Your Biggest Enemy (3): Common Psychological Traps to Avoid

In the last part of the series, we will go over the common psychological traps that we will face everyday in our journey to success. When you understand these common human phenomenons, you will be more likely able to bring the little voice into the conscious field and have a good fight.

Cognitive Dissonance

Simply put, cognitive dissonance is the discomfort a person feels if there is a difference between the person's beliefs and his/her actions. For example, back in the days in World War II in Nazi Germany, you would have people who are good in nature performing massacres on others. These people experienced a lot of cognitive dissonance. The most important thing about cognitive dissonance is that, when there is cognitive dissonance and the dissonance is left un-touch, eventually the ACTION would overwhelm the mind and change the beliefs of the person. In the example of people in Nazi German, as they continue to do what they were ordered to do (they continue to perform evil deeds even though they are good people), they eventually adopted the evil beliefs and become people of evil nature.

If you understand how cognitive dissonance works, you would understand the importance of actions. It shows that we can change our mind by taking actions! Sometimes your mind might not be completely prepared and you may not feel comfortable in doing something, but do it! If you do it enough, your action will eventually change your mindset. On the other hand, if you just have a good idea in your mind, but you don't take any action, your lack of action would eventually turn your good idea into null. Talk is cheap, thoughts are nothing. ACTION is everything!

Parkinson's Law

Parkinson's Law I: Work expands to meet the envelope of time allows.

I also like to call this "the law of procrastination". This law states that, a person would expand the time needed to finish a task to use up the maximum allowable time. For instance, if there is a task that you are assigned to finish in 3 days, you will probably have the work done by the end of the third day. Now, if you are given 30 days to do the same work instead, surprise surprise! Your task will be very likely to get done by the end of the 30th day!

The sad reality is that, not only does our school fails in teaching people in managing their money, it also fails big time in teaching people in managing their time. Of course, many people may argue that this is not true, as tasks from school often include a deadline. Meeting a deadline requires using your time wisely, so how could I say school fails to teach people time management? Though I do agree that being able to meet deadline is an important skill, but by Parkinson's Law II, we can see that there is a even more important skill: It is the skill of GIVING YOURSELF A DEADLINE. For many important things in life, there is no deadline given to you and you must give yourself a deadline. For example, financial education is extremely important, but would anyone tell you you have to finish something by a certain time? No, you have to define your own deadline. If you don't have time, you will just slack off and never achieve anything, since your envelope of time in this case is infinity.

Parkinson's Law II: Expense rises to equal income

It is indeed easy to spend money. Human desire is unlimited. It is really astonishing how the government claims that they need to provide a "stimulus" to "stimulate consumption". If people are not consuming, there is a reason for it... anyway, this is a side issue best discussed at another article.

It is human nature to want to spend more when income rises. Some people may even spend so much that their expense gets above their income level. Just look at the saving rate of developed nations and you will have a clue. This is the reason you may know doctors or other high-income professionals who may be earning over a million dollar annually, but still need to work and pay off their mortgage at age of 70+. 

We must understand that expense and liabilities will hinder our path to financial freedom. It is WEALTH that we need to concentrate on, not just income. Failing to understand Parkinson's Law II would easily make you a high-income person who goes broke.


Parkinson's Law III: A luxury, once enjoyed, becomes necessity

This law goes hand-in-hand with Parkinson's Law II. It explains why it is so difficult for people to lower expenses once they allow themselves to fall into the trap of Parkinson's Law II. This is, by no means, encouraging you to live under your means. Instead, you should expand your mean before you start enjoying a luxury. For example, you should create or acquire an income generating asset, before engaging in acquiring a luxurious liability.

If you understand Parkinson's Laws and are able to overcome these psychological traps, you are already way ahead of the financial game, as overcoming these traps require a great level of financial intelligence.


Normalcy Bias

Simply put, normalcy bias is the phenomenon that people tend to disregard things that are not "normal". Human beings have a tendency to only accept information that are within their own understanding and will reject things as impossible if they are beyond the mind's comprehension. This is especially the case when there is a disaster, where people could not imagine a disaster could hit, and end up costing their lives (the Southeast Asian Tsunami was a good example. A lot of people did not leave the shore and watch the tsunami came in as if nothing had happened).

