Finance Analogies: Mental Accounting and the Positive Events Diary

I make a case for paying extra attention to the positive events in our lives, and offer one way of doing this: 460 words.

As a former accounting and finance professional I like to find some common ground between my two careers. Here’s my fourth attempt…

In life we can expect some events to add value, and some to reduce value. For example, when we receive a compliment this adds value, and when someone insults us this diminishes value, if we take it seriously anyway. As an accountant, I would record transactions that increased and decreased the value of an organisation, namely income (credits), and expenses (debits). Of course, many expenses are necessary, as we can’t expect to achieve anything without incurring cost. But on the whole we hope to make a net profit (more income than expenses).

Sometimes, though, our mental version of accounting goes a bit haywire. We start recording only the negatives, and fail to notice the positives. This is very common in depression, when we become biased towards noticing failure and setbacks. The reality for the depressed person may well be okay, but their disorder stops them from seeing this.

In accounting we record financial transactions in a ledger. If we are keeping a kind of depressive ledger, recording just the expenses in our life, then we will soon start to question whether it’s worth doing anything at all; we become hopeless. To counter this, we can start to keep a second set of books, in which we will record only mental ‘income’.

Clinicians call this a positive events diary. At the end of the day we can take a simple note of the good things that have happened during that day, whether little or big, and by doing this we begin to build a more accurate picture of our lives. It’s an unashamedly biased exercise, because depression is biased too. Think of it as affirmative action for your positive thoughts.

Each time you do something that your depression would have prevented you from doing, record this as a positive event. It’s an achievement for many depressed people just to get out of bed in the morning. All the usual good things can go in there, and don’t take things for granted. If you make someone laugh, enjoy your morning coffee, or get a question right at college, or in a work meeting, all these are positives and deserve to be recorded. Social media can be used in this way. If we take Facebook as an example, spend less time examining others’ highly curated lives, and record your own ‘best of’; you don’t even need to share these publicly, but going to the trouble of recording these events will remind you of them, and you can look back over them in the low times.

However you do it, keeping a positive events’ diary is a relatively simple way of balancing your mental books. And although you don’t need to be an accountant to do it, you might find consulting with a therapist will help you keep track of all those mental credits.

Finance Analogies: Spread Your Risk

A short analogy reminding the reader that we should apply prudent investment strategies to our lives more generally: 300 words.

Here’s my third attempt to find crossover between my former career in finance and my new career as a psychologist…

The idea of not putting all your eggs in one basket is fairly well accepted. You spread your risk, putting a few eggs in a few baskets. You might drop one or two baskets but probably not the lot, thereby averting disaster. Following this principle, financial advisers will suggest that their clients invest in a portfolio of investments, rather than betting their life savings on just one or two.

We don’t always apply this principle more generally across our life though. We invest time, effort and emotions in all aspects of our lives, and to spread our risk in life makes sense as an investment strategy. How many people dedicate themselves wholly to their careers, see only their immediate family, or perhaps spend all of their spare time at the gym. These situations are great so long as nothing goes wrong. But consider the career oriented person who’s made redundant, or the person who unexpectedly gets divorced and realises they don’t have friends anymore, or the gym junky who develops a chronic injury, and can no longer get their fix of exercise. Each of these people will lose a significant source of self-esteem, comfort and coping overnight, and will have little else to turn to.

We can be dedicated to our spouse and family, but also spare some time for friends. We can be ambitious in our career whilst remembering that it’s not the only thing that makes us valuable. And we can benefit from a regular exercise routine without obsessing over it.

So, try taking an inventory of the investments in your life, and see whether you could benefit from diversifying a little. It will take more effort, but even if all of your existing investments continue to pay a return, you just never know how rewarding other opportunities might be.