After you’ve spent a few months learning about financial independence, you wonder why people think this is so hard. All you have to do is track your expenses, create a spending plan, save money, invest in a diversified portfolio of low-cost index funds, and rebalance once in a while until you reach your goal. Easy!

But then the little problems start popping up. You’re not saving as much money as you thought. You feel like you’ve cut enough spending, and you “can’t” earn more. How can you save if you can’t earn more? You’re always running out of money before the next payday. You know you need a plan, but you just can’t get started. You had a bad day and you “deserve” to treat yourself to something nice. You can’t decide what to invest in, let alone choose the allocations to use for assets. The financial markets terrify you. It seems like everybody but you is getting rich from stocks. You really like a company’s products, but its stock keeps going down. Your brother-in-law makes you feel stupid at family gatherings for not investing in ostrich farms. You know you’re supposed to rebalance and sell some of your Apple stock, but it keeps going up. It seems as if everybody but you has new cars, nice houses, and fancy vacations. Financial independence probably isn’t all it’s hyped up to be, anyhow. Besides, if you retired early then what would you do all day?!?

Welcome to the fields of behavioral economics and investor psychology. While you’re planning to save and invest, your emotional side is comparing your status to everyone else around you and feeling bad about it. You suffer the pain of a loss much more strongly than you feel the pleasure of a gain, and that feeling of pleasure lasts for a much shorter time than the pain. You have trouble perceiving the person you’ll become in the future, so you tend to favor enjoying yourself in the present.

What in the world is going on here? What’s wrong with us?

It turns out that humans have evolved much more slowly than the technology and the environment that we’ve created for ourselves. As we sit at our computers with a cup of coffee, our brains are more highly optimized to scan the Serengeti Plain and work with the rest of our tribe to bring down an antelope while avoiding predators. We’ve created a whole internal library of survival routines based on speed and reflexes, not so much on thinking. We’ve also developed a set of procreation routines that quickly figure out our relative social position in our tribe and optimize our chances of passing on our genes. Then after a few years of parenting, well… we’ve pretty much outlived our utility to society.

We can’t force our brains to develop to the same degree as the 21^st-century Internet. But we can be more aware of our shortcomings, and the repeated doses of humility couldn’t hurt either.

“You Are Not So Smart” was published in late 2011. It’s based on the blog posts of writer David McRaney, a journalist who’s fascinated by psychology. He started the blog in late 2009 because he’d been doing a lot of television work and he missed good ol’ fashioned writing. Each post takes hours of research, verification, documentation, and… hard-core descriptive writing. After more than two years, the blog is only a couple dozen posts. It created a media buzz, though, and the publishing industry has learned to keep an eye on the blogosphere. Eventually an agent connected McRaney with an editor.

The book is 48 short essays describing different psychological “issues” that researchers have discovered with the way we perceive our world. Not all of the blog made it into the book, and the book has far more new material that’s not on the blog– so read them both. I recommend subscribing to the blog with an RSS feed and meanwhile reading its older posts every week or so. It’s a lot of material, it’s going to mess with your head, and it’s going to change the way you see your world. It’s all good.

As you learn how not-so-smart we really are, you wonder how we survived to adulthood. The reality is that our brains work very hard to make patterns of our perceptions and to draw conclusions from our experiences. Whether any of it makes sense to begin with is a problem for the philosophers and the priests, but our brains merrily keep writing a script that may or may not resemble the facts.

Most of our thoughts and our actions are still driven by emotional reflexes. We’re especially good at seeing patterns and making fast judgments. When we’re strolling in the woods and our eyes notice that a bush appears to have a tiger hiding in it, our senses and the primitive segments of our brains are sounding the alarm and flooding our bodies with chemicals. We know that these woods don’t have any tigers (well, not since the morning newspaper, anyway– how’s the zoo?) but logic is no help right now. We survived by seeking the worst case in every situation and then making a snap decision to fight or flee. Sure, you look pretty silly if you jump away from an oleander bush in the local park, but your brain is rewarding itself for saving your life. If your highly logical cerebral cortex had halted your walk to stare at the bush until you’d parsed out its features, perhaps poking around in it a little to test your analysis, then you’d be tiger food.

Unfortunately for our potential powers of logic and analysis, the primitive parts of our brain do this all the time. We notice a few features of a situation or a few aspects of a problem, we create a pattern, and we quickly leap to conclusions. These heuristics dramatically speed up our processing and our actions, and they still might save our lives if there really was a tiger in that bush, but otherwise they’re just plain wrong.

Wrong? No problem, we’ll change our memories! When we make mistakes, we keep re-writing our internal script to boost our morale. In prehistoric times the sad, introspective guys never got the hot chicks. They died without passing on their DNA. The rest of us evolved to fool ourselves into procreating and evolving our morale-boosting genes. When we realize that we’ve missed something, or that we formed the wrong conclusion, our brains literally change our own memories of those events to make them seem less “wrong” than they actually were.

