Are You Making Financial Decisions by Default?

Posted by Heidi Clute - September 22, 2017 | Filed under: Recent Articles, Money & You, Featured Article

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Back in second grade, it didn’t really matter much if you failed to make a decision. If one of your parents called out into the back yard to ask if you wanted a PB&J or grilled cheese sandwich for lunch and you were intent on climbing the tree and didn’t answer, you suffered no lasting harm from being served your second choice lunch option that day. But things are different now that you’re a business owner.

Decision overload

What’s for breakfast? Who’s picking Johnny up after school? Which route to work has the least construction this morning? Skim milk or soy in that latte? Where to go on vacation. Most of us make multiple decisions every day, fueled by an internet full of expectations and options. But business owners?

Between the business, your employees, your spouse, plus your immediate and extended family members, it can seem as if people are asking you to make decisions non-stop all day. Some are big, and many are small, but it is well documented that making decisions over and over again drains you and leads to decision fatigue  and worse decisions as the day goes on.

“The more choices you make throughout the day, the harder each one becomes for your brain, and eventually it looks for shortcuts, usually in either of two very different ways. One shortcut is to become reckless: to act impulsively instead of expending the energy to first think through the consequences. … The other shortcut is the ultimate energy saver: do nothing. Instead of agonizing over decisions, avoid any choice.”

By the end of the day, no wonder doing nothing about how to save, invest, or protect your money feels like the best choice.

Procrastination

For an entertaining and enlightening look at the effects of not making rational decisions, or procrastination, check out Tim Urban on TED [VIDEO]  and his Forbes interview .

My key takeaway from Tim’s TED talk is the distinction between deadline situations when the ‘Panic Monster’ wakes up and rescues you, and the non-deadline situations where opportunities are lost and decisions are made by default.

“Well, it turns out that there's two kinds of procrastination. Everything I've talked about today, the examples I've given, they all have deadlines. And when there's deadlines, the effects of procrastination are contained to the short term because the Panic Monster gets involved.

But there's a second kind of procrastination that happens in situations when there is no deadline. And it's this long-term kind of procrastination that's much less visible and much less talked about than the funnier, short-term deadline-based kind. It's usually suffered quietly and privately. And it can be the source of a huge amount of long-term unhappiness, and regrets…. The frustration [for people] is not that they couldn't achieve their dreams; it's that they weren't even able to start chasing them.”

Poor business financial decisions made by default

Here are some of the decisions without deadlines that I have seen busy business people make by default (or non-action):

  • The current 40-something year-old second generation business leader is suddenly given a life-threatening diagnosis or another serious illness, making it too late to purchase disability income or life insurance that could provide funds to hire a seasoned manager or support their immediate family.
  • Your top salesperson is a member of the family business through marriage, then there is an ugly divorce that leaves the business without the industry contacts and relationships to sustain your sales pipeline.
  • After the unexpected death of a key investor, you discover their business partner’s heir is a 17-year-old with a full-blown substance abuse problem.
  • The co-owner of your business dies with no last will and testament. [Regardless of your wishes, the probate court will decide whether your business continues and how to dispose of its assets based on its business structure and state law.]
  • You have decided you want out of this traditional business in order to start a new social impact, purpose-driven business, and your buyout agreement does not stipulate the price or how it will be determined by the owners. Now, as the selling owner you are pushing for a high value while the remaining buying owners want a low value.

Stimulate your ‘Panic Monster’ to act

I can think of at least one business owner I know who keeps a red stuffed ‘Panic Monster’ behind her desk to chase away procrastination and delayed decision-making. What about you? Is it time for you to act on important decisions that you need to make?

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Resources

Do You Suffer From Decision Fatigue? New York Times

Inside the Mind of a Master Procrastinator, TED talk [VIDEO]

Tim Urban: How He Turned His Blog Into A Global Movement, Forbes

Surviving Family Business Transition Nightmares

Is Your Money Invested Where Your Values are?

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Heidi Clute, CFP® is co-owner of Clute Wealth Management in Plattsburgh, NY, and South Burlington, VT, an independent firm that provides strategic financial and investment planning for individuals and small businesses in the Champlain Valley region of New York and Vermont. For a list of states in which we are registered to do business, please visit www.clutewealthmanagement.com.

Securities offered through LPL Financial, Member FINRA/SIPC.

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