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What’s the Future Cost of Today’s Decisions?

Financial Planning

Why Financial Decision-Making Matters

Popular personal finance author Morgan Housel says knowing the future cost of today’s decisions is “the best math you can learn.” He’s got a great point. You probably make a lot of financial decisions without thinking much about the implications for your future.

Understanding the future cost of your choices and how these decisions affect other parts of your life makes the decision-making process easier.

The future cost of your current decisions include choices to do something as well as decisions to do nothing. The cost of financial decision inertia can be substantial.

How Today’s Decisions Shape Your Financial Future

In his bestseller Atomic Habits, James Clear writes,” To crave the result but not the process is to guarantee disappointment.”

For instance, the compounded cost over your investing lifetime of delaying your saving program for a few years can materially change your financial resources at retirement. If you want to maintain your lifestyle in retirement, you need to affirmatively make good decisions along the way.

Some choices are good; some are bad, but all choices involve tradeoffs. In the case of pushing off your investing plan, you’re essentially trading off less future spending for more spending today. Is that your conscious intention?

The Psychology Behind Financial Decision-Making

Oftentimes, your hesitancy to make saving or investing decisions can be traced to the scars from previous bad choices that you still carry around.

Neuroscientist Dr. Robert Sapolsky of Stanford puts this into context. “A zebra reacts to a lion for 30 seconds, then grazes peacefully. A human worries about an imaginary lion for 30 years.”
The information laden financial world isn’t set up to make your decisions easy. It’s actually designed to distract you from making choices that are best for your circumstances. Seemingly uncontrollable complexities pile up crowding out your capacity to think clearly.

This means that your natural instincts and personality filter the overload of information in a way that provides an answer you like. Yes, poor saving and spending habits are the outward expression of bad choices, but the inward portion rests mostly with psychology.

Developing a Better Financial Decision-Making Framework

Your “onboard financial DNA” is one reason dramatic changes in saving or spending habits are so difficult. It helps to develop a framework for decision- making that fits, not fights, your financial personality. That should allow you to make better decisions today which positively impacts tomorrow. Beware of the “no decision decision.” That’s where you overthink everything, but act on nothing.

Realisticly, you’re going to approach many financial decisions emotionally. It’s best to understand that even your emotionally laden decisions can be good. At the same time, your strongly rational choices can be bad. Both decision-making frameworks are the same, but with different perspectives.

Small Financial Decisions Create Long-Term Results

You make decisions every day. You decide which road to take for an appointment and what time to go to the grocery store. Your financial decision-making framework is the same. Many decisions are small, but over time these choices combine to be larger decisions. Like most things in life, your decisions develop momentum and the direction can become difficult to change.

Once you appreciate the connection between your decisions today and your future well being, you’re on your way. The clutter and confusion eventually fade into the background. Start there. Ready for a real conversation?

Disclosure

Apollon Wealth Management, LLC dba J.E. Wilson (Apollon) is an investment advisor registered with the SEC. This document is intended for the exclusive use of clients or prospective clients of Apollon. Any dissemination or distribution is strictly prohibited. Information provided in this document is for informational and/or educational purposes only and is not, in any way, to be considered investment advice nor a recommendation of any investment product or service. Investing involves risk, and while remaining invested can support long-term goals, it does not guarantee a profit or protect against losses. Advice may only be provided after entering into an engagement agreement and providing Apollon with all requested background and account information. Please visit our website https://apollonwealthmanagement.com for other important disclosures.