Episode 4: Tire Conversations

Podcast 1
Episode 1: Introduction
May 1, 2019

Tire conversations are about the progress you are making. I explain why there are 4 questions you should ask:
1. Are we making progress?
2. Do we need a course correction?
3. What obstacles are we facing?
4. How can we do this better?
You will find out how to measure your progress in a way that is motivating as well as informative.

Hi I'm Thom Allison your host for the Financial Wheel podcast where we're equipping you to have the right conversations about your finances. In our first podcast we introduced the idea that you really want to be having conversations with your financial advisor with your spouse with your partner who help you manage your finances. You want to have the right types of conversations to help you cut through all the noise and the nonsense that is out there. And we introduce the idea that you should be having three types of conversations hub conversations spoke conversations and tire conversations. In our second podcast we talked about hub conversations what they are and why they're important. Then we talked about spoke conversations what they are and why they're important today. We're going to talk about tire conversation starting first of all with what they are. Well to put it bluntly tires is where the rubber meets the road and that's what's happening when we have tire conversations.

We want to take a look at the road. How are we doing. Are we making progress. Are we going somewhere.

So what are the key questions that you want to ask yourself around. Tire conversations. Well the first one I've already mentioned are we making progress. Are we going in the right direction. You might recall in Alice in Wonderland there's a spot there where Alice comes to a fork in the road and the Cheshire cat is sitting up in the tree looking very smug as the Cheshire cat does.

And Alice asks them which route should I take. And the cat asks her well where do you want to go. And she said gee I don't know she said, "well then I guess it doesn't matter which side you take." Well that's the same thing with your finances. If you don't know where you want to go it doesn't really matter what you do it doesn't matter how you manage those finances but if you when you've developed a solid hub and you know where you want to go then you can measure if you're making progress. So the key is knowing where you want to go and when you do that then you can create a dashboard. So what I mean about a dashboard? Well think about... Don't think about the dashboard in your car today because it's just got all these lights and all this computer nonsense and so forth. But go back to like a 1960s car for example try to visualize that in your brain right now. And when you look at the dashboard there there were just a few key dials that would tell you where the oil pressure was if the generator was creating the amount of electricity generation cars today. But back then they did. So was it creating enough electricity. They just gave you a few key elements and you'd glance at those quickly and if they were all within range You were great.

You kept going but if one got out of whack a little bit you knew oh I've got to stop and pay attention to this. There's a problem there. We create the same type of a dashboard with your finances. So for example we could put on the dashboard are you increasing your net worth each year by 8 percent and is making up a number pick a number but are you increasing your net worth each year. There is a measurement if the answer is yes. Great. We're doing fine. If not we got to go back and see, is there something that we need to work on and correct. Are you putting the amount into the various savings accounts that you want to put in the amount that you want to put into your 401k to an IRA to your education savings to your experience savings for your kids. Are you putting that in every year if you're getting that amount in. And we measure that. Great. There are also non-financial elements that go into your dashboard but they're very very important to keeping your financial spokes in balance. Did we get our estate plan done this year? If the answer is yes great. If not why not. What's holding us up. Where are the hang ups. What do we need to talk about here.

Did we get our family vacation in. Did we do the type of family vacation that we wanted to do. Did we limit the amount of overtime that we work so that we could spend more time with our families in there. Any one of these are sort of non financial activities but they have an important impact on your overall finances. So those go into your dashboard. So the first question that you want to ask yourself when you're having tire conversations is are we making progress and have conversations around that. Taking a look at your dashboard. What should we put on our dashboard. How should we measure what's on our dashboard. And if it's all working great then you're fine. If it's not then you need to get into some more important conversations. For example the second question to ask yourself. Do we need to make a course correction. Think about the first time that we sent somebody to the moon. In reality what they did is they blasted them off in the right direction and then as they kept getting closer they kept making little course corrections along the way. Until they finally got directly to the moon. I mean it's a long ways from here to the moon. You got now. Things are going to happen and the same thing in your life. It's a long ways from where you are now to where you want to be.

And life happens sometimes negative sometimes positive. Some people experience a loss or decrease in income. Some people experience some unexpected expenses but some are positive. You get an inheritance that you didn't think was going to come along. So there are positive things and negative things life happens and as a result of that you need to make course corrections in your finances. So you go back and you readjust them. For example if we're looking at retirement if you're 40 years old and you're thinking you want to retire when you're 65 years old we're doing a projection that's 25 years out. The only thing I know for certain about that projection is it's going to be wrong. But as life happens as you make your savings goals or don't make your savings goals as the investment markets treat us fairly or treat us unfairly. Actually it's always fair it just doesn't feel like it when it's not going right but no matter what's happening there's gonna be adjustments that need to be made. So what we're going to do is re-project those retirement savings and then come back and see Are there adjustments that we need to make. There are also some new goals that might come along. You might have some new goals about memories and experiences that you want to be creating for your children or for your grandchildren.

