Getting Unstuck from Your Mental Accounting

July 8, 2019

How you think about your money may be a function of your mental accounting.
In negotiating about division of assets, sometimes parties get anchored on assets that may have a history of some kind with one party or the other. Mental accounting can attribute an asset to your earnings, inheritance or your contribution in some way.
Mental accounting around an asset can sink discussions about the reality you really face. How valuable is that asset and why is it so important to you? Is it really irreplaceable? A family heirloom or gift from someone else? If it has financial value, perhaps there is a way to substitute some other equivalent asset. If so, you want to review the tax basis as well as market value for these assets when determining whether you accept one for another.
Is your mental accounting activated when considering the disposition of a retirement account rollover from a previous employer? Perhaps the source was earnings from the second job where you worked nights to meet a lifetime or aspirational goal. Yes, there is an emotional connection to the source of the account. Is it worth getting stuck about the past when it really represents an asset with future value for either one of you, or both?
Mental accounting may apply when thinking about the value of a business and each party’s contribution to its growth. Perhaps a spouse decided to make a career change in order to support the other spouse’s educational aspirations. Perhaps a spouse decided to stay at home in order to care for the children while the other spouse started a business or embarked on an entrepreneurial endeavor.
What is the perception of each relative to their own contribution to your joint financial success? Did one party feel that by remaining at home they enabled the other to put more hours into the business and be significantly more successful as a result?
What about the piece of furniture you both purchased at an antique show? Will this be negotiated without anchoring? Are you willing to swap some other asset in its place?
If you are stuck, what alternatives might be available? If both parties recognize that the end game is to create some sort of parity between both, it may be helpful to identify which of the assets are being managed by the mental accounting of one or both parties. At that point, an explanation from each as to why that asset is so important to their respective futures may help the communications coach to suggest ideas on how to disengage from any mental accounting or anchoring that prevents the negotiations from moving forward.

About Jeff Metz

Jeff Metz, MT, CFP
Jeff is an equity partner and Senior Financial Counselor at RTD Financial Advisors.  Jeff graduated from Case Western Reserve University with a degree in Chemical Engineering. Jeff has a Master in Taxation degree from Villanova Law School, with an emphasis in estate planning. Jeff is a member of the National Association of Personal Financial Advisors (NAPFA), the Financial Planning Association and Financial Therapy Association. Jeff enjoys the opportunity to offer counseling that creates convergence in the actions taken to produce real financial progress and achieve peace of mind.
Click here to learn ore about Jeff Metz, CFP.