Is Decision Fatigue Damaging your Finances?

Is Decision Fatigue Damaging your Finances?

Decision Fatigue - In decision making and psychology, decision fatigue refers to the deteriorating quality of decisions made by an individual after a long session of decision making. It is now understood as one of the causes of irrational trade-offs indecision making

 

I was recording a NextGen Planners podcast last week and one of the guests said something that blew my mind.

Dr Sarah Fallaw, founder of Data Points a really exciting Fin Tech Company from Atlanta in the US said that her research found that we make on average 250 decisions on our personal finances in a year

Let that sink in.  

250 Financial Decisions in a year.  

That is a huge number of financial decisions.  Some of them will obviously be minor, but I would imagine a large amount of those decisions could impact on your future success.

 

Some examples of what she was talking about:

  • Changing the gas or electric - minor maybe a few quid saved

  • Choosing your bank - again maybe a bit more interest or better terms

  • Saving chunks of your income - huge benefits in the long term

  • Topping up your pension from company profits - big benefits in short term and long term

  • Buying clothes - this is one of these decisions I hate


It fascinates me that we have to make so many decisions.

I also have a theory about financial decision making.  

We struggle to make the big financial decisions because we are too fatigued from making decisions in other parts of our life.  

I see this more and more in the business owners I start working with.  

 

Decision Fatigue within your business

If you run a company, every day you will need to make decisions.  Sometimes multiple decisions.

The way you talk to staff in a meeting, the way you handle your day or even taking new clients on.  

These are all decisions and if its your company, they are your decisions to make.  

The clever business owners outsource a lot of the low value decisions.  The mundane decisions such as managing staff, dealing with office politics and making everybody accountable can be looked after by a good Operations person - a crucial element of a strong business.  

I am just reading “Rocket Fuel” by Gino Wickman and he talks about the quiet ones behind the scenes that help visionaries implement.  They are called “integrators” in the book but I call them the “doers”.  The people that get s**t done.

A good Doer takes a lot of the daily grind of decisions away from you as the visionary and lets you think bigger picture.  They filter through your good and bad ideas and implement the right ones.  They keep decision fatigue away from you and this is really important.


Decision Fatigue with your money

Let’s go back to the start of this blog.  

If you are looking at achieving personal success with your finances which is pretty much on every business owner’s radar that I have ever met, then you need to make the right decisions with your money.  

You need to have clarity on your destination and you need to have a strong plan of action in place to achieve it.  

If you are burnt out from decision making within your company, what is the likelihood that you are in the right frame of mind to make these decisions.  

This is why many business owners will always blame the business -

“I am too busy running a business to sort my family finances”

If this is you, read on and see my note at the bottom


My experience with decision fatigue

I believe lots of business owners suffer from decision fatigue.  

They struggle to make these decisions because they don’t have the headspace.  

In other words, they don’t have the right frame of mind to move towards their financial plan.  

Many therefore link the success of their personal finances to their business success which is absolutely the wrong way to look at it.

I often hear “when the business makes xxxx profit” or “sells for xxxx”

This tells me that the business owner isn’t clear on their goals or why they are doing it.  

If this is the case, you are likely to let the business control you rather than the other way round - i.e. the right way.  

By gaining clarity on what you want success to look like you can feed this straight into your business plan and it should enable you to stick to it when the going gets tough.  It also means that you run the business (and maybe exit) on your terms. 

 

So how do you reduce decision fatigue when it comes to money

 

  • Outsource the low value tasks

Whether it is in your business or personal, you need people that enjoy doing the mundane tasks you don’t want to do. It will free your brain up for the bigger, more important decisions. This could even be technology.  

Artificial intelligence will clean up in this space in the future.

 

  • Automate the mundane tasks (including finances)

Money gets better the less you touch it. If it’s saving then you can structure fairly easily - see my blog here on “how to plan your income” .

If it is investing, buy into a philosophy and a plan and stick to it.  This is where you need consistency.

 

  • Get help with the bigger decisions  

In your business this would be your “intergrator” or “Doer”.  Many successful business owners going back in the ages had people alongside them who cancelled out the noise and helped them focus on growth.  This could be a really effective CFO, Ops Director or simply a team member.

In your personal life, a good financial adviser should do this job.  Most of the clients I work with understand the value of having a sounding board when it comes to money and finance.

 

  • Take a break

This is where holidays or breaks come in.  Rest your mind as it is a valuable commodity.  If you do the other 3 bullet points above well, then you should have the time and headspace to take regular breaks to clear your mind.  Be present with family and yourself as its important to enjoy the journey as well as the destination.


 

Just one last note:

Not looking after your personal finances is an active decision.

Guest Blog - Are you helping your employees to be financially happy

Guest Blog - Are you helping your employees to be financially happy

The Pareto Principle and your finances

The Pareto Principle and your finances