Ever notice yourself spending more time on trivial decisions than you do on the significant ones? You’re not alone. It’s often called ‘decision quicksand’, as these small decisions can seem to suck us in. Many of us can attest to this in our everyday lives. For example, if you totalled up all the time you’ve spent considering what you wear to work, how would this stack against the time you’ve spent thinking about your super investments?
For many of us, the balance would be entirely out of whack with the stakes. Of course, it’s important to dress appropriately, but it comes down to a yes/no decision – is this attire appropriate for my job? When it comes to your super or your investments, the stakes are far higher, and the variables more numerous.
For these significant life and financial matters, it’s important to have a reliable process or framework to guide your decision-making and give each decision the weight and time it deserves. Here are three tips to improve yours.
- Rethink your pros and cons list
When it comes to the bigger decisions in our lives, many of us turn to the pros and cons list, and it’s not a bad strategy if done right. Typically, pros and cons are a binary list – good on one side, bad on the other – however most decisions are far more nuanced than that.
If, for example, you are thinking of buying a property, a pro might be that you will build equity instead of paying rent. A con might be that you are responsible for maintenance and insurance costs. Of course, they are both correct, but the financial costs and long-term outcomes aren’t likely to be the same. In this scenario, if you had six pros and thirteen cons, it would appear to be a bad decision, but the problem is that the pros and cons likely aren’t equal.
The solution is to use a weighting system to measure pros and cons by more than quantity alone. Your weighting system doesn’t need to be complex; there are some simple methods out there that you can easily apply to any pros and cons list, such as this one.
- Analyse the quality of your decision-making, not the outcome
It’s a trap we all fall into – something out of our control went right (or wrong!), affecting the outcome. We then use this misinformation to determine whether it was a good or bad decision.
As an extreme example, if someone doesn’t save for retirement at all during their career but goes on to win a substantial lottery prize on retirement, they may say they ‘wouldn’t do anything differently’. But what we actually have here is a lack of planning and a whole lot of good luck, so they probably should have done everythingdifferently even though they had a great outcome.
Instead of focusing on the outcome, try thinking about the quality of the process that led to a decision. If the process was right but a factor you couldn’t anticipate or control impacted the outcome, it was likely still the right decision. And this is a process you shouldn’t change. Conversely, if you could have done more due diligence to get a better result, then this is what you need to look at when making your next decision.
- Try a pre-mortem approach
We’ve all heard of and probably innately perform post-mortems on our decisions. But they are often flawed for several reasons. Firstly, as discussed above, you’re more likely to do the post-mortem on the outcome not the quality of your initial decision, so it probably won’t help you on your next one. Secondly, we can’t change the result after the fact – so post-mortems often become about the ‘what if’ instead of the ‘what next’.
On the other hand, a pre-mortem is where you take a detailed look at what could happen before you make the decision. It’s a tool commonly used in business by project managers, but it can work for your financial decisions too. Essentially, instead of starting by thinking about what might go wrong, you start as though it is the end, and the decision has failed.
For example, you are about to make an investment in a company. Imagine you have made that investment, and it went wrong – you lost your money. What happened? Was it a market downturn? Did you choose the wrong company? Did you take the wrong approach? Is it something you could have protected yourself from, either by taking a different direction or putting insurances in place?
Working back from the potential ‘failure’ can help you refine your process and ensure you are putting the right measures in place to protect yourself and your finances from the very outset.
Changing your decision-making process can take time and practice, but it is worthwhile to make sure you are making the best financial moves and analysing them on the right criteria. Your Apt Adviser can also help you analyse your options, explore potential outcomes, and make decisions that align with your goals and values.
General Advice warning
The information provided in this blog does not constitute ﬁnancial product advice. The information is of a general nature only and does not take into account your individual objectives, ﬁnancial situation or needs. It should not be used, relied upon, or treated as a substitute for speciﬁc professional advice. Apt Wealth Partners (AFSL and ACL 436121 ABN 49 159 583 847) and Apt Wealth Home Loans (powered by Smartline ACL 385325) recommends that you obtain professional advice before making any decision in relation to your particular requirements or circumstances.