One of the biggest issues that I see within my audience is setting goals and not implementing them, setting goals and not reaching them, or setting goals and being so overwhelmed by them that nothing happens and nothing takes place, and this is something called loss aversion.
In general, I am an action taker. When I set myself a goal or an intention, I tend to get it done. And I’m going to share with you why, and I don’t think is something you will have heard before.
Setting the scene
Imagine for a moment that you are on your way to work; imagine you’re walking rather than driving or commuting. It’s a beautiful day, the sun is shining, and you can hear the birds singing. You’re looking down at the path, seeing beautiful spring flowers starting to blossom and you spot out of the corner of your eye a £20 note. You pick it up and look around, there’s no one around you so you think “What am I going to do with this? I’m gonna put it in my pocket…” For a moment you feel incredible joy that you’ve been lucky enough to have found this money.
You roll it up, pop it in your back pocket, and continue your walk to work. You’re in a great mood and you’re now thinking “What am I going to spend this £20 on?” You approach a shop in the village with a jumper in the window that you’ve had your eye on for some time, and you notice that it’s just gone into the sale. So with this £20 in your back pocket, you walk into the shop, take the jumper off the rail and take it to the cashier. You hand the jumper to the cashier with a little smile on your face, thinking “I’ve just found this £20 note and now I’m going to buy this jumper for myself.”
Maybe you haven’t treated yourself for a while, maybe you don’t like to spend money on yourself because you feel guilty or you feel some shame. It’s fine to spend money on others but not on yourself, so you’re really overjoyed to be able to do this for yourself. You reach into your back pocket for the £20 note and it’s not there. Maybe you put it in the other back pocket, so you check but it’s not there. Maybe you put it in your front pocket or your bag, so you’re rummaging through your pockets and your bag, but the £20 has disappeared.
How are you feeling right now? The likelihood is you’re feeling embarrassed, maybe disappointed, maybe absolute disbelief, wondering where on Earth this £20 has gone.
What is loss aversion?
There has been a lot of research into loss aversion that suggests that the pain of loss is twice as much as the joy we get from a gain. So that pleasure you experienced when you found that £20; the pain you feel at the loss of it is twice as strong as the pleasure you felt.
This is very relevant right now, as of right now March 2020, we are currently going through some economic struggles as a result of the Coronavirus outbreak worldwide. Everyone is on tenderhooks: what’s happening to the markets, what about my investments, should I be investing right now? There’s lots of uncertainty about what’s going to happen. And this loss aversion bias is a human bias, and very relevant right now.
How to conquer loss aversion
Interestingly, when we set goals or intentions for ourselves, they usually centre around a positive outcome: if I save this amount of money I can go on a wonderful holiday, or if I pay down the rest of this debt I can be debt free and then it won;t ever happen again.
What would happen if you turned this on its head, so rather than setting goals and focusing on the positive outcomes, what would happen for you if you thought about the opportunity lost? What would be the consequences if you don’t do this, if you don’t take action? Rather than seeking the positive outcome of goals, what are the consequences if you don’t achieve that goal?
Let’s take an example of ‘I want to be debt free in 6 months’. You’ve worked out that you can do it, and you know that it’s going to improve your financial stress. What would happen if you don’t focus on achieving this, if you don’t put all your efforts into making this happen? What’s the cost to you of that missed opportunity?
Many of you, like me, will be big fans of creating vision boards. I even do this in my Starling Bank app and have pictures behind my pots which really encourages me. But what about doing an anti-vision board?! What would your life look like if you didn’t take action?
I wanted to plant that seed with you today. I’m not suggesting you focus on the pain, but think about the missed opportunities of not reaching those goals and intentions. Instead of focusing on the pleasurable outcome, what would happen if you changed the focus?
Join the next FREE Plug Your Money Leaks Challenge
Book in a complimentary call to discuss how financial coaching can help you move from financial overwhelm to confidence and control.