“I’m starting with the man in the mirror. I’m asking him to change his ways.”
A lot of people wonder what Michael Jackson was referring to when he wrote these lyrics for his hit song “Man in the Mirror”.
Global politics? Social discontent?
Ha.
It’s obvious!
He was referring to the cognitive biases that plague all of us when it comes to managing our money OF COURSE.
He’s screaming because he’s mad at himself for making irrational financial decisions.
Nobel laureate Daniel Khaneman, detailed in his book Thinking, Fast and Slow, humans are wired to make systematically irrational financial choices.
That’s right. A book. I read sometimes. Not a big deal. Haven’t read this though TBH.
In this book Khaneman (apparently) details how your brain’s natural biases are the single greatest threat to your net worth.
The highest-return investment you can make this month is upgrading the quality of your own decisions. Here are 10 ways to do it.
10. Buffer for the Planning Fallacy
Why it Matters: We consistently underestimate the time and money required to complete future projects.
How to Do It: When setting a budget for a major goal (a renovation, a big trip), calculate your final estimate and then add a 20% contingency buffer. This will help you save the ACTUAL right amount.
9. Acknowledge Overconfidence
Why it Matters: Most of us think we’re above-average investors, which leads to concentrated bets and not enough diversification. It’s like how 80% of people think they’re above average drivers. That math doesn’t math.
The Dunning-Kruger effect is basically just a technical term for the overconfidence bias.
How to Do It: Start thinking: “The market is smarter than I am.” This will help humble you (hopefully) and encourage you to take a more thoughtful, diversified approach.
8. Fight Recency Bias
Why it Matters: Your brain gives more weight to recent events, making you think a short-term trend will last forever.
How to Do It: Keep a simple decision journal. Writing down why you invested in something creates a record of your long-term thinking that you can revisit during volatile times.
7. Use Mental Accounting for Good
Why it Matters: You treat money differently depending on where it came from or what it’s for.
How to Do It: Use this bias. Open separate savings accounts and label them with specific goals (e.g., “House Down Payment”). This makes the money feel "spoken for" and harder to raid.
6. Recognize Anchoring Bias
Why it Matters: The first number mentioned in a negotiation has a powerful psychological pull that frames the entire conversation. You can control this.
Flawless negotiation tactics with anchoring.
How to Do It: In any negotiation, from a car to a salary, do your research and be the first one to state your price. You set the anchor.
5. Avoid Herd Mentality
Why it Matters: It feels safe to follow the crowd, but the crowd is wrong a lot, like a whole lot. The crowd will buy high in a frenzy and sell low in a panic.
You wanna take tips from this guy?
How to Do It: Don’t put too much faith in forums like Reddit for financial guidance. Use it for idea generation, sure. But always do independent research.
4. Beat Lifestyle Creep
Why it Matters: As your income grows, your spending tends to grow with it, neutralizing your progress.
How to Do It: The day you get your next raise, log in and increase your automatic investment contributions before the new money hits your checking account.
3. Defeat Analysis Paralysis
Why it Matters: An overwhelming number of choices often leads to making no choice at all, costing you time and compound growth.
How to Do It: For reversible decisions (like choosing between two similar index funds), give yourself 24 hours to research, then make a “good enough” choice and do it.
2. Fight Confirmation Bias
Why it Matters: We naturally seek out information that confirms our existing beliefs, creating dangerous echo chambers.
How to Do It: Before making a big investment decision, you must find and read one strong argument against it.
1. Counter Loss Aversion
Why it Matters: Your brain hates losing about twice as much as it enjoys winning, causing you to panic-sell at the worst possible time.
How to Do It: Write a one-page Investment Policy Statement (IPS). How? Use this prompt and drop it into your favorite AI model!
This simple document outlines your goals and rules before a downturn, creating a contract with your future, emotional self.
Straightforward but difficult
None of this sounds complicated, but it’s not easy in practice. We’re emotional people! I’m bawling right now!
The key is to plan ahead. Set rules, create systems, and don’t just react.
This how you fight the man in the mirror, just like MJ did with his poor investing habits. Soon, investing will be an absolute Thriller because you’re no longer Bad at it. And the market? You Beat It.
*Actual footage of me trying to moonwalk*
