By Carl Richards This article originally appeared on www.nytimes.com on June 30, 2014.
Expectations are funny things. When we start to expect something, we also start to count on it. Once we start counting on something to happen, we start to make plans. Then, if we aren’t careful, we even start to act as if it’s already a reality. In our minds it becomes something that’s guaranteed to happen.
This attitude can lead to very risky behavior. Say you received a bonus the last two years. I bet you’re expecting it again this year. Of course, there’s nothing wrong with thinking positively — unless you’re already spending the bonus before you have it. I know of more than one person who assumed they could afford a more expensive house or a fancier car because the expected bonus would make up the difference. Then, when it didn’t happen, they were left scrambling to make the numbers work.
It’s no surprise that we also play the expectations game with our investments, too. We almost all have expectations about what the markets will do in the future, and it’s not just individuals who have these expectations. A recent report from the Pew Charitable Trust indicated that state pension plans, on average, are making plans based on an assumption of future returns close to 8 percent. That sounds great in theory, but what’s their backup plan if it doesn’t happen?
We’re particularly good at building up our expectations around our future goals, too. In many cases, we’ve worked toward a particular goal for a really long time. Then, if it doesn’t happen, often because of something outside our control, we feel shortchanged. I’ve had several conversations recently with people who feel like their lives just don’t match their expectations. As a result, they’re incredibly unhappy, even though from the outside looking in, they appear to have great lives.
All these examples remind me of a definition I heard many years ago for disappointment: It’s the difference between reality and expectations. If that’s the case, then it strikes me that we aren’t asking ourselves the right questions when it comes to our expectations. Even more important, we aren’t positioning ourselves to behave reasonably when expectations don’t become a reality.
With that in mind, I suggest giving expectations a reality check by asking ourselves three questions.
■ Does it do any good to have expectations?
You can make a strong argument that having expectations can cause of a lot of pain. By setting an expectation for a specific outcome, we become heavily invested in that outcome. But so often we aren’t in control of how things turn out. We’re only in control of our day-to-day actions. In other words, we’re often only in control of the process. For instance, we can have expectations about what retirement “should” look like, but we ultimately control very little of the outcome.
Just take a look around. I have a strong sense that what baby boomers expected retirement to look like 40 years ago doesn’t match up very well with the current reality. Things change and circumstances outside our control can upend even the best planned expectations.
■ If we have expectations, are they realistic?
I love mountain biking, but I also know that while I may become a better rider, there’s a ceiling on my ability. Between my age and talent, I know I won’t be signing any sponsorship deals. But because I’ve kept my expectations realistic, I still get a lot of pleasure out of doing better in a race this week than I did last week. Too often, I think we subscribe to the very American way of thinking that anything is possible if we just try hard enough. Then, we’re shocked and unhappy when things don’t work out the way we expected.
We can’t overlook certain, fundamental realities. For example, if you expect to become a multimillionaire but delay saving or investing any money until you turn 45, the odds are stacked against you. It’s not impossible, but it is highly improbable and an almost guaranteed path to disappointment. If we have expectations, they need to be grounded, at least in part, with our current reality.
■ Have we set expectations based on our neighbors’ expectations?
Peer pressure is incredibly difficult to handle, even as adults. Think about the conversations we have at the office, in the grocery store or at the neighborhood barbecue. We hear about the neighbor buying the vacation home or the co-worker who found a way to beat the market. We’re tempted to try to match, or even surpass, whatever they did. But in our heart of hearts, do those things really matter to us or are we caught up in the game of trying to outperform the rest of our group?
It’s a slippery slope when we start comparing what we say we want to the wants of the people around us. We don’t live their lives and they don’t live ours, so why do the human version of comparing apples to oranges? When we set expectations, we need to be really clear about their source. If those expectations come from a third party, we need to seriously consider whether they’re worth the potential disappointment.
Getting more realistic about our expectations isn’t an excuse to be lazy. We still need to look ahead and take steps to improve our situations, but we can’t let what we think will happen stop us from dealing with today. In fact, by focusing on the small actions — the daily process — instead of some grand expectation or goal, we give ourselves a much better shot at what we ultimately want most: happiness.
About the Artist
Carl Richards, Director of Investor Education The BAM ALLIANCE
Carl Richards is the director of investor education for the BAM ALLIANCE. He advises on best practices, marketing efforts and social media.
Carl is the author of The Behavior Gap and a regular contributor to The New York Times. Known for his simple sketches that capture complex investor behavior, Carl’s work has been featured in The Wall Street Journal, Financial Planning and at lifehacker.com. His work originally appeared on BehaviorGap.com.
Carl holds a bachelor’s degree in finance from the University of Utah.
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