Yeah, I know, you’re skeptical. Yet experiment after experiment has demonstrated this in the lab, and now medical researchers can see the effect taking place during real-time MRI scans. Your memory really is partly fiction, but you feel pretty good about it and you’re looking forward to editing experiencing those new memories.

So how in the world can we save for financial independence when our prehistoric brains keep getting in the way?

Self-awareness is the first step. “You Are Not So Smart” can’t keep us from behaving the way we’ve evolved to behave, but it can make us more alert to our flaws. Instead of being paralyzed by investment choices and decision fatigue, you’ll learn how to make one or two important decisions and then put those plans on autopilot. Instead of believing the illusion of control, you’ll learn to optimize the few aspects of investing that you really can control. Instead of avoiding all of the risks (and missing out on the rewards), you’ll learn how to design a portfolio that’s able to minimize losses while maximizing returns. Then you’ll figure out what rules you want to follow in your system and you’ll stop agonizing over the decisions. You’ll also learn how to assess your progress and feel good about it, even if you have to give yourself a pep talk once in a while. Sometimes re-writing the script to change your view of the world is a good thing.

Best of all, the book will make you humble about your actual capabilities. You have never perceived your own tragic flaws so clearly, and you’ll learn how to compensate for their effects. You’ll develop a little inner voice to help you question your instinctive responses to life’s situations, and you’ll stop being so hard on yourself for making all those mistakes. In fact, this book will give you the tools to do an even better job of rewriting the script of your life! At least you’ll recognize what’s happening and (hopefully) intercede before it’s too late. Or you’ll keep trying again until you get it right.

Does this really work? You bet: the U.S. Navy’s submarine force is living proof. We train and drill relentlessly, often far past the point of diminishing returns. Whenever mistakes are made at operating a sub’s nuclear reactor, submariners are unhappy experts at sitting down and talking it out in an “incident critique”. We have to, because we’re required to explain to the four-star admiral at Naval Reactors exactly what happened and how we’re going to make sure it doesn’t happen again. (We’re responsible for delivering the bad news before someone else discovers it.) NR has read a lot of those letters over the last 60 years, and they can sense delusional thinking a mile away. “Gee, something must’ve broken” just doesn’t cut it. We have to “identify the root cause of the incident”, and “material failure” is only running at about 5% in the NR database. “Operator error”, however, is way up there in the 80%-90% range. The nuclear inspectors visit subs every year (sometimes more often) to review all of their records (comparing them to the rulebooks) and to watch them run their training. The inspectors don’t even attempt to tell the crew why they’re screwed up or how to fix their program. They just dispassionately record the deficiencies and estimate where that crew ranks compared to the rest of the force. Then they let the commanding officer figure out the “why” and “how” of the corrections.

Brutal? It’s the most humbling experience you could ever have. Effective? Judge for yourself. There hasn’t been an SL-1 reactor accident or a Fukushima or a Chernobyl, not even a Three Mile Island, in the submarine force yet. There have been many mistakes and a few close calls, but (so far) we’ve been able to engineer the designs for safety and redundancy while making sure that we’re not fooling ourselves too badly. We’ve also learned that Murphy’s Law works overtime in our lives, and we try to give ourselves plenty of room for mistakes. We’ve trained ourselves to seek criticism (even to enjoy it) and to question nearly everything we do.

Heck, somebody at Naval Reactors is probably reading McRaney’s book right now and taking notes.  I’m glad I’m out of uniform.

But nukes are all too human. We still eat too much of the wrong kinds of food, and we don’t exercise enough. We put too much pressure on ourselves and we misbehave in lots of other ways. (Just ask my spouse or my daughter.) The difference is that we’re hyper-aware of it, even if we’re not fixing our behavior or the problems that lead to it.

I don’t know as much about the other military services, but I bet there’s a similar practice/critique cycle at work in all of them. Aviators and infantry would go extinct pretty quickly if they didn’t figure out how they’re fooling themselves and learn how to modify their behavior.

If you’re a servicemember or a veteran (or if you live with one) then you can apply those same skills in your personal life. You’ve seen it in training and operations. You’ve experienced it, and maybe you were even in charge of executing the program. You can figure out how to make it work for you in your career, your investments, and your goal of financial independence. “You Are Not So Smart” will show you the flaws and give you the tools to cope with them.

Oh, and those six-pack abs you’ve always wished for? If you don’t have them yet, then this book will show you why it’s all your fault. You’re going to have to re-write your own script to start exercising more and eating better food. The good news is that you can start today, and you can try as many times as you need to get it right.

Related articles:
“You Are Not So Smart”: Coffee
Book review: “All The Money In The World”
Book review: Stop Acting Rich
Book Review: Liz Weston’s “The 10 Commandments of Money”
Book review: Leaving the military for “The Corner Office”

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