If there is one thing most of us have in common at the moment, it is how tired we are all feeling. The Covid Shutdown has left many of us feeling quite worn out. A tired mind can make tired decisions, and so in our last article for the 2019/2020 year, we thought we would write about the best way to make good financial decisions.
One of our favourite finance journalists is Jessica Irvine of Fairfax. Recently, Irvine wrote an article about a phenomenon that many people are experiencing at the moment: decision fatigue. As the name suggests, decision fatigue is the tiredness that arises when we have to make several decisions one after the other. Unsurprisingly, decision fatigue makes for poorer decisions over time. Our brain is a bit like a muscle in this regard: it can lose some of its strength when it is tired.
Decision fatigue can worsen when we have to make many decisions. It is a bit like running a marathon: the first kilometre is not that hard; the 42nd one, though, can be a killer. That is so even though a kilometre is a kilometre. It is just that running a single kilometre is much more difficult if you have already run 41 others. It is the same with decisions. Making any decision is more difficult when your brain has been busy making new decisions all day.
Through history, some of life’s best thinkers have preserved their mental energy by avoiding decision fatigue. That is why people like Steve Jobs or Mark Zuckerberg became famous for wearing the same clothes each day. Not having to decide what to wear meant one fewer decision to make each day. This saved a little bit of mental energy each morning and meant that their decisions later in the day were made with a less tired mind.
(What is maybe not so well known is that these digital entrepreneurs borrowed the idea from Albert Einstein – or that Jobs started wearing black skivvies because Apple bought about 400 of them for the staff, but the staff did not want to wear them. Rather than let them go to waste, Jobs started wearing them himself all the time. After all, he had 400 to get through. What started out as Jobs not wanting to waste money became something that helped him make better decisions. That’s our kind of thinking!)
At the moment, decision fatigue is worse because we all need to make more decisions. Nowhere is this more the case than in our financial management. Markets are crazy, retirement plans are all over the place and many people are concerned about their income moving forward.
Because of all this, we can’t rely as much on the best ‘antidote’ to decision fatigue: good mental habits. Habits are great. The very reason humans develop habits is to avoid conscious effort. Habits preserve brain power. They save us from decision fatigue.
Think about a learner driver. They tend to find the process of driving quite exhausting. Everything is new and everything requires conscious effort. Steering, braking, accelerating: they all require a conscious and deliberate decision. After a few minutes of all this, most learners need a break. (Or their parents sitting in the passenger seat do!)
Over time, though, many elements of driving turn into unconscious habits that we barely think about at all. If you have ever gone from driving a local car to a European car, or vice versa, you know what we mean: how many times did you turn the windscreen wipers on when you wanted to use the indicator? We become so used to flicking the indicator without thinking that, when the indicator ‘moves’ from one side of the steering wheel to the other, we muck it up.
As we say, the Covid crisis has meant that many of our financial mental habits do not really work at the moment. It is time for some new ones. And that is where we come in. As financial advisers, a big part of our job is to help clients establish the best possible financial habits. The best financial advice helps avoid decision fatigue, at least when it comes to money. But with so many things having changed, it may be that your habits are not appropriate at the moment and you find yourself having to think through a lot more aspects of your financial management.
If this is you, then please get in touch. We can help you make sense of what is happening and set or re-set your financial goals to adjust to this new reality. We can give you the energy to make the right ‘big decisions.’ We will then help you decide how those big decisions should be converted into a series of regular habits that, together, make the financial plan happen. After all, it is the process of turning a goal into achievable and repeatable habits that leads that goal to success.
Our job as your adviser includes helping you identify and implement the right habits. Put simply, without habits, most things become too hard. So, as the strangest financial year in living memory comes to an end, make 2020/2021 the year of combatting decision fatigue and creating better habits. If you haven’t already, get in touch with us for a review of all things financial.
As always, may you and your loved ones stay safe. And thank you for your ongoing support.