The Surprising Truth About Self-Interest That You Need to Hear


I have long been a proponent of self-interest. I see it as a beautiful thing. If you just rolled your eyes at that sentence, let me explain. First, I want to point out that there is a difference between being selfish and seeking your self-interest. Often they are used interchangeably, but they are not. Self-interest is a concern for one’s own well-being without being detrimental to anyone else.  Selfish on the other hand is being completely concerned with oneself, without regard for others. The oxygen mask on an airplane is a perfect example of this distinction. In the case of an emergency on an airplane, the international air safety standards, regarding the use of the oxygen mask recommends that “the passenger should always fit his or her own mask before helping children, the disabled, or persons requiring assistance.”  I think most adults would instinctively rush to make sure that a child or the elderly are taken care of first. In this case it would be detrimental to everyone if the adult tried to be selfless and not seek his/her own self-interest. If he/she does not take steps for self-preservation first, then they can be of no use to those who really need them. In this case self-interest is essential for the benefit of all.

I can also make the case that there are no selfless deeds. Parents and missionaries are classic examples. They both get immense satisfaction and a sense of accomplishment from being of service. This is a need they seek to fulfill in themselves. The gratification that missionaries and parents receive from their service is included in their definition of self-interest.  Their need to be of service is satisfied by being in those roles. So truly they are benefiting just as much as those they serve, albeit in a different manner.

Our economic models are based on the concept of scarcity which necessitates competition. This compels people and businesses to maximize their self-interest. Equilibrium is achieved when buyers and sellers optimize their self-interest. Sellers naturally want to get the highest price they can for their product, while buyers want to get the cheapest price. The price that is finally established is one that benefits both the buyer and seller. If a buyer or seller were to opt out of serving their own self-interest, then one would be exploited by the other. If, as a consumer we don’t make certain that we get the best value for our dollar, then we would be at the mercy of businesses and vice versa.

Successful businesses are those that are able to demonstrate the value they bring to the customer. By ensuring that the consumer has the highest quality of good or service, businesses solidify their own interest. They are not doing this out of the goodness of their heart. Not to be cynical, but when businesses help others, they are also helping themselves. When they do charity work and “give” back to society, they are reaping the rewards themselves. The goodwill and positive emotions that are then associated with their brand go a long way to ensuring there is always a demand for their product.


So the lesson for today is, don’t feel bad when you put yourself first. You are doing a service to everyone around you when you do. You’re a better parent, worker, spouse and friend when you take care of yourself. Your circle of influence is better off with a happier you. So if each person seeks their self-interest, then we can be sure society as a whole will be better off.

Now, specifically from a financial perspective, it is important to ensure that when you make a purchasing decision that you absolutely put your self-interest first. To do so, you have to be conscious of your purchasing decisions, if you are on auto pilot it is dubious whether your purchase is in your best interest. So take a moment and be present when making a purchase, don’t let those somatic markers do the work for you. If you are not used to making conscious purchasing decisions I suggest you start practicing. Start today and start small. When you stop for coffee, for example, think about it for a second. Take a deep breath and ask yourself if you really need that coffee. Do you really need it now? Are you buying out of habit? You may be surprised by what you find out.  This type of training is ongoing. Like a muscle, it gets bigger and stronger over time. The more conscious choices you make, the more it benefits you and everyone around you.

This topic usually spurs a lot of conversation. I would love to hear your view, so leave a comment below.

Dr. M


A More Useful Perspective of Taxation


LEFT: Sumerian tablet which records payment of the tax called “burden,” circa 2500 B.C.  

RIGHT: Pharaohs, like the one shown here on the door jamb of the Palace of Merenptah (1236-1223 B.C.), were powerful rulers who could, and did, collect taxes as they saw fit.

Taxation goes back to ancient times. Even in the barter system taxes were collected in the form of produce, merchandise or property.  In those days, it was the hardest working sector of society, i.e. the peasants that were the highest and most regularly taxed. Many revolutions and wars were started because of unfair taxation practices. “No taxation without representation,” was the slogan that led the Thirteen American Colonies to break away from the British monarchy.  One thing that has stood the test of time and that is taxes are necessary.  We are still in search of a tax system that is fair and just to society. Too often we see blatant waste of taxpayer’s money or bear witness to scandals of corruption and fraud.

As much as we all dislike paying taxes, there is really no getting around them.  Taxes are the main source of government revenues. Taxes pay for, public education, roads, social services, road signs, and the wages of millions of government employees.  Once we have a government, taxation is a necessity.

You are legally required to file your income tax. In Canada Section 238 of the Income Tax Act lays out the penalties for failing to file a tax return. The offender can be fined anywhere between $1,000 and $25,000 and up to one year in prison.

It is also illegal to evade taxation. If you misrepresent your financial status such as declaring less income or overstating deductions in order to pay less tax you can be subject to Section 239 of the Income Tax Act. Section 239, states those who are convicted of tax evasion may have to pay anywhere from half to double the amount that they were trying to save by falsifying their taxes. In addition to paying a fine, offenders may face up to two years in prison. Ignorance is never an acceptable defence, so be sure that you know what the ramifications are of not filing or not being diligent with your tax preparation.

Now no one likes having to pay a large tax bill, but have you ever stopped to think about what this really means? If we take a moment to reconsider the way we see this “problem” we can at least get some emotional comfort that things are just peachy!  Your tax bill is really an indication of your success.  Yes, I rather look at the glass half full rather than a half empty! But seriously, you can’t pay taxes on earnings you don’t have. If you are not paying taxes it means either you are very efficient in maximizing your tax strategies or you are not earning enough.  In the first case you are to be congratulated. In the second case, there is cause for concern. If you are not earning enough to have a tax problem you may want to consider looking for a new job or upgrading your training to facilitate moving into a new job.

