Cognitive Bias Series: Part 2
The idea of retirement has changed, and we need to look at things differently. Instead of just making sure you have enough money to retire, you need to take the time to consider what retirement will look like for you? Identify ways to use some of your money to enrich your lives. Working with clients through this process involves much discussion and many times challenging their preconceived notion of what their retirement years will look like. Inevitably we uncover a number of cognitive biases that they may have.
Cognitive biases influence our choices and can actually prevent us from achieving and creating what we want. They can prevent you from following your retirement dreams, and allowing you to do what YOU want with your time and money. As you prepare to move forward, and make changes in your life, it’s important to be aware of those biases that may be holding you back.
Here are a few biases and suggestions to overcome them:
- Confirmation Bias - We assume what we believe is fact, even when presented with evidence to the contrary. If you have limiting beliefs about what you can achieve or what it means to be wealthy or happy, you can get stuck in this limited mindset.
Challenge your negative beliefs about money, happiness, and vocation.
- Loss Aversion - We tend to focus more on what we have to loose than what we have to gain. If we have a secure and stable job, its not natural to change careers or pursue our dream. Even when we have a chance to live our dream, our brain will focus on what we have to lose.
Be aware that your brain will be resistant to risk and change. Get control of this fear, and don't fall prey to it.
- Sunk Cost Fallacy - We've dedicated time, money and energy to a goal or a project, so its hard to let it go even if its clear that is isn't going to turn out well. We don't like feeling that we've wasted time or are taking a step back so we end up feeling stuck in our life.
Don't let this prevent you from making a change. If you're unhappy with what you do, making a change is progress.
These biases highlight our natural tendencies to act based on our need for certainty, safety, and comfort. While you won't always be able to overcome these biases, you can become more aware of them. Life experiences, evidence that proves us wrong and even persuasive arguments can help us see things in a more nuanced way. Remember, we aren't naturally wired to follow our dreams. You may need a nudge.