Improving Investor Behavior: The Peloton and tiramisu

If you’re like me, you exercise a lot. Maybe not every day, but you try to hit the gym most days. You sweat, you grunt, you grind it out, every session. Exercise does two things: it makes you hungry, and it gives you a sense of pride or accomplishment. After a good workout, you might feel justified going for a little extra dinner, or maybe that tiramisu on the menu. You know it’s not ideal in your head, but hey, you worked hard for it: you’ve earned it. You justify the tiramisu thanks to the Peloton.

If your goal is to lose weight, a year of this behavior might leave you frustrated. The scale seems to be stubbornly stuck in spite of your efforts to exercise more. You get frustrated, irritated and the thought of “this not fair” can overwhelm you.

A study found people overestimate the number of calories they burn in a workout by a factor of four. They also then consume, on average, about twice as many calories that they had just burned off. It’s difficult to outrun a bad diet, especially when our behavior is working against us.

The amount of time you spend working out is not the only variable in how healthy (or skinny) you are. You need to measure the difference between your output (calories burned by working out) and your input (those delicious desserts.) Focusing on only one aspect of this equation does little to improve the outcome, especially if the good behavior seemingly justifies more bad behavior. An exercise equipment distributor client said that weight management is the combination of pushing weights (exercise) and pushing back from that extra food we think we deserve. It is a simple equation. Does this sound familiar to another area in which people struggle?

Building wealth has many parallels to our example. Over the last 50 years, American’s median inflation-adjusted income has gone from $42,000 to $62,000 per year, while the savings rate has fallen from 13% to 8% of earnings. Most American families are earning more, but it doesn’t feel like it. Too often, the income gains are offset by higher spending. Some of this spending is avoidable, and the result of choices and lifestyle creep. Some of it is unavoidable as inflationary pressures continue to outpace wage growth. Unfortunately, some necessities cost more than they once did.

The dangerous mindset is feeling like higher spending is the goal. It is the mentality of, “I deserve it; after all, I’ve earned it .”When expectations get reset, all luxuries become necessities. That is why people do not feel better off. They have made financial progress but are spending more. Erroneously, financial progress is most often measured by account balance, not financial independence.

True wealth is the freedom to choose what you do with your time, what purpose or passions you pour yourself into, who you spend your time with, and the flow of income (resources) that enables you to have these freedoms. Wealth is the accumulation of income over and above expenses, which is then invested to generate further income. As with exercise, there are two parts to that equation: increasing your income or decreasing your spending. Do one, and the effect is a greater net worth. Do both, and you’re really cooking with gas. The key is consistency in whichever you choose and not modifying one, only to then balance it out with the other.

Spending more of your income is tempting, especially if you just received a raise or a new higher-paying job. Just like it is tempting to eat more tiramisu after you exercised this morning. It feels like you’ve earned it and can therefore justify it. But chasing after a higher lifestyle is a losing game. Someone will always have more, spend more, and have a fancier lifestyle. As you’ve read in this column previously, comparison is a great killer of joy and leads to bad investor behavior.

Health and wealth are often the result of a million small choices we each make every day. Do we hit the gym or the brunch table? Do we take the family on vacation or pay down student loans? Having the discipline day in and out to make smart choices can ultimately lead to success. Yes, there are those born into wealth and those born with overzealous metabolisms, but for the rest of us, the challenge is in those simple little choices that we all make. Make smart choices and watch the benefits compound over time.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Steve Booren is the founder of Prosperion Financial Advisors in Greenwood Village. He is the author of “Intelligent Investing: Your Guide to a Growing Retirement Income.” He has been named by Forbes as a 2021 Best-in-State Wealth Advisor, and a Barron’s 2021 Top Advisor by State. This column is not intended to provide specific investment advice or recommendations.

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