 CCRA vs taxpayer 2

Here is a reminder of some tax planning tips to ensure you legally minimize your tax bill:

  • Max out (up to your limit) your Registered Retirement Savings Plan (RRSP) contribution and do it early in the year
  • Contribute up to $2500 for the year to your child’s Registered Education savings Plan (RESP) this will allow you to earn the 20% government grant for your child’s education fund
  • Take advantage of your Tax Free Savings Account (TFSA), contribute the maximum amount of $5,500 for tax-sheltered growth
  • Take advantage of the new Family Tax Credit (FTC) and
  • Take advantage of splitting pension income with your spouse
  • If you have a spouse, combine your charitable donations and claim them on the higher-income spouse’s return
  • Ensure that your will is updated to ensure that you minimize taxes on death

This tax season, let’s change how we view taxes and realize that if we are stuck with them, then we might as well make the best of them. We can do so by first recognizing it’s a “good problem” to have. Also, we need to ensure that we have good tax planning strategies and that we are making enough income to need those strategies.

Dr. M

Death or Debt?


Death is the debt we must all pay, but debt doesn’t have to be the death of us! In my last post I showed the dark side of compounding. Anyone with credit card debt is on the dark side.  Today I want to discuss a little more about debt, specifically, good and bad debt. Not all debt is bad.  Some debt is necessary for creating wealth. It is important to understand what‘s good and bad debt and how best to use them to ensure you are maximizing your financial resources.

Good debt can be summarized in one phrase “It takes money to make money”.

Good debt is money that you borrow to help you generate income and increase your net worth.  You take a calculated risk of borrowing for the expectations of higher returns in the long run. Examples of good debt are: student loans, mortgages, leveraging and small business loans.

In theory student loans are a form of good debt. The rationale is that you take a loan to finance your education and after you graduate, your degree will allow you to land a high paying job. This job will then allow you to easily pay off your debt and then continue to generate income and grow your net worth. In reality, however, this is not the case for two main factors. The first is that your degree doesn’t guarantee that you will get a job after graduation. Second, if you do manage to get a job there is no guarantee that you will get a high paying job. The reality facing many students today is that they are leaving school with high levels of debt and can’t find jobs.  Also student loans are not dischargeable even if you declare bankruptcy.  The result is that we have a generation starting off their adult life in debt.   Let’s consider the alternative, if you don’t take a student loan that means no degree. Not having a degree reduces your employability and competitiveness in the job market.  Clearly there is a need for reform of the system, on the side of education (lowering tuition) or on the side of student loans (restructure the loans to reflect the realities that students face after graduation). What’s the verdict? Well, student loans still represent good debt until a better solution can be found.

A mortgage facilitates the purchase of real estate without having to pay the entire amount up front.   Real estate is usually deemed to be a good investment because property values tend to appreciate over time. However, the sub-prime mortgage crisis in the US demonstrated that there are no guarantees for price appreciation.  Also one has to remember that home ownership comes with a lot of financial commitments such as property taxes and maintenance fees, which are ongoing. Other factors being constant, real estate is a tangible asset. Regardless of how the winds shift you literally have a place to rest your head at the end of the day.  Even though there are some risks and costs involved with real estate, taking on a mortgage is a good debt to incur.

Leveraging is using borrowed money to make an investment. In theory, it makes perfect sense to borrow money at a lower rate and use it to make an investment that would earn you over and above what it costs to take the loan.  The usual hiccup is that there is NO guarantee. The potential gains may be tremendous, but remember, so are the losses. Leveraging is not for the faint of heart, it increases your investment risk and if you lose your investment you still have to pay off your loan (it magnifies your losses).

Here is an example of an investor who invested $5,000 shown in the first column. The second column shows his leveraged returns after borrowing an additional $5,000.


When things go well both investment options have positive returns with leveraging leading to $450 higher return.  In the case of column one, if the investment tanked the investor will lose his investment of $5000. In the case of column two, when leveraging is involved the loss will be more than $15,000 ($10,000 investment plus the repayment of the $5000 loan plus interest). If you fully understand the risks involved and can afford (emotionally and financially) to lose your investment and prepay the loan, then leveraging will be a good option. If, however, you don’t have the constitution or the finances to able to bear the risk of your investments tanking then leveraging is not for you. Even though leveraging in theory is a good debt, it is one that should be entered into with great care.

A business loan is one which even though there are high risks involve it is one that I will encourage.  People who start their own business tend to have a risk taking mindset and are usually innovators.  Assuming that you have a good idea, you’ve done your research, you have a good business plan, you’re passionate and are willing to hard work, I would support taking a small business loan.  One caveat is to start off with a small manageable loan. When your business starts to take off then you can venture further.  If you have an idea to share with the world, do your homework and go for it, it’s worth the risk to fulfil a dream.

Bad debt occurs when you take credit or a loan to purchase an asset that loses its value the moment you take possession of it.  Examples of bad debt are car financing, and any type of credit card debt used to finance consumable goods (clothes, shoes) and services (vacations).

A car is a necessity for many. Cars tend to be expensive and they start depreciating the moment you drive off the lot.  This means that when making a buying decision about a car it should be based on practicality and on our budget not our ego. The marketers have done a lot to promote cars as status symbols.  If you buy into this myth, then there is a tendency for you to finance a car that is beyond your means. Little thought is given to practicality and budgetary concerns in such instances. If you can put your ego aside, it is a good idea to pay cash for a used car if you can afford to or finance the least expensive model and pay it off as fast as you can.

