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Analysis paralysis is slowly making you poor

- November 23, 2021 7 MIN READ
Analysis paralysis is making you poor

If you’re sick of failing at reaching your financial goals, analysis paralysis could be the culprit. A quick decision is often better than no decision at all.

It’s funny how an upcoming new year gets us thinking about the things we’d like to do better, and the goals we want to achieve in the next 12 months. I enjoy the hopeful feeling that comes with this time of year and the eagerness of people to go out and get the things they really want.

Whether it’s getting fit and healthy, doing some study, getting a pay rise, or getting your finances in order, the new year seems to be a time filled with high hopes for what we will accomplish. But how many times have you set a new year’s resolution, only to find yourself setting the exact same resolution the following year?

I’ve also noticed one one big difference between the people who get results and those that don’t.

Those who take positive action and take steps toward getting the things they want, are unsurprisingly the very same people who get better results.

Now this sounds really simple. To avoid inertia and sub-par outcomes from your personal finances, take action and you’ll be well on your way.

But by far and away, the biggest factor that stops people from taking action is the fear of making a mistake. And it’s a well founded fear.

Mistakes can set you back

When you’re in your 20’s and 30’s, the hardest part of getting great results from your money is building your initial momentum. I won’t go into the power of compounding return or the barriers to getting into the property market here, but let’s just say the first $10,000, $20,000, or $50,000 you build through savings or investments will be the most difficult.

It’s no surprise that once you have pushed through, you don’t want to take a wrong turn or make a mistake that will send you back to the start. And rightly so.

Now young professionals are pretty switched on generally speaking. We live in the information age. Know our way around a smartphone. Can Google up a storm. And aren’t concerned about asking for advice when we want it.

And it’s natural when you’re about to make a big choice to want to understand your options and confirm what you’re thinking. Whether it’s a changing jobs, a big ticket purchase, or changing your money management strategy, these are all things that cause us to seek out information, guidance, or advice.

I read an interesting quote that really struck a chord. Derek Sivers is a successful entrepreneur and was one of the pioneers of digital music. He said:

“If information was the answer, we’d all be billionaires with perfect abs.”

When it comes to money, it’s common for people to be crippled by inertia. Paralysed by fear. Overwhelmed with choice. For a long time I wondered why, then I developed a theory. This theory was based off a feeling and what I’d seen work and fail, both from people struggling and others thriving. Then, I stumbled onto a huge amount of material on this very topic.

There are many names for this phenomenon; information overload, information paralysis, analysis paralysis, even information pollution.

Analysis paralysis can set you back even more

Now given the topic in question I don’t suggest diving deep into this research, so I’ll give you the key points. In short, the research finds more information does not help us make better decisions, and in fact, access to more information can cause us to delay taking action.

One piece of research I found found that unless you act on information you’ve researched immediately, over 75% of it is lost.

That’s huge. It’s no wonder why people spend so much time researching their financial options before they take action.

The problem of analysis paralysis is further amplified when it comes to money management. There is just so much conflicting information and mixed messages out there. These different viewpoints are everywhere and if you’re doing even high level research you can’t avoid them. It’s almost as though every second company, website, or authority on personal finance has a different view about why what they’re saying is the best thing you could possibly do.

Conflicting information is confusing

It’s no wonder people end up confused. I once ran a workshop about investing in property, and at the end of the workshop a young couple that attended stayed back to ask me some questions. They had some pretty specific questions about the strategy they were considering, and I did my best to answer them, but some were complex so I suggested a couple of topics for them to do some further research on.

They ended up calling me about a month later saying they were now more confused than when they started. This is not uncommon.

Let’s just make this clear. You don’t need more information. Or another idea. You don’t need another opinion.

You need to act.

Steps to overcome analysis paralysis

Do your research; research is important. But avoid the analysis paralysis that often comes with it. Here’s what the research — and what I’ve seen work in practice — says about overcoming analysis paralysis.

Find a single source of truth

This means you need to find one resource you can rely on. You don’t need to go to ten different sources, you just need one. While this will work with any resource, for this to work well (important) it needs to be a reliable source.

This resource could be a financial adviser, authority figure, website, institution, or author, but whatever you choose needs to generate positive results. Take the time to understand how the source you’ve chosen can help with what you’re looking for.

