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We’re taking a step back this week. I’ve already discussed the core of budgeting, tools to help you get your goals, and offered best practices to get your money right. Everything is easier said than done, right?

Above all else, we are defined by the choices we make and the behaviors we exhibit. Meaning our financial outcomes have a significant relationship with how we act.

Soooo…….. With all that being said, let’s discuss bias. Bias impacts our lives constantly and most of the time, we have no idea it’s even happening. Here are some forms of bias:

• Confirmation Bias

• Survivorship Bias

• Anchor Bias

• Hindsight Bias

• and so forth… There’s a lot out there

I think Anchor Bias is one of most severe biases that doesn’t get mentioned enough. It can KILL your potential - But how?

What exactly is Anchor Bias?

This bias has to do with us placing a heavy weight on the first piece of information we receive about a topic when making a decision. Think salary negotiations, advertising, news, politics, etc the list goes on. The most unique part of this bias in my opinion is that we have no idea it’s happening.

Here’s how it’s employed - Let’s think about the price of a jacket - say it’s advertised for $50. You are trying to determine how much the jacket is really worth. However, what if you see the same jacket - but it’s advertised for $100 - and it’s now on sale for 50% off and it’s $50!

The first listing of the jacket anchored you at $50. No funny business. The next one anchored you at $100 - selling for $50. The perceived value of the same jacket in two different listings is different - Even though it’s the same jacket! Anchored Differently. You would perceive the first jacket less than the second jacket - since the listing price has been inflated.

If you ever walked into a Kohl’s, you would know that they run their whole business off this concept.

How is it killing my potential?

First, let’s define your potential. Is it financial? Professional? Other? Where is it at today? Are you “anchored” off your current state or perhaps your peers’ states?

I’m guilty of this - looking around to determine your worth, career path, salary, from those directly around us - even if it’s a state we don’t want to be in - but rolling with it because of or perception that it’s a “good deal” or where we think we need to be. Have you ever heard the saying “show me your three closet friends and I’ll show you your future”? Not exactly apples to apples, but very similar.

Carving Our Own Way

Awareness and Intentionality is important here. When we are aware of these often not explicit cognitive devices being employed against us, we can understand it - avoid it - and use it to get what we are aiming for.

A lot of people will stick with what they know - lifestyles, salary, self-worth, because the examples we have been surrounded by our whole lives KILL our true potential, in my opinion.

Perception is Reality

Time to get philosophical - How you perceive the world around you is your reality, but it may not be actually reality. Why do real estate agents drive nice cars? Why do rappers be holding up stacks of cash to their ear? Anchoring you at some “perceived value” of these people. Like air, this bias is everywhere. Understand it’s a mental tactic being used to get a desired outcome, whether an action or opinion about something.

TL;DR - Un-anchor yourself from what you perceive as good and seek the reality you yourself want to live in - leave those anchors behind. I’m hoping that’s a reality in which your finances are staying frosty. Speaking of which, check out my budget template below to get yourself started on un-anchoring yourself from old financial habits.

Stay frosty out there,

Andrew

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