Financial Blind Spots: The Mistakes We Don’t Know We’re Making

What we don't see can still cost us

Happy Mother’s Day, Mom, and all the moms out there! (And children, if you don’t have a card yet, there’s still time.)

I think I’m reasonably self aware, so it came as a surprise when my wife, Mika, recently told me that I needed to work on my grocery store etiquette. Who knew there even was such a thing? I’m just trying to hunt and gather and get outta there.

Yet, after Mika explained it to me, it made perfect sense. There’s a flow to the grocery store, and my myopic fixation on the handful of items I was commissioned to collect occasionally resulted in an interruption to that flow, or worse yet, a reversal to it.

And while habits ingrained over decades can be tough to reroute, I think it’s safe to say that I’m reformed—or, at least, reforming. If nothing else, I’m a willing student. Thanks to the awareness, I’m less of a hazard to other shoppers, and when I err, I’m starting to catch myself.

You see, the thing about blind spots is that we can’t see them.

That’s what makes them so tricky—and often costly, especially when dealing with money.

This week, we’ll explore 8 different financial blind spots—see if you can spot anything familiar!—and 5 ways to invite visibility for what we cannot see.

Of course, Tony will open our eyes to the market week concluded, too, in his informative piece, Don’t Go to the Grocery Store Hungry.

(And yes, it is 100% a coincidence that Tony and I independently based the foremost metaphors in our respective pieces in the same exact location!)

Thanks for joining us!

Tim

Tim Maurer, CFP®, RLP®

Chief Advisory Officer

SIGNATUREFD

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In this Net Worthwhile® Weekly you'll find:

• Financial LIFE Planning:

  • Financial Blind Spots (And How To See Them)

• Quote O' The Week:

  • Carl Jung

• Weekly Market Update:

  • Don’t Go to the Grocery Store Hungry

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Financial LIFE Planning

Financial Blind Spots

What’s your financial blind spot?

maybe your blind spot is overconfidence, a blind spot especially common in men that is pretty well explained in our general unwillingness to ask for directions (when that was a thing).

Or perhaps you’re an emotional spender. Whether to celebrate, soothe, or escape, it doesn’t take much to act on the three most dangerous words in cash flow management: “I deserve it.”

A particularly interesting blind spot is avoidance—ignoring the evidence of financial mismanagement (like NOT reading scary credit card statements) or being unwilling to have a hard money conversation with a spouse, partner, parent, or child.

Undervaluing time is an interesting blind spot, the domain of the die-hard do-it-yourselfer. Is it really worth an entire Saturday to save a couple bucks?

Chronic comparison is an endemic blind spot that has practically become a collective concern thanks to social media. It has a close cousin in image-driven spending, too, when we prioritize others’ opinions of our purchases over our own financial well-being.

False frugality is an interesting blind spot, when we get stuck on micromanaging ourselves—or more harmfully, others—by fixating on smaller pet purchases than the bigger-ticket items (like mortgages, car payments, outdated estate plans, club dues, and other stacked subscriptions) that have more of an impact.

One of the most common blind spots—rooted in our psyche for millennia—is the short-term bias, explained by the phenomenon of hyperbolic discounting, suggesting that we have a very strong preference for that which could enhance our survival today over deferring for an unknown future.

Meanwhile, over-saving and under-living gets a lot less attention than its inverse, but it’s an especially common and damaging blind spot for many who have, at some point in their lives, experienced serious financial hardship.

But here’s the problem: We don’t know what we don’t know, so how do we spot blind spots we can’t see?

5 Ways To See Our Blind Spots

1. Ask someone you trust. Your spouse, a trusted friend, a parent or mentor, your financial advisor—someone who isn’t afraid to speak the truth in kindness, not as a critique, but as a mirror. This is a good place to start in revealing financial blind spots.

2. Review your transactions. We used to say, “Show me your checkbook, and I’ll tell you what’s important to you,” but this is a much easier task today with the advent of online banking and budgeting tools that will auto-categorize all of your transactions. I’ll warn you that can be a starkly illuminating exercise, but by removing judgement and approaching it with curiosity, it becomes a revealing reflection.

3. Pay attention to tension. Our blind spots may live in patterns that we feel that haven’t been named yet, so where do you notice financial friction? That may just be rooted in a blind spot. And for bonus points, what bothers you in others? Eckhart Tolle said, “Anything that you resent and strongly react to in another is also in you,” so, as hard as it is to admit it, acknowledging what annoys us in others often reveals our own blind spots.

4. Tell your personal money story. My wife and I recently did this live and on camera—and good news: Our marriage survived it! In fact, we learned things about the other that we never knew, and it led to insights that are as practical as they are interesting. But you don’t need anyone else to engage in an exercise of self-discovery. Start by answering the question, ideally in writing, “What is your first money memory?” Then, proceed to walk through each of the major financial memories that shaped your youth and young adulthood. What you’ll often find is that your financial strengths and weaknesses today are directly tied to this story.

