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Stop Predicting The Future, You’re Terrible At It!

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Coffee and Journaling

We humans are really good at convincing ourselves of our “upper hand” — that we can see the “truth” when others cannot. We repeat stories of winning hands, the right stocks, and big paydays with our closest friends. Examples and supposed successes of prediction are trumpeted in our skewed media landscape, too.

For instance, CNBC and other financial news networks feature stock chartists who create lavish drawings of candlesticks, moving averages, and support levels. Lines are drawn and circles made on fancy touchscreens. When a stock fails to perform as predicted, it’s written off as a statistical anomaly. And nobody returns to the err. The reality is that any stock-picking strategy is fallible because the herd knows about it (or soon will). These technical mavens’ moves are already priced into stocks.

Scientists can also be poor predictors of future technology and advancement. As an astrophysicist, Neil deGrasse Tyson, explains, “…what happens is, if you try to go too far into the future, there is no way you are going to predict the cross-pollination of ideas and fields that produce things that are not extrapolations of anything going on at that time.” He exemplifies this technological development with the iPhone, as it wouldn’t have been created without GPS satellites, cell towers, and the commercialization of space. Variables needed to coalesce and come together to make the idea possible. Predicting each of these individual components is nearly impossible.

Predictive ability chart
Variability shifts from 0 to ∞ across time. From short to long-term periods, our ability to predict what’ll happen next suffers. Also, what do you think of my chart-drawing skills? 😉

Psychologists are another fallible group that’s highlighted for near-telepathic powers. Popular culture seems to hold high esteem for their predictive abilities. They are depicted as readers and savants of the mind. Watch what you’re thinking, they might just read your body language, thoughts, and emotions! The reality is that psychologists aren’t fantastic at predicting behavior; slightly better than the lay public, but that’s not saying much. At their best, psychologists center on past behaviors as predictors of future behavior. Much like the stock chartist or scientist, psychological/behavioral prediction is sort of like analyzing an historical stock market chart and looking for patterns.

In failing to see our losses and failures of prediction, we risk creating confirmation biases. These psychological tricks of the mind make us think we are right — that our hypotheses have time and time again come true. We repress our failures in favor of successes, but in doing so, jeopardize our ability to accurately plan for the future. That’s when we stand to lose boatloads of money.

The fact is, we are fallible creatures. Seemingly, we are basically limited by the amount of knowledge available on the world. At a long enough timeline, nearly everyone fails.

By accounting for predictive limits, we can protect and preserve our wallets. Now, it’s all about what we do with this realization. These are five fast rules for managing your money without genius predictions:

1. Budget based on present day information

The present day includes your current income and expenditures. If you’re budgeting for a car, Christmas presents, or anything else, your budget should account for today’s income — not chances for the future. This will always keep you within limits. Unfortunately, many people use pay raises and predicted promotions to account for future purchases. This mentality can lead to excess debt and complicated repayment plans. Avoid the drama by budgeting based on today’s information — not what tomorrow might be like.

2. Be careful with retirement predictions

Companies like Betterment and Wealthfront have some sexy chartists! They beautifully illustrate the capability of compounding interest and continued investments in average performing stock markets. However, this tends to smooth over the swings of market swings and does not account for the unexpected. In fact, Betterment has a tool that attempts to predict with 50/50 accuracy how your money will perform over a set period, but it’s better to make consistent investments and look at the principal — not the predicted total.

3. Build up emergency funds

From a car accident to strange toenail fungus, you never know when you’ll need to pay for some extra costs. We cannot predict when an accident or the end of a job could occur. To account for our predictive inability, let’s build emergency funds. Most financial experts suggest people maintain about 3 months of solid income, which would cover expenses while you search for a new job or deal with an accident.

4. Avoid following interest rates

Tens of “online banks” are propping up with teaser interest rates. Instead of chasing the next biggest thing, stick with the consistent. For example, Ally Bank has earned my trust and respect after years of solid performance and service. This online bank doesn’t have wacky fees, gives me free checks, and pays a solid interest rate in both checking and savings. When you find a solid, long-term rate, stick with the bank. It pays to find a good company and then worry about making more income elsewhere — not following the next greatest interest rate.