Now we come to the most treacherous debt of them all, credit card debt.  Let’s recall for a moment the role of the insula.   As I referred to in a previous post, if you associate spending with pain, then the less likely you are to keep doing it because you would stimulate the insula which will produce emotional pain.  Now, using a credit card rather than cash, bypasses the pain of spending because you don’t see the actual movement of the dollars. It is easier to swipe a card for a $500 purchase even though you know you probably shouldn’t, but you will worry about that later. Using a card to pay is less painful than actually parting with cash.  Spending actual cash is not only more painful, but it is harder to ignore.

Note I am not advocating that one should stop using credit cards.  In fact, if you know how to use a credit card properly, you have a lot to gain.  There are two main reasons for you to continue using credit cards.  The first is that you build your credit history and when you pay on time your credit score increases. This allows you to have access to good debt which can be used to make you more money. Secondly, there are a lot of reward programs from free air miles, cash back and free food. I say take advantage of it all! Once you are able to pay off your credit cards on time, you can use the cards to your benefit. In and of themselves, they are not evil. It all depends on how you use it. The trick with having and using a credit card is to follow these basic rules:

  • Make sure your purchase is adding real value and not some perceived value that you can’t afford. For instance buy the shoes that look good and cost under $200 and not the one that is a brand name and costs $1500. Buy based on your budget and not on your ego.
  • Understand that a credit card is not free money. It allows you to use the money interest free for a couple of weeks. After which, if it is not paid, you start accruing interest on the balance. By all means, use your credit card to make purchases for which you don’t have cash right now, but make sure that you can pay off the bill in full on the due date.

As we can see, not all debt is bad and if we follow some basic rules we use debt to our advantage. Think of a debt as a knife, in the wrong hands it can cause murder and mayhem. In the right hands it can be used to carve a masterpiece.   Use your debt to create a masterpiece not mayhem!

What having you been creating?


Finance is NOT about the Numbers, Compounding

Whether Einstein actually said this or not I cannot confirm, but I can attest to the fact that is it a truly profound quote. It succinctly summarizes the beauty and tragedy of compounding. If you understand and apply it, you will see enjoy its beauty. If not, you will suffer the tragedy well pass your desire to do so.

One of the components of the secret formula for financial success is time.  We will hold constant the scientific and philosophical nature of time. Let’s just all agree that it exists and as far as most of us know, it’s real and it has a significant impact on our lives. The other important component in the success formula is the rate of interest. Interest is the money earned on an investment or paid on a loan. It is the price of investing or borrowing.  As an investor, you want a high interest rate and as a borrower you would want a lower interest rate.

Now, the speed at which you can grow your savings is a function of both time and interest.   With a few exceptions, such as, writing a book about how to train your parrot and earning millions of dollars overnight as Frank Kern did. Most of us take a little longer to amass wealth.  Enter the magic of compounding.  Compound interest/compounding is earning interest on interest. Compounding allows you to generate more because your investment earns interest on interest. If you are able to invest over a long period of time and at a good rate of interest, you will experience the magic of compounding.  Compounding ensures that you maximize your savings, only if you don’t touch either the principal or the interest earned. In other words, compounding can only work effectively if you leave it alone.

Let’s assume that we have $10,000 in savings to invest.  Usually interest on investment is compounded annually.  Let’s see what happens when we invest this amount for different periods of time and at different rates of interest.

$10,000  for 20 years at 4%
$10,000  for 10 years at 4%
$10,000  for 10 years  at 8%
$10,000  for 20 years at 8%

Both the graph and the chart below demonstrate the magic of compounding.


If you invest $10,000 for 20 years at 4%, assuming you didn’t touch this investment over the period, it would grow to $21,911 without you any effort on your part. If, however, you invested the same amount at 4%, but for half the time, your investment would grow to only$14,802. If the $10,000 were invested for 20 years at a higher rate of interest of 8%, then your investment would have grown to $46,600. Saving $10,000 for only 10 years at 8% would give you almost the same as $10,000 invested for 20 years at 4%.


Another way to say this is that if you were to invest $10,000 for 20 years at 8% interest rate you will have an overall rate of return of 366%.  In the worst case if you saved for only 10 years at 4% your overall return will be 48%.

What can we learn from this? The golden rule is: the earlier you start and the higher the interest rate, the faster your money will grow.

This works out well for you if you understand the beauty of compounding and you start investing early. But, what if this concept somehow eluded you?  No one ever took the time to teach you this either at home or at school. So in instead of having $10,000 in savings to invest, you instead had $10,000 in debt. Here is where you are on the wrong side of compounding.  First, the interest on debt is usually compounded monthly. The more periods of compounding the bigger the amount grows. This means that your debt will grow faster over time. Second, the interest rate on debt, namely credit card debt is higher than that on savings. So holding all other factors constant, your $10,000 debt with a 19% interest rate (I’m being generous here) for 10 years will cost you $65,871.14.  A $10,000 debt would cost you approximately 6 times its face value.

So on which end would you rather be?

The best time to take advantage of compounding is when you’re young.  When you’re just out of university, starting your first job. If you can start putting aside small amounts while at university, it’s even better. Generally, however, many young adults are not adequately trained in effective money management skills. So if we combine a lack of knowledge with the fervor of youth and ambition we end up with people who are busy having a life and not being bothered about issues like savings.  There is the sense that they can do it later. As such there is no urgency so the effort and discipline is not there.

Now, I am cognisant that many students are leaving school burdened with a lot of student debt. So it might be that the years following graduation are spent on clearing debt rather than on investing. Eliminating debt is crucial for your financial success. The faster you are able to get out of debt the faster you can work on wealth accumulation[i].

