Home' Trinidad and Tobago Guardian : January 7th 2016 Contents Happy New Year! By now,
everyone would be familiar
with the headlines that the
US stock market had its
worst year since 2008. That
was, of course, the year of
the financial crisis. We would also have noted
the remarks of our Prime Minister, Dr Keith
Rowley, on the state of the economy, notably
the outlook for oil and gas and, at the end of
it all, both at home and abroad, we enter the
new year---2016---with some degree of trep-
idation and apprehension.
This is my first contribution for the year
after an absence of four weeks. It is easy to
dive into the economic matters that we face
and comment accordingly. Those perspectives
will come later as I want to emphasise the
fact that while those matters may have con-
sequences for our financial well being it is, by
and large, outside of our control.
You cannot move oil and gas prices upward,
you cannot increase exploration, and you can-
not alter the trend in the stock market. How-
ever, what you can do is assess your financial
situation and make conscious decisions about
how you intend to manage your financial affairs
over the next 12 months and beyond.
This is a time for resolutions. Many are
made and then abandoned just as quickly. I
am sure many of you have looked at the global
and national financial situation and resolved
to "tighten your belts" this year. In fact, that
was the call of the Prime Minister in his state-
ment on the economy.
But the flaw in most personal resolutions
is the absence of specificity. It is not enough
to want to lose weight, save more, spend less
or study harder. If you do not establish a spe-
cific and measurable goal or target then it is
simply a wish. Based on research conducted
on New Year s resolutions, that wish is usually
abandoned by the middle of January.
So, why is it so difficult to stick to reso-
The reasons are varied but a simple one is
that we make too many of them at once. A
new year is a change in a calendar---that s all.
It is not a signal for stocks to reset from the
day before and now act differently. It is not
a signal for an economy to suddenly change.
Yet, we use it as a tool to make sudden
changes to our lives and this causes problems.
At the start of the new year, what we are
trying to do is change our behaviours and our
habits. Whether it is to eat healthier, exercise
more, or manage our finances---all these involve
change. For change to take root it must become
a habit and a habit requires repetition over a
period of time.
When there are too many changes at the
same time you become overwhelmed and,
eventually, it is natural to lapse into established
behaviours and that marks the end of the res-
olution. One way of addressing this issue is
to link your resolutions to a financial outcome
and create a reward or punishment mechanism
If you have any goals for the New Year that
involve finances, then it is important to realise
that money is an outcome or a result. You
don t simply get money, you have to work or
produce something in order to earn it. In the
same way, you don t suddenly start to save
more. You have to adjust some aspect of your
life and the result of that adjustment is the
opportunity to save more or spend less.
So, if you have a goal to live a healthier
lifestyle, then substitute the Friday after-work
lime for the gym. Take the money that you
did not spend at the Friday lime and place it
in your savings account. The sense of accom-
plishment on both fronts---fitness and sav-
ings---will give you momentum and move you
along towards achieving your goals.
Another approach is to apply loss aversion
to your goals and objectives. If you ever bought
and sold stocks you have experienced the prin-
ciple first hand. You feel good when your
stocks go up and you make a gain. However,
you feel even worse when it goes down and
you make a loss.
This behavioural trait explains why people
will see a stock rise and hold onto it only to
see it fall again. Yet, the same person will want
to bail out of a stock the moment it falls. We
are more averse to experiencing a loss than
we are to enjoying a gain.
You can use this aversion to losses to drive
a positive behaviour. This is a common tactic
in sales coaching which can easily be applied
to your individual circumstances.
Sales managers set a sales target and the
sales agent sets the goal of reaching that target.
For extra motivation, the agent writes a cheque
(sometimes to someone they dislike) and it is
dated to match the end of the sales period.
If the target is met then the cheque is
destroyed. If it is not, the agent incurs a cost
to failing to meet the objective.
Appreciate that this is almost always vol-
untary but the principle of loss aversion pro-
vides a level of motivation that oftentimes
leads to success.
It is the dislike for losses---paying out a sum
of money---as opposed to the monetary gain
from meeting the sales target that tips the
scale. A number of innovative ways can be
used to apply this logic.
For example, a group of friends who all want
to lose weight can each set individuals targets
and offer up a sum of money. If everyone
meets their target then everyone gets back
their money. However, if anyone fails to achieve
what they set out, then their contribution is
shared amongst those who succeeded.
The fundamental difference between reward-
ing yourself versus punishment is that the
reward factor works better for short-term goals
while punishment or loss aversion tactic works
well in the long term. Of course, everyone is
different and these are general points.
In the end, the most important take away
is that you need to take charge of your financial
Recognise that money is the outcome of
other relationships and how you use money
depends on how much you can save and invest.
If you choose to live an unhealthy lifestyle and
end up with high medical costs, it is not
because you don t have enough money but
because you choose a particular lifestyle.
Once you appreciate that and resolve to
approach life differently, financial resources
become more available. Consistently putting
those financial resources to work---whether
through saving or investing---will have a bigger
impact on your financial wellbeing than the
price of oil, the performance of the stock mar-
ket or the stage of the economic cycle.
Focus on what you can control. It s a new
year, the choice is yours: now is the time to
act.Ian Narine can be contacted via email at
Your financial resolutions
BUSINESS GUARDIAN www.guardian.co.tt JANUARY 7 • 2016
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