The improbable saboteur: Why you are your worst enemy when it comes to financial planning

Posted 1 October, 2017 by Surely
in Essential Reading, Pitfalls to Avoid

We make intuitive decisions every day.
Sometimes our gut instinct may lead us to amazing experiences. By making a detour in your daily journey, you may discover the quaint cafe hidden out of sight at a corner.
At times it may lead us to minor unpleasant consequences such as contracting diarrhoea due to the food bought from a unhygienic roadside stall.


It is really not about that cafe but that pretty lass sitting by the window.

It is really not about that cafe but that pretty lass sitting by the window.


When it comes to finances, it may be difficult to accurately judge our decisions immediately.
However, if we do make an erroneous judgement, it may result in grave financial consequences.
By the time we realise that it is a painfully wrong decision, it may be irreversible.

Case in point – If we fail to leverage on the monies accumulated in our CPF account that grow at a government guaranteed or/and neglect to start saving early for retirement, the result of our actions may not be seen until much later in our lives. By then, we are completely helpless to remedy the situation.

It is absolutely vital for us to recognise our own auto-pilot behaviours such as prioritising short-term satisfaction over long-term goals like building the nest egg for retirement.
That is where an external help is required – someone who can provide financial advice when it matters the most.


A good advisor will analyse your situation and provide clarity when panic sets in.

A good advisor will analyse your situation and provide clarity when panic sets in.


It is paramount that you have an advisor who finds ways to help people to avoid having cognitive illusions and biases.
More importantly, your advisor must aid you to avoid making irrational decisions that may haunt you for life.

This is especially critical during times of high market volatility.
A voice of calmness from a trusted aide will allow you to see past your emotional roller-coaster and find clarity.
Therefore, it is useful to approach financial planning by looking at behavioural finance point of view.

Behavioural finance refers to our reactive and instinctive actions to major financial events.
It stems from our emotional and psychological biases that are deeply embedded in our psyche.
And we need to understand them to prevent ourselves from being a victim of our own sub-conscious reactions.

To do that right, we need to keep an open and objective mind.
We have to question our worst financial behaviour and stop ourselves from being our worst enemy.
Let us identify some of these self-sabotaging actions to start the ball rolling.




Staying put and doing nothing is often the easiest choice to make.
It takes zero brain activity and does not stop you from taking your eyes off the TV.

However, it is counterproductive if you want to save up and have enough for retirement.
It is a trite law that successful investors must conduct a yearly review of their financial portfolio and rebalance it to optimize returns.



behavioural finance

Wake up! The market is on a bull run.


However, we often allow complacency to set in.
Inertia follows and we fail to take action when it is required.
Just for a few more hours of couch-potato’ing, we have missed the boat on early retirement.
How is that for a lousy deal?




We may not realise that we tend to make decisions that are based on near-term outlook.
It is detrimental and prevents us from visualizing our future financial needs and circumstances clearly.
Without a clear vision, your financial plans are destined to be doomed.

This is the reason why too many of us delay saving.
We prefer to enjoy our money now.
And neglect to save up for emergencies, university fees and retirement.

>> This is why delayed gratification is the answer to future success. <<

Change your lens.
Start seeing further into your future.
Your future self will thank you (and us) for that!


Loss aversion


We are built to avoid pain.
It is a natural instinct to stop ourselves from touching that hot kettle again.
However, it is the same thing that is hurting us financially.


My favourite quote from Million Dollar baby: Boxing is an unnatural act. Instead of running from the pain - like a sane person would do, you step into it.

Boxing is an unnatural act. Instead of running from the pain – like a sane person would do, you step into it.- Million Dollar Baby


The pain of making a loss is greater than the joy of making a gain.
Instead of focusing on taking steps to formulate a disciplined financial plan and sticking to it over the long run, we can be overly focused on the potential losses.

So the next time you are afraid to take the losses, stop.
Slip the punches, move in and claim your eventual victory.


Herd behaviour


We love being in a crowd.
There is safety in numbers after all.
That is why we are inclined to follow the actions of our friends.


behavioural finance

Don’t be a sheep. Dare to be different.


Buy into this counter.
It is the hottest internet company now.
That is what your buddies are saying.
Or was saying.

Remember the crash.
It seems a little eerily similar these days with all the different start-ups and Fin-techs.

Make your own decisions.
Win or lose.
At the very least, you know your success hinges on nobody but yourself.




We can be so singularly focused on one piece of captivating information that everything else fades away into the background.
We often fail to question the veracity of the information due to the promise of attractive returns.
That is exactly what had happened during the Sub-Prime crisis.

Or we may stay in just because we are so locked in about recovering our losses.
We become so anchored to the success or failure of one investment product without realising that there are better opportunities elsewhere.

Stop looking at the door that is closed.
You will miss out on other windows that are open to you.
And regret for the rest of your life.


Mental accounting


We compartmentalize money all the time.
This is for this week’s food expense; that is for the school fee.
It does not have to be if it hurts you monetary-wise.


And this is for the upkeep of mistress. Wait what?!

And this is for the upkeep of mistress. Wait, what?!


It is financially damaging to hold onto a high-interest credit card debt while setting aside money for that luxury vacation.
Instead of running a debt due to a trip, you can choose cheaper accommodations and less costly transportations.
And still have the best holiday ever.


What should we be doing then?


Without a firm grasp of our cognitive and emotional biases that have been pre-coded into our psyche, we cannot hope to overcome them.
Recognise some of these irrational behaviours and free yourself of their shackles.

These counterproductive behaviours are nothing but just the tip of an iceberg.
If you cannot identify these behaviours on your own, it may be in your best interest to engage a financial advisor who can not only recognise them but also have the cojones to point them out to you.

Don’t fall victim to these irrational and damaging behaviours.
Stop being the worst enemy that your financial portfolio can meet. aims to eradicate the knowledge gap between consumers and Life Insurance. Our Vision is that one day, every Man, Woman, and Child will be properly insured.

This article was proudly contributed by Zest Chia. He represents an Independent Financial Advisory Firm and sees clarity when others are panicking. And no, he does not have a mistress and is currently not setting aside any budget for that. To contact him regarding Financial Planning or to learn about behavioural finance, he can be reached at 9675 9587.

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