5. Reflect without should-ing or shaming. We have a tendency to should all over ourselves (and others). But turning this exercise into a shame fest, we risk missing the point and the opportunity. In fact, if the identification of your financial blind spots leads to self-flagellation, it could well backfire on you. If you’ve made financial mistakes, I have good news for you: So has everyone else. This is because money management is as much an exercise in mistake management as anything else.

What I hope you’ll find, instead, is that by making the unconscious or subconscious conscious, now you’re empowered to do something about it. Financial planning is powerless to remedy an unknown illness. And if much has been revealed as you’ve walked through this exercise, my encouragement would be to document all of it and work on just one blind spot at a time.

While we may never eliminate all our blind spots, we can shrink them—with intention, reflection, and a little help from the ones walking the aisles of life with us.

This post was originally published for Forbes.com.

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New Look?

Indeed, if you missed last week’s announcement, Financial LIFE Planning is now the Net Worthwhile® Weekly. If you’re curious why we made the change, you can CLICK HERE to get the scoop!

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Quote O' The Week

Freud ain’t got nuthin’ on this guy:

Carl Jung

“Until you make the unconscious conscious, it will direct your life and you will call it fate.”

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Weekly Market Update

Markets, uh, survived last week:

• + 0.47% .SPX (500 U.S. large companies)

• + 0.08% IWD (U.S. large value companies)

• + 0.16% IWM (U.S. small companies)

• + 0.40% IWN (U.S. small value companies)

• + 0.23% EFV (International value companies)

• + 0.89% SCZ (International small companies)

• - 0.27% VGIT (U.S. intermediate-term Treasury bonds

Don’t Go to the Grocery Store Hungry

Contributed by Tony Welch, CFA®, CFP®, CMT, Chief Investment Officer, SignatureFD

I’m sure you’ve heard this tip before. When you go shopping for the week, you want to have a well thought out list and generally avoid impulse purchases. I know when I go to the store hungry, I’m likely to end up with a cart full of snack foods rather than produce and lean proteins. That’s because it is more difficult to control our urges when we are in a state of hunger. How does the grocery store relate to investing? Well, we want to make our plans when things are relatively calm, setting out a strategy to Grow, Protect, Give, and Live off our assets that is robust and designed to make it through volatile periods. When we make major investment decisions in the heat of volatility, that can be akin to going to the grocery store listless and with an empty belly.

The chart below shows that the worst time to pull money out of stocks tends to be when volatility is very high. It plots the S&P 500 Index in the top clip, and the CBOE Volatility Index (VIX) in the middle clip. The bottom clip shows how far above or below the VIX is from its average level. We can see from the statistics at the bottom that the market has gained over 26% per year when volatility has been high. Investors often make rash decisions in the heat of the moment, but that’s exactly what we want to avoid. Any changes to one’s design should occur intentionally due to changes in life circumstances, not because of near-term drawdowns.

The Message from Our Indicators

Last week was relatively light on economic data, so the main event was likely the Fed meeting and policy decision. The Fed held their policy rate steady in a range of 4.25% to 4.5%. In his press conference, Chair Powell alluded to rising risks for both inflation and the labor market. Market participants are pricing in three rate cuts in the remainder of the year but that may be difficult to achieve if the Fed holds off on a rate cut in June as well.

While conventional wisdom would suggest that lower rates could be a positive catalyst for stocks, history suggests a rapid cutting cycle has been associated with severe market corrections and economic weakness. A slow rate cutting cycle has been a more bullish development for stocks. Powell also brushed off the negative GDP print from the week prior, reiterating that the underlying economic trends are solid. GDP was heavily influenced by trade, which should reverse somewhat as the year progresses. We continue to view economic growth as moderating but not yet recessionary, despite weak consumer and business confidence.

The Q1 earnings reporting season will soon be wrapping up. With 420 of the S&P 500 companies having reported as of this writing, the earnings growth rate has been 13.2% on sales growth of 4.2%. One of the market concerns is that tariffs would narrow corporate profit margins, and that may in fact be the case. But in Q1, margins expanded, suggesting that companies may have some space to absorb tariff impacts, rather than pass the extra costs to consumers. That’s important because consumer price inflation expectations have spiked of late, but would likely begin to recede if realized inflation remains benign. The positive earnings season is also supportive of market valuations. Valuations remain expensive but that has rarely been a problem as long as earnings continue to grow. Rich valuation has historically been a far bigger issue when earnings turn down. Fundamentals therefore remain an asset for the market.

From a trend perspective, the rally that began roughly one month ago has been encouraging. Market breadth has improved and a number of high conviction technical indicators we track have given a bullish message. It is rare for a large correction to resolve without a retest of the prior lows, but is not totally unprecedented. Investor sentiment has been improving but is not yet overly optimistic. There is room for the rally to continue and a clearing of trade uncertainty could help stocks reclaim their prior high water mark. For now, we are cognizant of the potential for a retest but optimistic that the upcoming 12 months will likely see positive returns.

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We wish all the moms out there a very HAPPY MOTHER’S DAY!

Tim