When you find a winner, don’t spend more time researching. You don’t need to delay action further. You don’t need to wait for the ‘perfect’ time. Just take action.

Keep it simple

The most simple strategies, investments, and tools are often the best. There is no need to complicate your situation or confuse yourself by doing something too tricky. Often when it comes to really complex strategies or investments, the only people that make money are the people that sell or create the investments or the services that get you into them in the first place.

I’ve seen people ‘invest’ in racehorses, complex share options and derivatives, precious metals, currency, paper mills, olive groves, complex property leverage strategies, carparks, and more. Every one of them didn’t achieve the results the investor was looking for, any many of them lost a lot of money in the process.

Buying shares, buying property, saving money, investing in your super. These strategies are the most common, and the least sexy. But when it comes to money, boring can be very effective (and attractive to boot).

The most common strategies are the most common for a reason – they work. To avoid analysis paralysis, less is so often more.

If you keep your financial strategy simple, you’ll benefit from more stable results, less chance of loss, and steady long-term growth. Importantly you’ll also have a lot more peace of mind because you’ll have a good handle on your strategy. You’ll understand what you’re doing, which is important for a number of reasons.

This understanding will make you more comfortable, help you increase your financial literacy, reduce your stress levels, and give you confidence you’re headed in the right direction.

Settle for ‘good’ now, rather than ‘best’ in the future (or never)

Don’t get caught up on picking the very ‘best’ investment. Now I’m not a fan of having to ‘settle’, ever. In fact the word makes me cringe. But when it comes to money, settling for a good investment now instead of doing more research and taking longer to figure out the absolute best investment (which is a futile undertaking in any case) is often a better result.

I don’t want to get into a detailed discussion of investment theory here, but let’s just leave it at the fact investment markets are driven by investors. Investors flock to a sure thing, but can also be irrational. This means it’s impossible to say what investment is going to be the best performing over any time period. It also means that even a sure thing isn’t, because people don’t always do what we would expect.

Now I don’t know what suburb is the best possible investment. But what I do know is that if you invested in Bondi, Darlinghurst, or Pyrmont in Sydney, or Toorak, St Kilda, or South Yarra in Victoria, New Farm, Ascot, or Teneriffe in Queensland, there isn’t a huge difference in the long-term return on these property investments.

Everyone knows these suburbs are solid investments, but when people go to buy property, for some reason they forget this knowledge and get caught up in trying to somehow divine which suburb is going to give them the ‘best’ outcome.

Settling for ‘good’ and taking action now is the winning outcome here.

Outsource your research

Another way you can get the benefits of doing all the research without the downside of information paralysis is by outsourcing your research. In the case of money, I mean engaging a good financial adviser or money coach.

Any adviser worth their salt will already have done the research on all the strategies that could be worthwhile for you. This means a big benefit of using a professional is that they will be able to give you the high level information on your most relevant options, and help you understand what could work best for you.

You will still need to choose what you’re most comfortable with, but a professional will be able to explain the most important things for you to think about.

Apply common sense

While most people aren’t experts in personal finance, your intuition and the way you feel about things is a good indicator of whether something is right for you. The caveat for this is the need to understand the psychological biases and their impact on how you make decisions.

If the direction, strategy, or your investment you’re considering doesn’t ‘feel right’, you don’t understand it, seems super complex, or relies on a large number of variables lining up for you to get the outcomes you want, pause and take stock.

If you’re in a position where you don’t fully understand and feel comfortable with a decision, it’s unlikely to be the right one for you.

Even if the choice you’re considering is ‘good’ in absolute terms, it probably won’t be good for you because you won’t be confident. Apply an overlay of common sense to your decision making process to stay on the right path and avoid trouble.

The wrap

I hate seeing people suffering through inaction. Inertia is actually my least favourite word. The costs are high in terms of missed opportunities and stress caused by not having a solid plan.

If you follow these steps, you’re going to be well placed to cut through analysis paralysis and take action. I urge you to push through this pain point and get started. The benefit of taking action now will pay big dividends. Both today in terms of how you feel about money, reduced stress, and increased confidence. And in the future through better returns, more money, and reaching your targets sooner.

This is an edited version of an article that was originally published on Pivot Wealth and is republished here with permission. This article contains general information only. It should not be relied on as independent finance or tax advice. If you are after specific professional advice, speak to your registered tax agent/financial advisor or reach out to Pivot Wealth.