And these are going to be causing us to have to make some course corrections as well. So the second question that we want to talk about is do we need to make course corrections. The third question that we want to have when we're having these tire conversations with our financial advisor with our spouses with our partners. That next question is what obstacles are we facing now some of these obstacles are regulatory and here's where a good qualified financial advisor can be very very helpful for you because you're going to know what those limitations are they're going to know how to work with those limitations. So for example there's limits on how much money you can put into a 401k there's limits as to whether or not you can contribute to an IRA. There's limits to what you can put into a 529 plan for a college education and sometimes maybe putting the maximum amount into those is not the best thing. Maybe there's some other things that you want to be doing so you want to know what the regulatory obstacles are that you're facing and how do you deal with them. Most of the obstacles that we face strangely enough are actually internal and some of them have to do with our very own decision making.

There are four villains to decision making according to Dan and Chip Heath that they outline in their book called Decisive. They identify them as narrow framing confirmation bias short term emotions and overconfidence. I want to talk about those in a little more detail but once again I realize that you're probably driving down the road right now or pedaling away on your bike at the gym or doing something like that. So you're not going to remember though so what I'd like you to do is go to FinancialWheel.net and I'll have these spelled out and we'll have more information about each one of these. But let me just give you an idea of what they are and how they can negatively or potentially positively affect your personal finances narrow framing is our tendency to take a look at a problem or an issue or a decision that we need to make. And just take a look at say one option and not consider what other options might be out there. And when we get too narrowly focused we kind of fail to see other things that could happen. So for example let's go back to an illustration that I used in one of the other podcasts that 60 inch bright shiny TV that is sitting at Costco when you come walking in and going wow that sounds cool. Well yeah.

You could spend twenty five hundred dollars on that TV and if you get really narrowly focused on it that's what you're going to be thinking about. Let's see what can we do with this TV. Yeah. It would be great to watch the Seahawks on that big TV on Sunday afternoon while they're trouncing New England. But what you want to ask yourself is what else could I be doing with that money that's going to open up your framing a little bit. So yeah I could spend twenty five hundred dollars on that but you know twenty five hundred dollars that could get us through several days with the entire family at Disney World. Would that maybe be more important to me. So open up your framing start taking a look at opportunities. It's called opportunity cost. If you want the technical economist term for it but don't worry about that. All you really want to do is think about what are the different things that you could be doing. The second one they talk about as confirmation bias. The reality is consciously or unconsciously we all tend to look for information that supports our predetermined decisions and we tend to not look for or seriously discount information that contradicts what we already believe. Everybody does it. We do it consciously or unconsciously. We don't see it in ourselves. We will never see that in ourselves or very rarely will we see that in ourselves. There are some exceptions. Charles Darwin for example was well known for keeping a very detailed log of every argument he could ever find that went against his theory of natural selection.

Just to kind of keep himself in a counterbalanced way but the way that you're going to find it is in the conversations that you have with your financial advisor with your spouse with your partners and they are the ones who are going to be able to see. Wait a minute you're just focusing on the things that agree with you. Take a moment take a deep breath and think about the things that disagree with you. Is there any validity to those arguments. So confirmation bias is a villain to your decision making. Short term emotions. This is especially true when it comes to investments. The market just took a big hit and the media is going to tell you just how bad that big hit is they're going to sit down and tell you that the S&P 500 just dropped by 500 points. Now what they're not going to tell you is that's one tenth of one percent and it doesn't really matter because that's not dramatic. They want to scare you and they do a darn good job of it. And those short term emotions are the things that are going to cause you to make short term mistakes mistakes that will have negative impacts on the long term. So you want to have conversations around how you're feeling right now and how decisions around those feelings could have a long term impact on your financial well-being.

And the last is overconfidence. We're all brilliant investors. Everybody knows exactly what stock is going to do best next. Somehow we always forget the ones that didn't work very well. So you really have to guard yourself against overconfidence. And again these are conversations that you can be having. And the next internal obstacle that we tend to run into is our own emotional thinking. We actually have two types of decision making mechanisms that we go through. One is our intellectual and the other is emotional and an illustration that is very very effective is the rider and the elephant rider that's sitting on top of the elephant is your intellectual thinking and the elephant is your emotional thinking. The great thing about that illustration is there proportionally about right and in fact your emotions are much stronger than your intellectual decision making. And it's very difficult to take an elephant and make it do something that it doesn't want to do. But there are ways that you can direct the rider that you can motivate the elephant and that you can shape the path that they are going down and those are the types of conversations that you should be having with your financial advisor to help you from making the types of mistakes to help keep you from creating obstacles that don't necessarily have to be created. So second question that you want to ask what obstacles are we facing. The third question then is how can we do this better.

