How You Learn From Your Financial Decisions

What do you make? You make decisions every day. Some decisions are good and some aren’t. 

You might think the quality of the decision depends on the outcome. That’s not the case. Sometimes good quality decisions go south because of luck.

Luck operates independently from your decisions. You have power over your choices, but you can’t control luck. Luck stands in between you and outcomes. Specific outcomes aren’t entirely controllable.

Best-selling author Annie Duke says a decision is “in essence, a prediction about the future.”

HOW YOU LEARN FROM DECISIONS

How you listen and learn from your decisions plays a crucial role in your financial life. Experiences, both good and bad,  provide you great lessons but only if you pay close attention.

You can’t make only good decisions but you can make decisions oriented toward favorable outcomes. Financial planning helps you do that by focusing on making rational decisions that align with your long-term aspirations.

Your financial planning strategy should be the compass for your choices. Where you want to go and how you plan to get there need to be reflected in your decisions.

Perhaps the most difficult part of making decisions is allowing time for the decisions to work.

It’s important to realize that a decision not to do something is still a decision. Over the past few years, we've noticed many clients afflicted with “analysis paralysis” to the extent that their decisions aren’t made affirmatively but rather by default. By not deciding, you are deciding.

You can easily become stuck trying to analyze decisions for so long that nothing gets done. Indecision is a pervasive malady that can harm your life, financially and otherwise.

WHY “GOOD ENOUGH” IS THE AIM

In my experience, the core of the indecision problem is a desire for "perfect" information. The harder you look and the longer you spend analyzing data, the more likely you are to find imperfections. 

You don’t need "perfect" information to make quality decisions that align with your best interests. "Perfect" is an ideal that stands in the way of “good enough” and that should be your aim. 

Take this example: My wife and I have occasionally bought rugs and paintings at antique auctions. You can analyze previous auction prices for clues, but you never have "perfect" information. In the end, you have to make imperfect decisions about reasonable prices to offer on items at the auctions. 

There is never 100% certainty in decisions. Most of your decisions will be somewhere between totally right and terribly wrong.

If you continually find yourself struggling with decisions, think about “downsizing” – make the decisions smaller. Sometimes micro-actions provide momentum for the larger decisions ahead. Start there.

Related: Scary World: Scary Markets