June 2025 Brief
Managing Your Money and Your Emotions
âDoing well with money has a little to do with how smart you are and a lot to do with how you behave.â â Morgan Housel, âThe Psychology of Moneyâ
Artificial Intelligence is proving it will change the world, but one area AI cannot address is our emotions and behaviors as humans. âRobo-advisorsâ first popped up following the 2008 financial crisis and sought to leverage AI to offer low-cost financial advice and investment management. However, many people are uncomfortable with the idea of a robot advising them about something as important to their livelihood as their money. And like it or not, money is emotional.
Many investors struggle with the disconnect between their goals and reality. This gap is often widened by our emotions, behaviors, and lack of a plan. We may have stated goals such as I want to retire, or I want to save for a second home, but at the same time we are overspending our budget or failing to stick to the investment plan. Financial planning is just that: planning. But IMPLEMENTING that plan means managing your emotions, behaviors, and impulses. Often a client will state they are a moderately aggressive or aggressive investor only to stress and think about selling out during market pullbacks. Others will state their budget confidently just to overspend consistently. Without managing both sides of the planning process â the emotional/behavioral AND the application â we can see significant failure and underperformance to goals and objectives. Â Knowing what is important to you and quantifying your goals is key, but also understanding obstacles to successfully implementing those goals and managing our emotions can be just as crucial to success.
A new approach to financial advice called Behavioral Financial Advice (BFAâ˘) may offer some solutions. BFA⢠combines traditional financial practices with insights from psychology and neuroscience. Financial advisors who incorporate behavioral financial advice help their clients improve their response to their emotions and decision-making behaviors. The goal of BFA⢠is to help advisors have more conversations that connect their clientâs values to their financial goals and, in turn, their financial goals to their behavior, while also recognizing that values and goals change over time. Once you articulate your values and goals, you can begin to see the ways in which you may or may not be living in alignment with your values. The âAlignment Modelâ in BFA⢠is a tool to help clients align their values, goals, and behavior. The issue is almost always behavior, and the solution is modified behavior.
In this age of AI and automation, clients need personalized communication, support and guidance more than ever. BFA gives advisors a powerful tool for meeting clientsâ emotional needs while guiding them towards making more rational decisions. Jennifer Juergens, J.D., Candidate for CFPÂŽ certification, recently obtained the BFA⢠designation and is happy to guide our clients through this process so that they can feel confident making decisions that align with their values and fulfill their goals.