5. Invest regularly – don’t chase bottoms

This tip comes from one of my hardest investing lessons. When it comes to putting money in the stock market, don’t call bottoms. Humans inability to predict is never worse than right here. If you think the market has crashed, you’ll likely be proven wrong. The stock market has tons of false bottoms and tops. Prediction isn’t generally your friend. Instead, I use average investment amounts and make regular investments. When the market suffers, I tend to invest more. But avoid the chase and focus on making consistent investments.

How Psychological Pressures Change Your Spending

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Burger Food Photo Minimograpy

Over the last month, I’ve been working on my dissertation. While writing this tome, I’m continuing clinical work at a local VA, instructing two courses, and creating scholarly papers. This might be the busiest moment of my life. And in about a month, I’ll need to hand over a draft to my adviser. And he’ll decide “go” or “no go.” My future depends on it.

The symptoms of this pressure are powerful. I’ve struggled to write, become a nervous wreck, and have unending indigestion. My stomach burbles and gurgles with unease. Simultaneously, Frugaling has been unusually quiet, and I’ve been shocked by the emails from regular readers wondering how I’m doing (you’re so sweet!). I’ve been unable to write as much as I like.

Eventually the dissertation writing will end. But I can’t help but think, I need to succeed. I’m in control of this moment, and I’ve never been more motivated.

Unfortunately, as I’ve focused on this one area, a handful of others things have faltered. Control in one category, has led to failures in others. It’s like my brain can only concentrate on a few things at once; then, it descends into reactive, non-conscious action. My reptilian brain takes over, and I let autopilot handle the controls.

My ideals of frugality and simple living have taken a back seat to this burden. Even after two years of Frugaling, I’m embarrassed to say I still struggle to maintain a budget when the stress hits the fan. With nearly every moment hunched over my keyboard, hammering away at keys incessantly, old habits are returning.

The inner voice says, “I’m too hungry to wait for home. I want to treat myself for writing so much. I need a break – give me that large popcorn.” Me, me, me, me, me. I crave candy, quick meals, and snacks at strange times. Yes, I want that fatty burger and fries. Yum! All I want is to swipe a worry away and not feel guilty for doing so. Suddenly, I can spend $60-70 in a day’s worth of food. Poof!

These moments highlight the complexity of changing a budget and spending less. We can make great alterations to our lives, and still relapse and regress. It happens. And I think I know why.

See, the first 24 years of my life, I didn’t watch spending, create a budget, cook at home, avoid student/car loans, bike to school/work, or look for ways to save. My brain developed a pathway and logic to deal with nearly everything over those years, including when to eat out, buy a car, etc. Frugality wasn’t in the mix, and it got me into 5 figures of debt.

It’s hard to change anything; especially if that’s all you’ve known. The neuronal structure has developed a keen appreciation for certain types of rewards and feedback. Simply put, my brain expects me to spend when I’m stressed. To change this pattern of behavior requires repeated corrective action, recognition of when I’m slipping, accountability from friends/family, and other reward mechanisms.

One of my psychology textbooks curiously likes to say that after about 6 months of change, a habit can stick. Well, I’m here to tell you that’s not always the case. Despite a couple years of successful behavioral change, I occasionally fight to regain control and relapse to old spending.

Various factors work against me. Twenty-four years of bad habits and a society full of encouraging messages about immediate gratification stack the deck. It’s an uphill battle, but I’m better at waging it than ever before.

I might not have perfected my budget but change has occurred. Today, I can realize when everything is falling apart – spending has gone haywire – and stop. Today, I can write this letter of accountability to you all. Today, I can admit faults while acknowledging strengths.

Frugality isn’t about dogma or perfection. We’re on a journey – together – to find ways to save, spend less, and recapture control when we lose it. There’s power in these lessons and the brain – while stubborn to change – does slowly cooperate.

