Success in financial independence and in life depends on the decisions you make.
Most decisions are small (and easily reversible if they go wrong).
But what if you have a big life decision to make? Something like choosing a job, leaving a job, getting married or buying a house etc. In these situations, getting it wrong can be a disaster.
I can teach you how to make better decisions…here’s my introduction to getting it right…enjoy!
Focus on the process
Let’s start by getting clear on the difference between a good decision-making process and a good outcome to that decision.
Imagine someone who was bored and, on a whim, decides to play Russian Roulette. They put a bullet in one of the 6 chambers of a revolver, then spin the barrel. They hold the gun to their temple and pull the trigger…..
…Click!…luckily it was an empty chamber. That’s a good outcome to a bad decision making process.
In business, investing and life people often confuse the quality of the decision with the outcome. People underestimate the role played by luck. I sometimes meet people who say they’re happy with their ridiculous financial adviser and expensive funds…just because they’ve done ok in the last few years. Dude, that is not a scientific sample size nor a sensible process!
In investing (and in life generally) there are no guarantees. But you can tilt the odds in your favour with a good decision making process.
This is your guide to improving your decision making process.
You have to prioritise to take decisions in the right order,
Imagine a triage nurse in Accident & Emergency (ER). The triage nurse is the gatekeeper who prioritises and determines which patients get seen first. They know that resources (doctor and nurse time, drugs, tests) are limited and valuable. They also know that some patients require more urgent attention than others.
Use the urgent vs important framework to prioritise:
Eliminate unnecessary choices
Think about how many decisions you make in a single day. What to eat for breakfast?, which route to take to work?, who to call first? etc etc By the end of the day you’ll have made hundreds of decisions.
Imagine your decision making is powered by batteries. By the end of the day, these batteries have been exhausted. They only get recharged overnight when you go to sleep.
To avoid decision overload, when you have a big decision to make, avoid other smaller non-urgent decisions.
Use automatic pilot for the small stuff
But how can you avoid making other decisions?
Put as many decisions as you can on automatic pilot. This is why Steve Jobs had rows of black polo necks…he removed the decision what to wear each day to free up brain space for the big, important stuff.
A good example would be to create short cuts (heuristics) for what to eat. Like: just eat what’s in your fridge, what has a short shelf life and what you have a surplus of….before calling in a delivery from Donuts Direct.
What’s the worst that can happen?
Have you been putting off a decision?
Procrastination is caused by anxiety. But we often suppress or deny our fears. No one wants to admit they’re afraid, even to themselves.
What’s the answer? Well, just like sunlight is the best disinfectant, shining a light on your fears and examining them is the best way to take the sting out of them.
A useful tool from stoicism is to imagine everything that could possibly go wrong. You face your fears and get them down on paper. You then divide them up into 2 categories. Category 1 is all the things you can control (or at least influence). Category 2 is everything else.
A farmer worried about flooding cant do anything about the big black raincloud on the horizon (Category 2). But they can upgrade their drainage canals (Category 1). So they focus on what they can control and get digging.
Get better information
Most people make important decisions either without the facts or with low quality information.
The answer is to use primary sources of information and ignore most secondary sources of information which contain hidden biases.
This means ignoring most of the mainstream media. As I wrote in No News is Good News:
If I want information, I bypass the information gatekeepers and I go direct to the original source. Thanks to the electrical interweb, you don’t need the news media to get quality information. So if you want the stats on, say, inflation you can either read the newspaper and get something like this:
HARD PRESSED WORKING FAMILIES SLAMMED BY RISE IN PRICE OF UNNECESSARY PLASMA SCREEN TVs
or you could go to the website for The Office for National Statistics and see that inflation was 1% in the year to September 2016.
Identify all the options
When you’re wrestling with a dilemma, thoughts pop up and bounce around your head in a random, disjointed way. So write down all the options that pop into your mind.
Then brainstorm with someone else to identify “out of the box” options. Sometimes we’re presented with unpalatable choices in The Prison Camp. The alternatives presented to us by other people are often incomplete. We may have more options that we first realise.
So it’s important to question assumptions, think unconventionally and put new options on the table.
Write down the pros and cons
For each option, summarise the pros and cons…on paper.
The act of writing brings order to chaos. Writing helps you to organise your thoughts. Writing engages the human, rational part of our minds so we no longer get bossed around by our monkey brains.
This may sound obvious. And it is. But ask yourself this: looking back at all the big decisions of your life (e.g. choosing a college, job, getting married, buying a house, having children) how many of those did you draw up a list of pros and cons for?
It may feel a bit strange to do this for big emotional decisions. There is this romantic but silly idea that we should just instinctively know what’s right. But the best decisions sit right both with your head and with your heart.
Let go of perfection
You know all those magazine articles with titles like ”You can have it all!” or similar? Sorry, you can’t. You can have anything you want. You just can’t have everything you want.
Whichever choice you take, there will be some element of sacrifice. Even if you make the best choice, you will be giving up some feature of the other option that you would have valued.
So if you are choosing between 2 places to live, you’re going to have to make a choice. I choose to live in England. For the most part, it’s a civilised and beautiful place to live. But then so are lots of other places. And I’m often missing out on other things. Like sunshine for example. 😉
Talk to someone
Find someone smart who has successfully dealt with this sort of decision before.
Most people are usually too slow to reach out and ask for help. Find ways to put new options on the table. Brainstorm new options with other people. Ask others for suggestions. Just don’t ask a barber if you need a haircut.
So find someone with no conflict of interest with you and get some help.
Take your time
How long should you spend over the decision making process?
Well, it depends. There are two speeds at which I make decisions: fast and slow. Things that can hurt you if delayed go into Bucket 1 (fast). Big decisions that can hurt you if rushed go into Bucket 2 (slow).
Bucket 1 examples – fast
- Arterial wound spurting blood – apply tourniquet / call 999 / go to hospital NOW
- Credit card debt – pay off asap
- Paying % fees on pension to IFA / active funds – move portfolio asap
If something is a bucket 1 decision, do not delay, do not pass GO, do not collect £200….do not do anything until you have sorted this shit out.
Bucket 2 examples – slow
- Decide whether to buy house – take 3+ months
- Decide whether to marry current partner – take 1+ year
- Decide whether to have (another) child – take 2+ years
The world is full of pressures to make decisions quickly. If it’s a Bucket 2 decision, stand your ground, take your time.
It’s a mistake to try just to “logic” your way to the answer. Logic is really important. But it’s not enough…because you don’t know what you don’t know.
So sometimes you have to experiment. Experiments provide real world experience and valuable feedback.
Imagine you were trying to decide whether to move house. You can spend hours researching schools, transport links, house prices etc etc tc. But desktop research is no substitute for “boots on the ground” experience. So if you’re buying a house, you should first rent in the area for a while to “try it on for size”.
The same applies in any other big life decision. Conduct low risk, low cost experiments before committing.
Once you’ve identified each of the options, talked to someone and conducted an experiment, its time to make your decision. If you’ve done all of the above, the decision will basically make itself through the process.
When you know the best option, the final step is to sleep on it. If you wake up the next day and it still feels right, its time to take action.