One of the best books of 2023—and one sure to land on my list of Advisor Resources for Financial LIFE Planning—was published near the year’s end. I’ve been following Shane Parrish’s work for years as the creator and curator of the Farnam Street blog and newsletter, so his new book, Clear Thinking, was in the cue.

One of Parrish’s greatest gifts is simplifying the realm of behavioral science to the point that it becomes, uh, clear, and perhaps more importantly, actionable. So, while you can peruse through a nearly comprehensive list of the 188 cognitive biases to which we may fall prey, you could also just read Clear Thinking and examine the four defaults Parrish suggests are “the enemies of clear thinking.”

In this post, I’ll review each of the four and suggest four companion lessons to apply in pursuit of better financial decision-making:

1) The Emotion Default: “We tend to respond to feelings rather than reasons and facts.”

While emotion is too often used as a pejorative synonym for foolishness in the realm of personal finance, it is undeniable that, as Parrish suggests, “Emotions can multiply all of your progress by zero.”

Indeed, emotions often lead to rash decisions because they are centered in our System 1, in Daniel Kahneman’s Thinking, Fast and Slow parlance. While our System 2 is the processor in our brain that is slower, deliberate, and seemingly more rational, our System 1 is our source of fast, autonomic, and yes, emotional thinking and reacting.

That’s why we can find ourselves doing and saying things when we’re emotionally charged as though there is no gap between our feelings and actions. And while it would be nice if we could choose which of our Systems to use in the face of financial decision making (System 2, please!), the fact is that 80% or more of our decisions are driven by System 1, by our emotions.

Lesson: Money is inherently emotional.

This is where the financial industry has served us so poorly. From investment managers to gurus and advisors, most of us are taught to insist that consumers, followers, and clients separate themselves from their emotions. The only problem is that it’s a biological impossibility. Money, in particular, is inherently emotional, so we need to deal with those emotions rather than suppress or ignore them.

Of course, retailers and social media companies are well aware of this conundrum and seek to capitalize on it daily. Therefore, the best we can do when we experience emotion is to sloooooow the process down. Acknowledge the emotion, process it, discuss, decide, and then in the best-case scenario, harness the power of your System 1 to harden your better-informed resolve. Emotion need not be the enemy, and it can be part of the solution.

2. The Ego Default: “We tend to react to anything that threatens our sense of self-worth or our position in a group hierarchy.”

Nothing threatens our sense of self-worth more than others’ perception of our net worth. Even those who’ve destroyed every relationship in life are still often viewed as successful simply because they are rich. And their riches may only be a matter of perception, especially when we consider that most visible signs of wealth are evidence that someone has parted with their money in pursuit of a depreciating asset.

Lesson: “Comparison is the thief of joy,” and the modern world is wired to create comparisons everywhere we turn.

In The Gap and the Gain, co-authored by Strategic Coach founder Dan Sullivan and Dr. Benjamin Hardy, the authors suggest that the world we live in is designed to perpetually convince us that we are “in the gap”—that we are conditioned to compute our circumstances based on what we lack and how far we are from our ideal state—rather than “in the gain,” acknowledging how far we’ve progressed from the starting point of our goal pursuit.

3. The Social Default: “We tend to conform to the norms of our larger social group.”

Have you ever been in an environment where you quickly realized that your opinions or worldview were in the minority? Have you ever lived in a neighborhood or been part of a group at work, school, church, your kids’ extracurricular activities, or online where the larger group’s apparently unanimous deviation from your belief or preference applied an enormous pressure that challenged your belief and shifted your preference?

Although I live in Charleston, South Carolina, I’m from Baltimore, and when I meet someone else from Charm City (that’s Baltimore, IYKYK), the first question they usually ask is, “Where did you go to school?” They don’t mean college. They want to know which of the uber-elite private schools I went to. They’re sizing me up. I can’t tell you how much I love telling them I was a public school kid :-), but the condescension is powerful, and I’d be lying if I said I’d never wished my answer could be, say, Gilman.

Similarly, a friend of mine from the U.K. was an elementary school teacher across the pond, and she told me that on the first day of class, all of the kids insisted on knowing “Which football team do you pull for?” By “football,” they meant soccer, and by soccer, my friend told me what the kids really wanted to know was if she was Catholic or “Proddy” because there was such a clear division depending on which jersey she might wear. (She told me she decided she would choose to respond by mentioning the worst team in the league, which threw the kids off track and resulted only in jeers for supporting such an abysmal football squad.)

The powerful force of groupthink is one of life’s most persuasive.

Lesson: Be cognizant of the influences of your social groups.

We are social beings and benefit so much from our social connections that the lesson here is hardly to be a hermit. The lesson is to be aware of our surroundings and our circles and question the apparent norms. The chances are extremely good that most of the parents on your kids’ lacrosse team have houses, cars, and take vacations with price tags with a standard deviation below 25%.

Some sub-groups, especially in personal finance, reach levels of pressure that are downright cult-ish. For example, if you follow Dave Ramsey, you’ll likely be looked at with evident disdain if you pull up to your Total Money Makeover class in “the ultimate driving machine.” You’ll similarly get an eye roll if you put less than 20% down on your house or have a mortgage with a term of more than 15 years. Meanwhile, you won’t even be able to get into a pickleball game at your country club if you’re not driving a luxury vehicle.

Just remember that personal finance is more personal than it is finance, and so, too, are the best financial decisions. There’s nothing morally right or wrong with driving or living in whatever you choose (that you can afford), having a mortgage or not, or sending your kids to private school or public. The question is, What’s right and wrong for you and your family?

4. The Inertia Default: “We’re habit forming and comfort seeking. We tend to resist change, and to prefer ideas, processes, and environments that are familiar.”

As we have learned from Charles Duhigg, James Clear, and others, humans are creatures of habit—whether we like it or not. Even the things we don’t think are habits usually are, so the inertia that Parrish refers to is often not even conscious. Therefore, one of the best ways to acknowledge our habits, for good and ill, is to pause long enough to ask, “Why am I doing this?”

The challenge is that it is exceedingly difficult to stop doing something habitual. Therefore, the best way to stop a bad habit is to replace it with a new one. Recognize the cue that leads to the behavior, then replace the behavior with something preferable.

Lesson: Become familiar with the habits and processes that are likely to lead to financial success.

There are no guarantees in life, and especially money. But there are foundational principles that will make you much more likely to be financially successful. Thankfully, we see several of those principles illuminated in the companion lessons to counter the previous three defaults:

Know thyself. Become aware of your emotions around money by slowing down the process between idea (or, more often, feeling) and action. Better yet, plumb the depths of your emotions to reveal what it is in life that is most important to you—not what is most important to those in your social circles. Then, with a better understanding of your values, motivations, needs, and wants, establish the habits that will facilitate the pursuit of those goals, all while appreciating how far you’ve come rather than fixating on the distance between you and the ideal.