Financial Pitfalls: Decision Overload
On the path to financial freedom you have to make many decisions.
You have to decide how you are going to spend your time (creating a side hustle, researching frugal living, taking on an extra project at your 9 to 5 job in hopes of a raise, etc.), where you are going to put your money (401k, Roth IRA, real estate investment properties, etc.), how you are going to reduce your expenses (smaller house, older car, extreme couponing, forgoing a vacation, no spending month, etc.), and the list goes on and on.
Too many decisions are not good for us. The more decisions we have to make, the more mentally tired we become. This decision fatigue leads to two problems.
First, we don’t make good decisions when we are mentally fatigued. We often become reckless, making a decision without thinking through the consequences, or making a decision for short-term gain even if the long-term outcome is negative such as finishing a tub of ice cream when you are trying to lose weight.
Secondly, decision overload causes stress. This stress can cause many people to avoid making a decision altogether. In real estate investing this is often called analysis paralysis, or spending so much time researching and weighing options that you never take action for fear that you may make a wrong decision.
Although decision overload is not ideal, sometimes it is an unavoidable reality for those seeking financial freedom.
Here are 5 strategies to deal with decision overload.
1. Identify your values
First, you should identify and prioritize your values, or what is important to you. This will help you know where to put most of your time and effort. It can also serve you by keeping you grounded so you don’t get lost among the endless sea of choices.
For example, travel may be your first priority value and you may not value owning a large, fancy house. Being aware of this can guide you to look at how to cut your housing expenses, through renting a room or buying a cheaper house, so that you can allocate more money to your travel fund.
2. Make your decision in the morning
Research has found that people are more likely to make good decisions early in the day. We tend to think better and have more willpower in the morning after sleeping has recharged the brain. Throughout the day, we make numerous decisions and think through problems, which diminishes our cognitive capacity. Therefore, if you have an important or difficult decision to make, morning is the best time of day to do this.
3. Limit your choices
Most people assume that more choices are better because you are more likely to get exactly what you want. Having some choices is generally good but having too many options tends to make people less likely to make a decision. Even when a decision is made people report being less satisfied with their choice because they wonder if they passed up on something potentially better. This is called the paradox of choice.
Once you have prioritized your values, you can simplify your choices by eliminating those that are not in line with what is important to you. Having fewer choices will make decision making easier. You can also break up choices. For example, comparing option one and two by weighing pros and cons. You decide on option one and then you compare that to option three. This can help with narrowing your focus and looking at the details of a complex choice.
4. Create a process
Creating a process, or a habit, can help eliminate the need to make the same type of decision over and over again. You make a decision once and stick with that decision over time.
For example, you decide to create a side hustle that you work on for three hours after work everyday. So that time is dedicated to your side hustle and you will not spend time on other things like researching stocks. Now you don’t have to waste precious mental energy on deciding what to do with your time.
Along the same lines, eliminate unimportant decisions by having a default decision. Some people eat the same breakfast everyday or wear the same outfit so they don’t waste time or effort on making decisions about these unimportant choices.
5. Done is better than perfect
Lastly, recognize that it is better to act on an imperfect decision rather than staying stagnant. Staying in analysis paralysis is definitely not going to lead to financial freedom. Often, we get caught up in wanting to be perfect and being afraid of failure. A common example is people who are afraid to invest their money because of the risk of losing it. What they fail to realize is that it is far more risky to not invest money. Even if they lose some of their investment, they are far more likely to make more money over time than someone who never invests.
"In any moment of decision, the best thing you can do is the right thing. The worst thing you can do is nothing.” ― Theodore Roosevelt
Of course, make sure to do your research before making a decision. Look at your options, compare them to your values, eliminate those that do not fit for you, and then weigh the pros and cons of your remaining options.
Once you understand the possible consequences or outcomes, it is time to act! Think of any obstacles or failures as learning experiences on your path to financial freedom.