So regardless of the reasons why you may not have taken advantage of compounding in the past, there is nothing preventing you from doing so now.  Regardless of your age and level of savings there is never a better time than NOW.

Here are some practical steps to ensure you take advantage of compounding:

  • If you are trying to develop the habit of savings, stop over thinking it and just start, regardless of the amount that you have to invest. Just by making a conscious effort and moving in the right direction, will start to change your behavior and mindset.
  • Seek out reliable sources of information for where to invest. Sorry, but Google should not be your only source of information. Talk to your bank, your advisor or a mentor who has had success in investing.
  • If you have debt, start with a plan to reduce debt ASAP. As beautiful as compounding is, it is treacherous if you are on the wrong side. You want to get out of debt as soon as possible.
  • If you’re single make a commitment to yourself to either save or reduce debt and be sure to stick with it.
  • If you are married ensure that you and your partner on the same page. This is vital for your financial success.  Ensure that you are each aware of your money personality and take the necessary action to ensure that you can both achieve a common goal.
  • If you have kids/grand kids start teaching them core financial lessons. The earlier they learn and develop positive financial traits the more successful they will be in the future[ii]. It is much easier to teach a child good financial habits early on, rather than try to break bad habits later on. An ounce of prevention is worth a pound of cure.

I hope this proves useful to you. Be sure you are on the right side of compounding.

Question: If you could travel back in time and give some financial advice to your younger self, what would it be?

Dr. M

[i] I will discuss good and bad debt in an upcoming post.

[ii] Visit for resources on teaching young children core economic and financial concepts.

Finance is NOT about the numbers- The Budget


Today I want to reframe how we think of budgets. I will use the German psychiatrist Franz Muller-Lyer illusions as a metaphor of how we make decisions with reference to the two main components of the budget (savings and spending).  I want to demonstrate that there are factors outside the scope of spreadsheets and numbers that affect our ability to budget successfully.

Before we get into the comparison, I’ll take a moment to acknowledge what the general consensus is about budgets. Many hear the word budget and immediately think straitjacket, restrictions and mind-numbing number crunching which they would rather not do.  Is it possible for us to change our perspective of a budget?  Can we see it as a tool? A tool which automates our cash flow for the month and in so doing gives us more time to focus on other important issues in our lives.

When we know where our money is going each month, it allows us to put into perspective what is really important. It is necessary to take a moment and step back and look and see where we are and determine if we want to be there. If not, what do we have to do to get where we WANT to be? This is the whole purpose of having a budget. A budget is a tool that helps to highlight financial shortcomings. It forces us to find clever ways to overcome these shortcomings.  A budget in short is the blueprint for our financial success. It is the practical, implementable part of secret formula for wealth.

 THE SECRET FORMULA: (Save>spend)*(1+r) t

 If you are venturing into budgeting for the first time, start simple and ensure that you cover your basic expenses (food, home, clothes and insurance).  Then you can either save or pay down debt with any remaining funds.  If it is the case that you don’t have enough to cover the basics then, you will have to make some changes. A budget will help to both reduce and stop the accumulation of debt. Perhaps you may need to consider downsizing or maybe you need to find a new job or get a promotion. As you can see working with a budget may require you to take stock of other aspects of your life.

Here some practical steps you can follow to get started:

  • Establish what your current income and expenses are— take a snap shot of where you are.
  • Set goals. Figure out where you want to be financially. What is financially important to you? Saving for a major purchase, reducing debt (aka spending less) etc.
  • Design your budget—be sure to buffer for seasonal expenses and emergencies—this is a pathway for achieving to your goals. There are many resources available online that you can use. Find one that works for you and start designing your budget. I recommend the Financial Consumer Agency of Canada website:
  • Start implementing—this is usually the hardest part, here is where disciple and determination come into play.
  • After a month or two, review and fine-tune.

Remember, it is not necessary to get it perfect the first time. A budget is a living document that changes as your circumstances changes. A budget is ever evolving and ongoing.

Now let’s get back to the illusions and see what lessons we can learn from them.


Take a look at the images. Are the tables the same size? The table on the left looks longer than the one on the right. However, both tables are the same size. You can prove this yourself by measuring the images. The moral of the story is what we see influences what we perceive. Our perception of what is may not be a true reflection what actually is.  No, I swear I am not trying to mystify you. I am only trying to point out that if we can’t trust our vision to perceive what is really there, what does this imply for our ability to use our cognition (thinking) to make decisions when things are less straightforward as sight?   When we are trying to spend less and save more, we are influenced by numerous external factors which greatly impact the success we have in adhering to a budget.

Let’s look at how perception affects our spending.  When we are working with a budget, it is necessary to keep spending in check. More often than not this turns out to be a mammoth task, especially if we feel compelled to spend on particular items that may not really be serving us but we have come to believe that they are. Here I draw reference to Martin Lindstrom’s book Brandwashed , which essentially shows how marketers use psychological, emotional, and rational tricks to convince unsuspecting consumers to buy.

“Our brains are prone to forming mental shortcuts […] known as somatic markers, that link cues from our physical world to specific emotional states […] Shrewd companies are able to actually plant these somatic markers in our minds by creating associations between some positive emotion and their product.”  Brandwashed, page 199

It is well known that multinational companies invest a lot of money, time and effort to do research that allow them to sell to us without realising that we’ve been sold to.  Marketers use emotional marketing to entice and convince us that we “need” a particular brand. Does this mean that we are just programmed drones for the marketers? No. We are only susceptible if we allow ourselves to be persuaded by these marketing ploys. To counteract these manoeuvres we need to recognize that it exists and then ensure that we make conscious choices. We have to take the time to see whether a product is actually adding real value to us or just a perceived value.