Congregation Without Consumption

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Mall of America

I often felt lonely growing up. Sometimes it was by choice, sometimes by consequence. Whatever the case, that aching feeling would hit me – I’d want to move, do, fix, and solve the discomfort. Isolation and loneliness prompted me to go out – to frequent places with people.

Unfortunately, people tend to congregate at locations of consumption. You can see it in families taking weekend trips to the mall to walk, eat, and shop. The window shopping and actual shopping make people feel purposeful.

When I’d be down and out, I’d find comfort in the smiling faces of store clerks and fellow shoppers. People were happy to be buying and selling products. The light shined brighter. Smells of candied nuts and pretzels wafted around. And hip music reverberated through the stores. I felt happy for a moment.

From the outside, it seemed like everyone won. Unfortunately, that’s not the case. Conspicuous shopping and browsing can lead to debt, overdue bills, and lessening credit scores (not to mention great environmental harm). There’s a psychological cost to this repetitive reinforcement, as well. The visit makes us happy, and we want to return to duplicate and relive these positive feelings. The purpose is in the purchase. Without the purchase, who are we? Without the mall, where does positivity stem from?

When I first started saving money and becoming more frugal, I didn’t notice my removal from society’s consumptive catches. There was this new purpose to live within my means. That seemed to be enough. I was able to share my journey on Frugaling, too. But over time, I started to feel this lump in my throat. The social outings to spend money at restaurants, go to movies, and frequent trips were severely reduced.

That feeling of loneliness crept back in. With each effort to save, came losses in social situations. As much as I tried to build in free time with friends that was actually free, I realized that it was challenging.

We all want to consume and spend and travel and adventure. There’s excitement and energy in all these activities, but too frequently, there are direct costs associated.

We each need to establish a balance in our lives where we are spending within our means, while achieving our needed social connection with others. To sacrifice the latter may mean suffering greatly and failing to maintain long-term frugality. Suddenly, the endeavor is unintentionally punishing.

To combat and bolster our social support, connection, and integration, we must embrace congregation without consumption. These are the moments circled around a board game, watching a movie at home, cooking at home, biking, running, swimming, etc.

If frugality is a philosophy and way of life, we must define our methods for staying sane and healthy. It should never stand in the way of healthy psychological functioning and connection with others. To say “no” to social gatherings that need money is a tremendous way to save, but costs something more than dollars and cents. There’s a social factor that cuts deep – for both parties involved.

Staying connected and frugal requires proactive planning. The initiative is on you – for better and for worse – to suggest events without a price tag. We are all in this together, but someone needs to start the trend. Longer term, our society must find new homes for purpose and energy with others – something beyond the brightly lit walls of malls.

Now, the important question becomes, Where will you spend your weekend?

Is Capitalism Compatible With Caring?

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Google Campus Photo
Google is known for being one of the best places to work, with some of the happiest employees.

On the cost of caring

Each year, 217 million workdays are lost or less productive due to mental health concerns. Indirect mental health costs on companies are estimated at $59 billion. But some estimates put these costs as high as $80 to $100 billion. These staggering numbers often serve as motivators for human resources departments and corporations to take action and “solve” mental health crises.

For each specific diagnosis, the statistics vary widely. Researchers tend to look at indirect costs, direct health coverage costs, productivity disruptions, absenteeism, and failure to be mindful while on the job. One of the more common ones, depression, costs employers about $44 billion in lost productive time. Additionally, employees with depression miss about 4.8 days of work and 11.5 days of reduced productivity every 90 days.

Another frequent mental health concern in employees is anxiety. Symptoms of anxiety manifest in various ways, but generally are closely linked with stressors. Anxiety disorders cost about $42.3 billion in the 90s. Inevitably, that estimate would likely be far greater today.

The most expensive diagnosis is usually bipolar disorder. From absenteeism to lost productivity to medications, this disorder has a potent effect on profits. In fact, it costs about $6,836 per employee with bipolar disorder. Closely linked, suicide amounts to $34.6 billion in medical costs and work lost. And non-fatal suicide attempts cost $4.3 billion in lost wages and productivity.

