I’m still thinking about it,” said Crosby, chief behavioral officer at Brinker Capital in Atlanta. “I sleep on it for a few days or weeks to see if it’s a passing emotional impulse.”

Reflecting on whether to go through with a significant purchase works well, Crosby says, because you can “sit with the idea in times you’re happy and sad.” Gauging your attitude about the potential transaction as you live your everyday life—and experience a normal range of emotions—helps you place the purchase in a broader context.

If you know that certain types of spending buy you a high level of contentedness, it makes sense to assess whether a potential purchase will bring you a commensurate amount of short- and long-term happiness.

Author of “The Laws of Wealth,” Crosby vets purchases to consider the extent to which he’ll come away happy. For example, he’s more apt to fork over lots of money if it buys him more time with loved ones or a meaningful experience such as a vacation.

“Buying a big car or house might seem novel at first, but it can lose its novelty over time,” he said. “Whereas the novelty of travel tends to linger.”

In terms of household budgeting, Crosby admits that he and his wife skip the hassle of micromanaging how they spend and what they spend it on. Instead, they set aggressive annual savings goals.

“Once those goals are met, and we save maybe 50% or 60% of our take-home income, then we spend freely for the rest of that year,” he said. “We dislike budgeting and all the time it takes.”

If you have children at home, smart money management can become a family affair. Financial experts involve their kids in spending decisions and educate them along the way.

Michael Liersch holds family meetings almost every weekend; his wife and 10-year-old daughter attend. For 30 minutes, the trio discusses family finances in a wide-ranging conversation.

“We’re sharing information on what’s working and not working from a saving and spending standpoint,” said Liersch, global head of wealth planning and advice at J.P. Morgan Private Bank in New York. “There’s an agenda so the discussions are very focused. And we take notes.”

Each meeting begins with what Liersch, a behavioral scientist, calls a “gratitude circle.” Each participant answers the question, “What am I grateful for?”

“We start from a place of appreciation,” said Liersch, host of the “My Next Move” podcast. “From there, we focus on a specific money decision,” either an upcoming expenditure such as a planned family vacation or an analysis of past spending behavior.

The session concludes with next steps as the group decides who’s doing what. That way, family members are accountable for follow through.

“These meetings are a way to talk about our values as a family and what’s important to us,” he said. “And my daughter can see that we trust her with private information” and encourage her to open up about money issues.

Behavioral finance experts harness the power of frank communication, especially with their spouse. Before plunging into a big purchase, it pays to talk it out with a supportive (or at least levelheaded) mate.

Pioneering economist Hersh Shefrin says that he and his wife “always talk about the relative importance of a particular item to each of us” before committing to a large cash outlay. That lowers the odds of unwelcome surprises or stewing resentments.

“Each of us has veto power if we think there’s an unfair balance in the way that we spend,” said Shefrin, author of “Beyond Greed and Fear.”

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