Now let’s look at how perception affects our savings and investment decisions. The financial industry uses fear to disturb and motivate us. The financial industry often uses statistical illusions to scare us into buying a particular product. On the one hand, they are doing us a service because they are getting us to invest and to take charge of our finances. However, what I have found is that scare tactics may work to get people to start investing but it does not guarantee commitment. When decisions are based on fear or intimation there is no staying power, within a year people either withdraw or simply stop contributing to the any type of savings plan.

You will be more committed when YOU are the one in the driver’s seat and calling the shots. You don’t have to be a financial expert to do this. You do however; have to know what YOU want.  If you don’t know what your financial goals are, you will be at the mercy of others. Your savings and investment plans might be designed based on what others think is best for you. I have personally seen the tragedy of going down this path. I know that many people get overwhelmed, especially when there are thousands of mutual funds and countless other savings vehicles to choose from. It is no wonder that people get confused and are overwhelmed. When this happens, they simply go to the default or worse, do nothing.

Here is what I have to tell you. You don’t have to know everything about mutual funds or other savings vehicles to be in charge of your financial destiny. You simply have to know what you want to accomplish. This is the foundation for everything. From this point you can start building your investments based on your goals and objectives. You will be in a better position to guide your advisor. If you have a good financial advisor, they will work hard to ensure that the investment vehicle chosen will suit YOUR specific needs.  You will find that it is easier to commit to investing and saving when YOU make the decision and not when it’s made for you.

I know this wasn’t a typical budgeting post. My aim was to show that the successful budgeting goes beyond the numbers.  We need the tools to design a budget, but that is only the beginning. Real budgeting success requires commitment, discipline and determination and an understanding of what forces are out there to distract us.  We need to stop thinking of a budget as a straitjacket and starting seeing it as a springboard from which to launch one’s financial success.

I would love to hear from you, what’s your experience with budgeting?

Dr. M

Finance is NOT about the numbers, Knowledge and Application


I am always on the quest for knowledge. I usually want to know everything about a topic. Doing research is pure bliss. Over the years, however, I have come to realise in a very poignant way that knowledge without application is useless. Like many, I may know something intellectually, but never really put it into practice.  For me, it’s been being more mindful. I have studied mindfulness and its effects on the body and mind. I know it is something that I should be doing and I know only good can come of it, but do I practice it? Not as regularly as I should. Having the knowledge is great, but it is really useless if I don’t apply it.

I truly believe that many of us instinctively know what we need to do. The “secret” formula I gave you before is one that you already know. The question is, do you do what you’re supposed to, knowing that it will be to your benefit? Many people understand that amassing wealth requires savings and disciple when it comes to spending. As adults, we all know the difference between needs and wants. We all know that we have to prioritize in order of importance when making everyday purchasing decisions.  How many follow us actually do this and do so consistently?

Case in point is a budget.  Having a budget allows us to keep on course. It is our navigating system to reaching our financial goals.  During my consultancy, I have found that my clients were aware of the need for having a budget and they all agreed that it was important to have one. I helped many of them craft beautiful, functional and executable budgets, only for it to be saved on their computer or phone and never be implemented.

So why it is that even though we all know what to do, we still don’t follow through. We turn to the field of cognitive psychology-more specifically cognitive dissonance for some answers. Psychologist Leon Festinger in his book, A Theory of Cognitive Dissonance, noted that people have an internal need to ensure that their beliefs and behaviors are consistent. When they are not it leads to disharmony, which people attempt to avoid. We then find a way to reframe the decision so that it is consistent with our initial belief. For instance:

“The person who continues to smoke, knowing that it is bad for his health, may also feel (a) he enjoys smoking so much it is worth it; (b) the chances of his health suffering are not as serious as some would make out; (c) he can’t always avoid every possible dangerous contingency and still live; and (d) perhaps even if he stopped smoking he would put on weight which is equally bad for his health. So, continuing to smoke is, after all, consistent with his ideas about smoking.”  (Festinger, 1957)

Many of us fall into this frame of thinking, whether it is Buyer’s Stockholm syndrome (where we rationalize making bad choices, usually expensive ones) or current moment bias, where people tend to prefer pleasure in the current moment and dealing with the pain later. Current moment bias was demonstrated in a study done by Read and van Leeuwen in 1998. The study showed that when people had to make choices about their snacks for the week, 74% of participants chose fruit instead of chocolate. However when the snack choice was for the current day, 70% picked chocolate.

The reason for the contraction in belief and behavior may be because many of us have a hard time seeing ourselves in the future. So changing a habit or behavior today doesn’t seem that urgent. So knowing that you have to stick to a budget may seem important over the long run, but not today when you’re out shopping. It doesn’t seem like the end of the world if you splurge a little.  Too often, one day turns into two days, then three days, then into weeks, then into months, and worse, into years!

Another reason why we don’t put our knowledge into practice may be because we haven’t given ourselves time to digest what we have learned. We read a blog here, we listen to talk there, and we get information from the news, from friends, from experts. When do you take the time to filter and process?


