A key to financial success — and life success, for that matter — is facing your own silliness. You must stop believing the fallacy that you are objective, that your decision-making is second only to Deep Blue.
The Myth of Rational Decision-making
As Mr. Scrooge wisely points out, homo sapiens are incredibly susceptible to extra-logical forces. Have you ever flipped your lid over something stupid, then realized you’re just mad because you forgot to eat lunch? Ever mis-read a sign as being food-related just because you had Food on the Brain? Our intestines change our perceptions.
In a small survey by clearthinking.org, 80% of respondents rated themselves as more rational than 50% of the population.
I’ve been thinking about this a lot as I read Richard Thaler and Cass Sunstein’s book Nudge: Improving Decisions About Health, Wealth, and Happiness. He shows the extent to which we are influenced by tiny nudges from outside forces. How we make huge life decisions based on one tiny nudge.
Nudge points out that making 401(k) choices, making health plan choices, making home buying / renting choices — none of this is done from a neutral standpoint. It is all heavily influenced by our social circles, by how much sleep we got last night, by convenience. (Read an excellent NY Times review and summary here.)
Wherein Two Friends Talk Me Out of a Good Idea
I like to think I’m pretty immune to nudges. But this morning I remembered a time when I almost let someone else’s opinion make a life decision for me. I guess I’m not as immune as I thought.
By 2016, I knew I needed to leave NYC. The stressors were killing me. The loneliness of the city was crushing. I used a step-by-step method to narrow down cities where I could see myself living. I was so proud of my process and objectivity.
To be fair, I’ve come a lonnnnng way in learning how to make major life decisions. My old method of choosing a city to move to involved applying to a bunch of jobs everywhere and taking the first one that hired me — basically the equivalent of being blindfolded and spun around, and then pointing somewhere on the US map.
This time, I had used my major criteria (sunny weather, tech jobs, lower cost of living) to narrow my destination down to two cities: Durham, North Carolina and the greater Denver area). I planned trips to visit both in order to get a sense of the overall vibe.
On my visit to Durham, I confirmed that it had all the factors I was looking for, plus a great arts culture and a growing downtown. I had a great time driving around, looking at potential places to work, and even going on a date! The date turned into a lasting friendship that I still cherish.
In preparing for my trip to Colorado, I had reserved my airBnBs, rental car — everything. But I was a little travel-weary from the Durham trip.
I spoke with two friends about my upcoming trip, and they said, “You won’t fit in in Colorado! Colorado is for people who wear spandex and drink kombucha all the time. You can’t even do a pull-up.”
I started to have doubts. They were right. I’m nerdy and scrawny. I wouldn’t fit in with crazy skateboarding hippies. I looked into my future in Colorado — friendless, condemned to walk around by myself all the time, my head hung in shame as I walked through parks of people doing Downward-facing Dog.
I canceled my trip.
Now I look at that and shake my head. There was very little logic involved in the decision to cancel. It was more spurred on by self-deprecation and travel-weariness.
Is it really a good idea to let TWO PEOPLE WHO HAVE NEVER LIVED IN COLORADO make life decisions for me? 🤔
As I thought about it more, it came to me that just as in New York City, there are tons of people in Colorado. Likely not all of them would be high all the time.
So I went back to my research. I read about salaries and cost of living. I read blogs and weather logs. I made an informed decision, choosing Colorado where I could be car-free over Durham where I’d need wheels. Funnily enough, although the cost of living is more in Colorado, being able to ditch the car lets me more than break even.
Own Your Stupidity — And Outsmart It
Clearly, I’ve been living in a fantasy that I am an objective decision-maker, all the while giving too much weight to my friends and my feelings. My feelings are real, but they are not always true. Just because I am afraid that I won’t fit in somewhere doesn’t mean that’s the truth. I’ve decided to start consciously owning my silliness. After all, how else can I outsmart myself?
It’s all about noticing.
Decision: Eating Out
“Wow, I bought a lot of lunches out this month. Must be because I keep forgetting my lunch.”
Then, how to outsmart?
“What if I kept a backup lunch at work to outwit my own terrible memory?” — That’s my version of a self-nudge to help counteract my bad memory.
“Wow, I keep thinking I’m buying good stocks, and I keep losing money.” When it comes to investing, we like to imagine we are a lot more objective than we are.
How to outsmart?
Choose index funds (as Warren Buffett advises), which have the best return rate for the average investor.
“I keep buying things on amazon that exceed my monthly budget. That means I’m behind on my savings goal to travel to Mexico next year.” 🇲🇽😰
How to outsmart?
By noticing: I’ve started charting my stress level every week. If my stress level is higher than a 5 out of 10, I know I’ll try to spend in order to distract myself.
Yes, I can work to manage my stress. But some life stress is unavoidable. I’m still going to crave distractions from the stress sometimes. So instead of shopping, I make a plan: “I’ll satisfy my desire for escape by doing something I’ve been really looking forward to that does not involve shopping. How about learning to make Pho?!!!”
Just the act of noticing my own emotions has helped me “check” myself on the Checkout page. 😉
Another solution: Lots of savvy people outsmart their spending compulsions by having their job direct-deposit most of their paychecks into their savings / investments. Some people even hide money from themselves. Can’t be spendy when there’s nothing to spend…
What’s your strategy? How do create nudges that factor in your own lack of good judgment?
Ginna blogs about her journey toward financial independence at frugalkite.com