There's always a way that you can do it better. You can be doing really well but there's a way that you can be doing it better. In the first podcast I gave the illustration of the time that I saw Tiger Woods during a practice round talking to a coach. What I did is you might recall I saw him hit five great shots out of the sand trap and after talking to the coach he had five better shots out of the sand trap. There's always ways that we can be doing better so keep asking yourself how can we be doing this better. So tire conversations are really the measure of the progress that you're doing so you need to be asking are we making progress? Do we need a course correction? What obstacles are we facing? How can I do this better? Go to our website FinancialWheel.net where you can find information about tire conversations. Information about the four villains to decision making. Information about the rider and the elephant. Information that will help you make better tire decisions that will help you have better tire conversations with your financial advisor with your spouse with your partner. Be sure to tune in next time where we're going to dive deeper into the wheel. Where we're going to get into some specific hub conversations, spoke conversations and tire conversations as we move forward. In the meantime keep your conversations constructive and supportive. And thanks for listening.

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      Financial Satisfaction Survey


      Directions: The statements below will help you to think about and assess how satisfied you are with many aspects of your financial life. Indicate your level of satisfaction for each statement with stars.
      (1 star = "Not Satisfied", 3 stars = "Moderately Satisfied", 5 stars = "Very Satisfied")

      I am satisfied with...

      1. ...with my ability to meet my financial obligations

      2. ...with the income my current job or career provides me.

      3. ...with my spending habits.

      4. ...with the level of debt I carry.

      5. ...with the “extras” that I am able to buy for myself and/or loved ones.

      6. ...with the level and quality of insurance protection I currently have.

      7. ...with the amount of money that I save and invest on a regular basis.

      8. ...with my current investment choices.

      9. ...that I am on track to build a sufficient retirement nest egg.

      10. ...with the level of employee benefits I receive.

      11. ...with my style of personal bookkeeping and financial record management.

      12. ...with my ability to provide financial help to family members.

      13. ...with my estate plan.

      14. ...with my level of charitable giving.

      15. ...with the level of financial education I have attained.

      16. ...with how I respond emotionally to my personal finance issues.

      17. ...with my ability to communicate about my financial matters.

      18. ...with the feelings I have about my money life.

      19. ...that financial issues do not cause stress or strain in the relationships that are important to me.

      20. ...with the working relationships I have with my financial service providers (i.e., insurance agent, banker, broker, financial planner, accountant).

      © 2002 - 2018 Money Quotient, Inc. All Rights Reserved. This document is available via licensing arrangements with Money Quotient and is protected by federal copyright law. No unauthorized copying, adaptation, distribution, or display is permitted - moneyquotient.org.

      Life Transition Survey


      Directions: In each section, select the transitions that you are currently experiencing and those you are likely to experience in the future. In addition, check transitions in the short to mid-term and long-term columns that you either hope to experience or anticipate with concern.

      Work Life Transitions

      1. Change in career path:

      2. New Job:

      3. Promotion

      4. Job loss

      5. Job restructure

      6. Education / retraining

      7. Sell or close business

      8. Transfer family business

      9. Gain a business partner:

      10. Lose a business partner:

      11. Downshift / simplify work life

      12. Sabbatical / leave of absence

      13. Start or purchase a business

      14. Retire:

      15. Phase into retirement

      16. Other

      Financial Life Transitions

      1. Purchase a home:

      2. Sell a home:

      3. Relocate:

      4. Purchase a vacation home / timeshare:

      5. Re-evaluate investment philosophy:

      6. Experience investment gain:

      7. Experience investment loss:

      8. Debt concerns:

      9. Consider investment opportunity:

      10. Receive inheritance or financial windfall:

      11. Sell assets:

      12. Other:

      Family Life Transitions

      1. Change in marital status (marriage):

      2. Change in marital status (divorce):

      3. Change in marital status (widowhood):

      4. Expecting or adopting a child:

      5. Hire child care:

      6. Child entering adolescence:

      7. Child with special needs:

      8. Child w/pre-college expenses:

      9. Child going to college:

      10. Child getting married:

      11. Empty nest:

      12. Family special event (Bat/Bar Mitzvah, anniversary party, trip):

      13. Helping and/or gifting grandchildren

      14. Concern about aging parent

      15. Concern about health of spouse/partner or child:

      Legacy Life Transitions

      1. Increase charitable giving:

      2. Give special financial gifts to children/grandchildren:

      3. Give parental pension (monthly stipend):

      © 2002 - 2018 Money Quotient, Inc. All Rights Reserved. This document is available via licensing arrangements with Money Quotient and is protected by federal copyright law. No unauthorized copying, adaptation, distribution, or display is permitted - moneyquotient.org.