Here are a couple of suggestions that can help you synthesise what you have learned to avoid cognitive dissonance and current moment bias. Set aside some time after you have read or listen to some information that can really be of benefit to you and:

  • Assess what you have learned about yourself.
      • Figure out your money mindset and personality, where do you stand on this issue.  (See previous post)
  • Assess your ability to do what is required.
      • Can you make and stick to a budget?
      • Can you start saving?
      • What will it take for you to begin?
      • Make a list of the things you know you CAN do and a list of the things you know you need HELP with.  For instance, you can save but you may need help with developing a budget. Or you may need some specific advice on deciding what type of investment to make.
  • Make an implementable TO DO NOW list. Emphasis on the NOW! Start with your top three or four actions you can take NOW. For example, I can
      • Open up a savings account today and start putting aside some money ( regardless of the amount)
      • Start with a debt repayment plan
      • Cut back on non-essential spending, such as coffee, reduce eating out and prepare meals at home (this one has both financial and health benefits!)
      • Explore how I increase my earning capacity -start looking at options for career advancement.
  • Finally, surround yourself with likeminded individuals. If you are in an environment that is supportive of your goals your chances of success will significantly improve.

Financial success requires substantial behavioral changes and it affects many facets of your life. No one can determine where, with whom and how you have to be. Only you can do that. The last suggestion is usually one that is very difficult. In no way I am saying that you should eliminate people from your life because you want to start building your net worth, but you will have to consider how your relationships affect you financially and what you can do to mitigate the effects if need be. Only you can make that determination.

I would love to hear what’s on your TO DO NOW list.

Dr. M

Finance is NOT about the numbers- Income

Today we will examine the role of income in wealth accumulation. Income is a significant component of your ability to grow wealth. How do you manage your income? Do you have a systematized approach? Do you spend first and save later or save first and spend what’s left? Are you making conscious decisions as to where, how much and on what you spend your income on? It may seem that I am always asking questions. There is a purpose to my questions. It is to make you stop and take stock if you aren’t doing so already. Questions allow us to define tasks, expose shortcomings and outline issues. Only when we ask questions can we find answers.

Now let’s examine the factors that determine our income and explore some possible strategies you can take to maximize your earning capacity. There are two factors that determine one’s level of income, these are education and ability. Your education determines at what level you will enter the workforce. Your ability, will determine how far up the ladder you will raise. Each of these factors is a function of several other factors that are specific to you.

Let’s start with your education.  It’s the door opener. Your income level is a function of your educational qualifications (which is a function of your cultural background and your parent’s educational and financial background).  Your level of education determines your entry position in the workplace.  It generally determines your life time income. The chart below shows a direct correlation between life time income and level of education. It may seem discouraging if you don’t hold anything above a Masters or even a Bachelor’s Degree.


However, things are not always what they are graphed to be! It has been the general paradigm that higher education means higher income. However, we have notably examples of individuals who didn’t graduate from college and who have made more money and have had more impact on the world than we can dream of.  A few names come to mind: Steven Jobs, Oprah, Bill Gates. Walt Disney didn’t even finish high school.

The world is changing every day. How we do business, how we communicate, how we work, are all under the process of transformation.  The old paradigm of study hard, get a degree, then find a steady job until retirement is fading way into the distant past. There is also a brewing revolution in education as well. People like Sir Ken Robinson and Sugata Mitra are challenging the current educational paradigm and both make very compelling cases for change.


How is this relevant to you? Well, it means that your level of education DOES NOT dictate: who you are, what you are really capable of and what your true earning capacity can be. This brings us to the second factor that affects income and that is ability.  Your ability is not always a function of your academic qualifications. It extends beyond that (I dare say sometimes it’s independent of it).  There are always avenues for advancement; you just have to find them. Here is where to ability comes into play. How resourceful are you? Do you know where you want to be in your career?  Do you have what it takes to make your way up the ladder?  Are you willing to do what it takes to climb your way to the top? What’s stopping you, gender, age, archaic policies?  How can you overcome these hurdles, if they exist?

There are three dominant key factors that significantly affect one’s earning capacity in any field or industry and can offset any negative bias. These are:

  • How others value what you do?
  • How well you do what you do?
  • How difficult is it to replace you?

If you are able to create value while doing an outstanding job you will become irreplaceable. All great companies and valued employees meet these criteria exceptionally well.

Value is an intangible perceived benefit that someone will pay you for, because they derive a high level of satisfaction from consuming whatever it is you’re selling.  If you can explain to your customer or boss why they should choose you and you can demonstrate to them that you are the best person for the job, you would make yourself valued and indispensable. Case in point, Apple is not the only store selling phones and computers. Amazon is not the most prestigious book seller. Tiffany isn’t the cheapest jeweller. People buy from these companies for reasons other than their products. They buy from them because they represent a lifestyle or philosophy that people resonate with and want to be part of.  You may not be the employee with the most academic qualifications, but you may be the one that is able to rise the fastest in the organization because: you are well liked, you do superb work, you innovate and come up with clever solutions, and you naturally motivate people around you. The point is your success doesn’t’ lie solely in your academic qualifications, but rather in your ability to add value and become indispensable wherever you go.

If you want to start creating value and become indispensable in your organization start taking some initiative. Here are some ideas for you:

  • Always be willing to help, ensure that your colleagues see you as someone who can get the job done. Take on challenges.
  • Always deal with problems swiftly and fairly.
  • If you can find alternative solutions which are more efficient or can save the company money, speak up
  • Always be prepared. Know your field inside out. People should come to you for answers.

By now, I think you are starting to get the idea that although the secret formula for wealth is simple, the process of wealth creation is a bit more intricate.  Your income level determines the scope and speed of your ability to accumulate wealth. So it is important to understand the ways in which you can maximize your earning potential.

What is the one thing you can do today to start adding value with your business or place of employment?  I would love to hear what your plans are, drop me a line and let me know.