Make companies care through stats

All of these statistics come from fairly reputable sources such as the Centers for Disease Control (CDC), National Institute of Mental Health (NIH/NIMH), National Alliance on Mental Health (NAMI), and peer-reviewed journal articles. As an academic, I trust that these organizations are estimating — to the best of their ability — the high price of mental health in America.

In the past, many companies discriminated against applicants with mental health concerns. Frequently, people were ruled out for jobs they would otherwise be qualified for because of mental illnesses. What the CDC, NAMI, and NIMH have worked tirelessly to do is normalize mental health concerns and reduce stigmas. They’ve worked to interject a hypothesis for companies, which is that everybody wins when you care for employees.

Each organization learned that to talk to companies you need to focus on the bottom line: profits. They’ve excelled at making terrific inroads with corporate giants that have instituted better fringe benefits, fun activities in the workplace, and greater time off. They know that companies want happy, healthy workers because that leads to greater sales, revenue, and shareholder returns. And, for the most part, it’s helped.

Treat the illness and profits will boom!

Mental health advocates in the corporate world seem to politely accept that companies are only motivated by numbers. They argue that untreated and undertreated mental concerns cost more than proper treatment.

Understanding this basic premise, companies have accepted a Mr-Fix-It-style psychology. Treat the illness, get better, and then get back to work! Similarly, healthcare companies rarely offer long-term mental health treatment, as it’s limited to short-term, brief therapy. To offer something more substantial would require companies to pay more profits to care for employees.

This pressure has led companies to ask researchers and academics to think of faster ways to treat distress. The question seems to be, How can we rapidly patch people up so that they can get back to work?

Models of treatment have focused on prescription pills and quick rounds of talk therapy to douse the fires. We’ve learned to cap emotional distress — to keep it in line with what corporate America needs.

Companies aren’t the victims, we are

Capitalism is predicated on a fatal flaw: work hard and be rewarded. Unfortunately, people are all born with different strengths and weaknesses, positions in society, and economic hand-me-downs. Working hard will look different for everyone. We are fundamentally created unequal, unlike the founding fathers suggested.

Men are generally taller than women, but that doesn’t mean they should get paid any different. Women live longer than men on average, but that doesn’t mean companies should begin to hire women because they could spend more years working. Our differences must be balanced out, because purely capitalistic forces fail to change the systemic problems.

And just like the aforementioned physicality and livelihood between genders, there’s great variety in mental health needs. People are not raised equally. Some parents are wonderful — others abusive. Some schools are the best in the country, and others are the worst. Some experience difficult traumas, and others seem to float by without incident. Our experiences from womb to tomb will vary greatly, and we need to learn to embrace this fact. Some people will need greater mental health care.

Flipping our understanding of mental health

Anything that gets in the way of working hard, being productive, and increasing revenue has — up until this point — been seen as an impediment. Being depressed has become a “bad” thing that you should avoid. Get that treated! It’s considered a flaw to suffer and hurt, because of the cost to a company’s bottom line. You’re causing profits to dip! Additionally, it’s encouraged people to stay tight-lipped and private about their struggles for fear of being ostracized.

When dollar signs flashed before corporations’ eyes, they listened. They understood that by making their employees healthier, they’d increase their bottom line. It would seem — for a moment — that capitalism was compatible with caring. But what if the money wasn’t there, would companies still care?

Companies desperately need to change the way they do business. Companies must see their employees as autonomous, capable, and creative humans. Companies must provide a space to excel, but also to seek freedom. Companies must look beyond the dollar amounts and pay for better time off and vacations. Companies must do their best to disregard the power of shareholders, in favor of respecting their employees.

Medical and mental health are in decline in America. Our system is bloated, expensive, and frankly, embarrassingly flaccid. It’s time we flip the paradigm. It’s time we say that workplaces need a reboot. It’s time for employers to receive the treatment. Perhaps it’s time to make companies work for us?

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