Normalcy bias contributes to our lack of actions and gives us a false sense of security that everything is fine and dandy and there is no urgency to take actions. The best way to overcome normalcy bias is to expand your mind's context and content. Once you learned more, you would find that a lot of things that seem impossible to happen are really just history repeating itself in a different form. Once you learned more, what seemed impossible and abnormal before would become normal, and you will no longer ignore these events and won't become a victim of your normalcy bias.


Arrival Syndrome

This is a psychological trap related to the normalcy bias. It describes the phenomenon of people believing that they are perfect as they are. People generally think they are good as they currently are, that they "have arrived" at their goal already. We often see these kind of people. When you ask people, say, what kind of life style they want to live, or when they want to retire, they will tell you they want as much as possible and want to be financially free as early as possible. However, when you start to talk to them more about it, they would immediately tell you how happy they are with their own life, how awesome it is to work on something that they will never own and cannot sell (a.k.a. a job), and get to have 15 days of vacation each year.

Again, the Arrival Syndrome causes us to stand still and not make necessary changes or take necessary actions. A burning desire is a must in order to overcome the arrival syndrome.


Sun Tzu said, "know your enemy and yourself, and you will never fear a hundred battles."
In the path to financial freedom, on top of knowing the different skills needed to play the financial games, it is just as important to know yourself. You are indeed your biggest enemy that you must overcome.

Your Biggest Enemy (2): The Success Cycle and the Subconscious Battle

In part one of this series we went over the importance of overcoming the little voice in your head in order to be successful. In this article, we will go over the success cycle, and how the "little voice" plays an important in our journey to success.

The Success Cycle is really a simple system:

Beliefs: No matter what you want to do, you first start with some beliefs. For example, you may want to make some real estate investments in a new neighborhood, and you believe that residential real estates would do very well in this neighborhood. This belief would be the very beginning of your success in real estate investment.

Potential: Once you form a belief, you will go out and verify your belief. If your belief is verified, you see the opportunity/potential for your success.

Actions: Once a potential is identified, you take actions to realize the potential.

Results: Your actions generate results. If the result is good, it will strengthen your original beliefs and make the whole success cycle goes smoother the next time around. If the result is bad, it will help you tweak your original beliefs and makes the success cycle better the next time around.

Now, all these sound like simple concepts that any grown-ups would understand. Success breeds success, and failure paves the way for success. This is conventional wisdom. However, there is a catch in this success cycle, and the catch lies between potential and action. Between potential and action, there is a barrier to jump over. This is the time that the little voice in your head (the subconscious) starts to give negative comments, like "I will do it tomorrow", "this is too risky", "I am perfectly good as is" starts kicking in. For most people, this is where their success cycle stops flowing. Once the success cycle is stopped, so does the success.

As you can see, there is nothing stopping you from doing something except your own thoughts. You are indeed the biggest enemy to your success. Therefore, the most important question is, how can we overcome this psychological barrier?

Since the enemy is yourself, there is really no single formula as something that works for a person might not work for another. However, I can share what I did and I have found useful to overcome the psychological barrier:

1. As stated in the previous article, you need to first bring the subconscious out in order for the conscious to have a chance to defeat it. Therefore, the first step is to acknowledge the little voice and don't give in to it.
2. Once you recognized the little voice, ask yourself, "why am I having this kind of thoughts in my head?"
3. After step 2, you may have found that your reasons for holding you back are very obscure. Reinforce your beliefs and ask yourself, "what is the worst case scenario if I failed?"
   This may not be a very simple step and may require some analysis. List out all the actions and possible outcomes so you can see exactly what's lying down the road. Very often, you will find that the worst case scenario is really nothing you should worry much about.
4. By now, you should have weaken your little voice in your head and are ready to take some actions. At this stage, you can give yourself a little psychological push. I personally love to tell myself a few quotes of wisdom. The following are a few of my favorites:
   
   "Insanity is doing the same thing over and over again expecting different results."
   
   "If you want to be average, do what the average does."
   
   "Words without actions are cheap."
    
5. You should now be psychologically prepared. Take the action!

Starting from today, stop giving into the little voice in your head and start DOING. Both success and failure breed success. The worse thing to a bad action is no action. If you are happy with what you are doing today, just continue staying at where you are. However, I warn you that the world is moving, and in the information age things are moving quicker than ever before. This will be a decade full of financial problems (and hence opportunities). I would sincerely urge you to brush up your financial intelligence by taking actions in order for you to take advantage of this opportunity of a life time.

In the third (and last) of the series, I will go over some of the common phenomenons that contribute to people's lack of actions. Stay tuned!