Until next week…
Dr. M

Finance is NOT about the numbers-Uncovering your SPENDING PERSONALITY


In the last post, I gave you the formula for financial success and I made it clear that having and keeping money starts with having the right mindset. During the course of the next few posts I will dissect the “secret formula” to reveal the factors that really control your financial life. Through this process, you will come to see that wealth accumulation has more to do with your psychology and environment than how much money you have in hand. The purpose of this exercise is to bring into proper perspective, what actions need to be taken to get you on track for financial success.

One of the two main components of the SECRET FORMULA is spending: (Save>spend)*(1+r) t.

Spending is a function of:

  • Mindset
  • Spending personality
  • Income
  • Knowledge and Application of core concepts ( needs vs wants, prioritising)
  • Having a budget
  • Follow through with the budget

You can refer to the previous post to see the discussion on mindset. Today the focus is one your spending personality. We ALL love to spend. For many it’s therapy. I admit, like most people, I LOVE shopping and I don’t mean grocery shopping. I mean shopping, shopping, you know, on things you don’t really need but are just fun to have. How many of you are smiling right now because you know EXACTLY what I mean.

There is a natural aversion to thinking about one’s personal finance because many feel to start building wealth means giving up having a life. However, building wealth and having a great life does not have to mutually exclusive. It does not mean that to accumulate wealth, you have to save every cent and never give into a whim. We have to find as the Buddha said, the middle path. We must have balance. He who dies with the most money doesn’t necessarily win. Building a nest egg shouldn’t be a tedious task; it should at minimum be a comfortable process. This process can be made easier when you know what type of spender you are. What is your default tendency when you have cash or when your credit card limits has increased? This is a crucial piece of information for you to have. When you uncover your spending personality,  you can then take action as needed.

There are many websites where you can go to and take an online quiz and assess your money and spending personality. You can find a good money personality quiz at   Generally, you will fall into one of the following five personality types:  investor/amasser, debtors/ avoider, saver/hoarder, money monk and spender.  The MONEYHARMONY site gives the following definitions of each.


If you tend to be a money amasser, you are happiest when you have large amounts of money at your disposal to spend, to save, and/or to invest. If you are not actually spending, saving, or investing, you may feel empty or not fully alive. You tend to equate money with self-worth and power, so a lack of money may lead to feelings of failure and even depression. If you hire an investment advisor or financial planner, your major concern will be finding investments with high rates of return, since you hope to make as much money as you can, as quickly as possible. You probably enjoy making your own financial decisions, so it may be quite difficult for you to give up much control to money professionals. If, on the other hand, you tend to be a worrier, too, and if you are tired of being overly obsessed with your money, you may actually welcome the opportunity to assign some of the details of your money life to a trustworthy financial advisor.


If you tend to be a money avoider, you probably have a hard time balancing your check book, paying your bills promptly, and doing your taxes until the very last minute. You may avoid making a budget or keeping any kind of financial record. You won’t know how much money you have, how much you owe, or how much you spend. You may avoid investing money, even if you do have some, because it seems like too much trouble to attend to such details. What fuels this avoidance? You may feel incompetent or overwhelmed when faced with the tasks of your money life. If you are an extreme money avoider, you may even feel a kind of money anxiety or paralysis when faced with money tasks that resemble the feelings associated with math anxiety. Some money avoiders share with money monks the belief that money is dirty. Others have a kind of aristocratic disdain toward the boring, seemingly unimportant details of their money life. But most avoiders are more prone to feeling that they are inadequate or incompetent in dealing with the complexities and the details of their money life, rather than feeling that they are above such dirty work.


If you tend to be a hoarder, you like to save money. You also like to prioritize your financial goals. You probably have a budget and may enjoy the processes of making up a budget and reviewing it periodically. You most likely have a hard time spending money on yourself and your loved ones for luxury items or even practical gifts. These purchases would seem frivolous to you. You might very well view spending money on entertainment and on vacations – and even on clothing – as largely unnecessary expenses. If you think about investing your money, you tend to be concerned not with liquidity but with future security, especially during retirement. “Saving for a rainy day” appeals to your orderly nature. If you are an extreme hoarder, you may want to keep your money so close to you that you avoid putting it even in conservative investments such as money markets, bonds, or mutual funds. Some hoarders have been known to keep their money hidden under mattresses and in other secret places rather than put it in a bank. However, these cases are relatively rare. Depending on how extreme your hoarder tendencies are, you might exhibit some, most, or all of these traits.

Money Monk

If you are a money monk, you think that money is dirty, that it is bad, and that if you have too much of it, it will corrupt you. In general, you believe that “money is the root of all evil.” It stands to reason that you identify with people of modest means rather than with those who amass wealth. If you happen to come into a windfall somehow (through inheritance, for example), you would tend to be uneasy and even very anxious at the thought of the influx of so much money. You’d worry that you might “sell out,” becoming greedier and more selfish, and losing sight of positive human, political, and/or spiritual ideals and values. You would probably avoid investing your money, for fear that it might grow and make you even wealthier. If you were willing to invest some of it, you would most likely be comfortable only with socially responsible investments that reflected your deeper values and convictions and that contributed to causes you would like to support.


If you are a spender, you enjoy using your money to buy yourself goods and services for your immediate pleasure. You probably get satisfaction from spending money on gifts for others. The odds are that you have a hard time saving money and prioritizing the things you’d like in your life. As a result, it may be difficult for you to put aside enough money for future-oriented purchases and long- term financial goals. You may spend most or all of the money you earn, and you may even be in debt. Now, it is important to realize that some people who are in debt are not spenders; they may simply not make enough money to meet their basic needs. If your own income is insufficient to meet your expenses, you are facing a real money crisis. You will have to come up with strategies to generate more income.


