Although I like to believe I’m the perfect person in every way, I’m not.
I have numerous flaws. I’ve been known to fart in bed (and other locations, come to think of it). I eat and drink too much junk. I’m terrible at catching non-verbal cues, much to the chagrin of my girlfriend, who pretty much exclusively communicates that way. I’m stubborn, and will sulk if I lose an argument.
But those faults pale in comparison to my worst one, and that’s procrastination. My version of procrastination goes like this. When faced with a decision, I’ll spend some time researching it. That time turns into more time, because I seek out more and more information, even though it becomes less and less important. Finally, by the end, I end up going with the first thing I looked at two hours ago.
Take travel, for instance. I’ll spend hours on Expedia, Hotels.com, and Hotwire, ranking the hotels based on location, amenities, and other factors that barely matter, just for a one or two night stay somewhere. I might save $10-$20 per night, but at what cost? Especially since it’s easy to sort those sites by popularity, which is usually a pretty effective way to get a good bang for your buck.
How to combat this
There’s an actual name for this phenomenon, called The Paradox of Choice. Author Barry Schwartz wrote a book about it in 2004.
In the book, Schwartz argues that having more choices actually makes us less likely to make one. We’ll do what I do when choosing hotel rooms, and get caught up in unimportant details that don’t matter. Even if I pick a crummy room, I’ll survive.
To help combat this, Schwartz gives readers a series of things to think about while making a decision.
- Figure out your goal
- Evaluate the importance of your goal
- Array the options
- Evaluate how each option will get you to your goal
- Pick the winning option
- If necessary, modify the goal for next time
These are good tips, but I can’t help but to see the irony in having to go through a six step decision making process in order to simplify things.
Going back to my hotel room example, I’m not sure it’s prudent to go through Schwartz’s whole process to figure out where you’re going to sleep one night. That seems like an awful lot of work for something so trivial.
A simpler solution
Instead of going through Schwartz’s list, allow me to present a much simpler solution.
Schwartz wants you to focus on the goal. But the goal is often complex, with more than one stated benefit.
Let’s use a money related example. Say you had $100,000 put aside to buy a house in the next year. You want to earn a little bit of cash on that money while waiting, but you also want to take no risks with the principal.
There are several different ways you could accomplish this. You could stick the money in a completely liquid high-interest savings account, like offered by Tangerine or PC Financial. You could stick it in a one-year GIC offered by a bank or credit union. You could stick the money in short-term government bonds which mature in approximately a year. Or you could plunk it in a bond ETF, knowing you’ll get a little more interest in exchange for a little more risk.
Each of those options is likely to accomplish the same goal. Just like every single hotel out there will help me accomplish the goal of giving me a place to sleep. Suddenly we’re back at the original problem.
According to Schwartz, we now have five more steps until we reach a decision. Forget about that. By focusing on one secondary goal, we can speed up the process.
Say we determine liquidity is the secondary goal for the house saver. They want access to the money quickly, just in case a smoking deal shows up.
This makes our decision much easier. The high-interest savings account probably won’t offer as much as a one-year GIC or bonds, but it’s a five minute process to get your cash, and there won’t be a nickel in penalties. It’s clearly the best option.
Just do it
The other thing we need to realize is most of our decisions aren’t very important.
Choosing what type of salad dressing doesn’t matter in the scheme of things. Neither does choosing the wrong color of t-shirt or deciding what movie to cue up on the Netflix machine.
What I do when faced with a decision is ask myself one simple question. “Will this matter five years from now?” The answer is almost always no.
That makes the decision much easier. It also allows me to give my head a shake and realize that I’m wasting time on something that isn’t very important. I’m free to make my decision and move onto more interesting or lucrative endeavors.
Making decisions can be hard. If you make the process easier, you’ll free up all sorts of time that can be put to better use. That’s why mastering the decision making process is just as important as other parts of your finances.