FILE PHOTO: US dollars and euro banknotes can be seen in this illustration dated May 3, 2018. REUTERS / Dado Ruvic / Illustration
July 1, 2021
By Chris Taylor
NEW YORK (Reuters) – When it comes to your finances, there are several ways you can sabotage yourself. You don’t think about it enough.
The other thinks too much.
Rethinking – getting obsessed with small details, turning into a pretzel, overwhelmed with decisions and doing nothing – can be just as detrimental to your financial future as the opposite.
“It is the paradox of choice: the more information we have, the less we can process everything and the brain short-circuits,” says Melody Wilding, executive coach and author of the new book “Trust Yourself: Stop Overthinking”. and channel your emotions for success at work ”.
Sound familiar? It’s not just some of us: 73% of 25 to 35 year olds have problems with overthinking, according to a University of Michigan study.
You don’t have to tell financial advisors who see this all the time. Just ask Dana Anspach. The founder and CEO of Sensible Money consulting firm in Scottsdale, Arizona, has a client, a Fortune 500 executive, who focuses too much money in company stocks.
“He’s constantly thinking about what the share price can do,” says Anspach, who, due to hesitation, admits that she wants to reach for the “shot glass and the bottle of tequila”.
When she is forced to exercise and sell options, her client is sitting on the cash, “which makes deciding when and how to invest it too complicated,” adds Anspach, noting that what is known as “analysis paralysis” is in the Last seven years it cost nearly $ 500,000.
In a famous study by Columbia Business School author and professor Sheena Iyengar, the more investment opportunities people had in their 401 (k) plans, the lower the percentage of participation – even if there was a company’s free money .
And more choice did not make plan participants better voters. The more mutual fund savers there were to choose from, the more they tended to withdraw into bonds and cash.
How can you overcome this rethinking tendency and actually make a solid money decision – even if it’s not perfect? A couple of pointers:
MAKE THE DECISION OUT OF YOUR OWN HANDS
If at the end of each month you have to actively decide to save something, it is 12 times a year when that decision (or lack of decision) could go wrong. But in planning those payroll deductions, you remove your own worst tendencies from the equation.
“Don’t make up your mind. Automate, ”said Kerry Taylor, a Toronto-based money expert and founder of Squawkfox.com. “Reducing friction and the need to make financial decisions is the magic of behavioral economics. I’m so into it. “
GIVE YOURSELF AN APPOINTMENT
The brain’s natural tendency is to go around endlessly. So counteract this by limiting yourself to a defined period of time to make a money decision.
“A lot of my customers ‘timebox’ and limit how much time they can spend thinking,” says Wilding. “Limit the number of resources you will consult instead of walking into an endless rabbit hole. Select a date, enter it on the calendar and even make a public commitment to it. “
CONSIDER OPPORTUNITY COSTS
If you’re obsessed with investing in the perfect stock at the perfect price, this is a decision to make. But the bigger and more important decision in the long run is to be in the market or not to be in the market.
This is the mindset Anspach faced with another client who was fixated on getting the ideal price for their existing home before buying a new one in their desired location. As he rumbled, the housing market in his target community skyrocketed – and his dream home will now cost $ 200,000 more than he thought.
THE ENEMY OF GOOD IS PERFECT
Sure, we’d all love to make brilliant investment decisions, like buying Apple stock for a few dollars in the early 2000s. But even if your decisions are not perfect, you can still make good decisions. It might not always be a home run, but singles and doubles games will still take you around the bases.
“We tend to find the best possible option because we are very afraid of making the wrong choice,” says Wilding – one of his customers created an elaborate table comparing different kitchen mixers and still couldn’t get the trigger to press . “But the cost of inaction can be enormous. By not making a decision – that is also a decision. “
(Adaptation by Lauren Young and David Gregorio; follow us @ReutersMoney or at http://www.reuters.com/finance/personal-finance.)
This article originally appeared on www.oann.com