When you determine your spending personality you have to figure out whether or not it’s serving you. If you’re satisfied, then there is nothing to do except continue along. If however you realise that your personality type does not suit your financial goals, then you need to change it.  To figure out how to change it, you will have to find out where it originated. When did you start exhibiting signs of this personality type? Your spending personality is usually determined by environment that you grew up in. Your family’s cultural background, your parents’ educational level, the school you went to, the area you lived in and the friends you had all contributed in some form to your ideas about money and spending. All of these factors affect how you interact with money today. Tracing the source of the behavior will allow you to develop a plan of action sooner. It is important to take the time to determine why you spend the way that you do and then take concerted efforts to change it, otherwise be prepared to continue along the trajectory that you are currently on.

The reason you need to find out your spending personality and make changes if need be, is because your spending personality determines the amount and frequency of your savings. The amount and frequency of your savings determine your ability to accumulate wealth. The less you spend, the more you have to save. The more you save, the more you grow. Researchers have recently shown that there is an area in the brain called the insula which affects how we spend money. The insula is the source of social emotions, like desire, disgust, satisfaction and responsibility.  Now, whether spending brings you pleasure or pain will depend on your perception and values on money. This will determine whether your brain sees spending as a pleasure or a pain. Whatever association you have garnered over the years will affect your insula response which further accentuates the spending pattern. If you associate spending with pain, then the less likely you are to keep doing it because you would stimulate the insula which will produce emotional pain. If, however, you associate pleasure from spending, then neurologically you will get a lot of pleasure from this behavior. Understanding your spending personality and determining the emotional response that it elicits, allows you to make appropriate changes as needed to achieve financial success.

It is important to recognise that your spending decisions are not always rational, your subconscious (learned behavior about money) triggers various emotional responses to spending and depending on your behavioral biases you can be a disciplined spender or an impulsive one. When you’re aware of these mechanisms you’re able to take control and direct your spending based on your goals and objectives rather than leave it to undisciplined unconscious behavior.

Take the challenge and find out what type of spender you are.  Feel free to share with me what you found out and let me know what, if any changes you have to make.

Dr. M

Finance is NOT about the numbers, it’s a MINDSET


I am going to skip the introduction and get straight to the point. Here is the formula for financial success: save more than you spend, invest that amount at a decent rate of interest and watch compounding do it’s magic.  The longer you save and/or the higher the interest rate, the richer you will be! It is as simple as that.  This can be expressed in the pretty formula below.

THE SECRET FORMULA: (Save>spend)*(1+r) t

The formula for financial success is SIMPLE, but as you may have already guessed it’s not EASY. Each of the components of this success formula is a function a set of unique personal variables which you may or may not have control over.

A comparison that is often used because of its parallel modality is weight loss. We all know the basic formula for losing weight; eat healthy, exercise more and over time the weight will come off. However, in spite of  hundreds of diets and exercise programs on weight loss, many still find it to be a struggle. The various diet and the exercise programs are all tools. They will only be effective when a person has understood what caused the weight gain and what is required to lose the weight and this is a very personalized process. Only after figuring out what caused can solution plan be formulated and implemented. This would result in a  an appropriate diet and exercise plan that is catered specifically for them. One size does not fit all!

It’s the same with finance. We know what it takes, the road to financial success is pretty straight forward, and there are many tools and strategies along the way and these can be confusing. However, even before employing any of these tools and strategies we need to step back and examine what brought you to your current financial position in the first place.  If you’re financially sound and are doing well, my advice would be to keep doing what you’re doing. If, however, you’re not happy about your current financial situation and would like to change it, you have to do some soul searching. How do you feel about our current financial status? Do you know your financial personality? What moulded it? Is it working for or against you?  What do you have to do to change it and can you? Sounds touchy-feely?  Maybe, but I can tell you if you don’t answer these questions, then  it wouldn’t matter how much money you amass you will do with it what you usually do and end up right where you are.

We must understand our relationship with money before we start spending or saving. We have to figure out what it is we want. Life planning is financial planning and money is a key component. Holding constant your philosophical approach to money, you will agree, I don’t want to seem dramatic, but I will anyway, that next to air, money is crucial for our existence today. You simply can’t function effectively in today’s world without having money. From meeting your basic needs (food, shelter, clothing) to fulfilling our life’s dream (your calling) we NEED money.

If money is so important to our existence, it is astonishing that we don’t spend the time understanding the relationship we have with it and how to manage it effectively. Do you think it’s a coincidence that those who have money always seem to have and those who don’t, never have enough?  It’s the mindset that determines one’s success with money. Having and keeping money starts in your head. It’s 80% of the work. The other 20% is the strategies and techniques and that’s covered in the hundreds of personal finance books and websites out there. Lottery winners are the classic example of how important having the right mindset is to being financially successful. The National Endowment for Financial Education cites research which showed that 70 percent of people who suddenly received a large sum of money (lottery winners) lost it within a few years.


I urge you to take some time and think about what your mindset is when it comes to money. Try answering the questions below. There is no cookie cutter tool or strategy for financial success, it is specific to you. Understanding your mindset about money is the first step on the road to financial success.

  •  What is your first recollection about money?
  •  What did you learn about money while growing up and from whom/where?
  • How was money treated in your home? Was it discussed openly or was it taboo to bring it up?
  • When you were younger was money important to you?
  • Did you ever thing about how you will get money?
  • Did you think you deserve to have money?
  • What does money represent to you?
  • Today, when you have to make a financial decision what are your main sources of information?

I would love to hear from you. Let me know if these were easy or hard questions for you to answer. What did you learn from going through this process?

I will deconstruct and discuss the components of the “secret formula” in later posts, stay tuned!

Dr. M



%d bloggers like this: