March 24, 2018
Making decisions is part of being human.
And it’s an important part of life.
Especially, when you’re trying to achieve something unusual, like retire a few decades before your peers.
But good decision-making is a learned skill. It takes time to improve and fine-tune the art of making a good choice.
One of the biggest obstacles to making a good decision, is our emotions.
Many people ‘go with their gut’. Or think they’re making a rational choice, when really, it’s their emotions driving it. Instead, they look for reasons (excuses) that justify their decision.
The key to making a rational choice is to sit back for a minute.
Simply making a snap judgement and rushing to a decision, is likely to turn out poorly.
But when we stop, (try to) remove the emotion and think about the decision from various angles, we can begin to see what our emotions were blocking.
It sounds simple. But we’re human, after all. We have so many built-in emotions, usually to protect us.
Although, in modern life, they often cause us to do silly things, because they alter our ability to be rational.
Now, I do this just as much as everyone else. But I’m aware of it. And that helps, because I remember to slow down and think about things from different angles.
The reason it’s important, is due to the vast amount of decisions you’ll have to make on your way to Financial Independence.
And if you’re making those choices with too much emotion, and not enough rationality, then it’s gonna take longer. A lot longer!
Why? Because we’re going to make excuses about why we can’t move closer to work, or get a smaller, more efficient car. We’ll justify why we deserve a new pair of shoes or another overseas holiday.
Our monkey brains will actually search for these excuses. And this is why a little rational thinking, mixed with some self-discipline, goes a long way.
An area where our ability to be rational often fails, is happiness and life satisfaction.
We often think we know what will make us happier, but it turns out we’re terrible at it!
The truth is, once we’re part of the Western middle-class, there is very little, if any happiness benefit from additional luxury.
Therefore, once we reach middle-class living conditions, there is very little point in spending more money, with the assumption it’ll make us happier.
Obviously, this is handy information when you’re trying to funnel a boatload of cash into investments for early retirement!
When we buy stuff, we’re simply just solving a problem or meeting a desire we have.
Marketing companies know this. So if the product doesn’t really solve a problem, you can be sure they’re working their arse off to create desires we didn’t already have!
Here are some basic problems we come up against as humans, along with possible solutions…
Solution A: Buying a 4-bedroom house in a beachside suburb close to the city.
Solution B: Buy or rent a modest size apartment with similar city/beach convenience at a fraction of the cost.
Solution A: Buy a 2018 Range Rover Sport on finance, with all the extras.
Solution B: Question whether car ownership is the only way to solve the problem…
Can you use public transport? Combine it with Uber? Ride a bike instead. Finally, if buying a car is still the most sensible option, then optimise it. Buy a low-cost efficient car for 5-10k and use it sparingly.
Solution A: Visit restaurants where food is professionally prepared just for me, while I sit in a chair and wait. Also I can avoid having to do anything, and won’t need to clean up.
Solution B: Learn to cook and prepare my own food that I’d bought previously by planning ahead.
This offers far higher convenience (it’s in my house so I don’t need to go anywhere) and likely health benefits. This also reduces Problem 2 (needing a car).
Solution A: Purchase first class tickets to Europe, for 2 weeks of hotel-hopping and tourist traps.
Solution B: Pack up the car and head down (or up) the coast, to a lovely waterfront town, or a forest/mountain type area, to soak up nature in all it’s glory.
Here, you’ll have a true chance to de-stress from city life and melt into the gentle pace of the country, while exploring the area at your leisure. And without competing with thousands of other tourists for happy snaps.
While it may seem like silly examples, these are just different ways to solve the same problem. And each option will give us roughly the same end result – solving our problem and meeting our needs.
Since our needs are still being met, there’s no rational reason to go for the more expensive option.
Now, this is where the subtleties come in. Many people assume the more expensive option will make them much happier. Even if we don’t acknowledge it, subconsciously, it’s an assumption most of us have. And that included me, until recent years.
But would our overall happiness change with the more expensive option? No.
So it seems to be flawed human thinking that believes more expensive trips, meals, experiences and possessions will make us happier. That’s simply not true.
Because even a basic life in a rich country like Australia, is unbelievably good, compared to most of the world, now, and throughout history.
If we’re all honest, the vast majority of our household spending is up to us. It can cost as little or as much as we like.
Life satisfaction is not a numerical game. Spending three times as much, doesn’t make us three times happier.
It’s been found that once we have the foundations of a good life, we’re about as happy as we can be.
A comfortable and safe place to live. Some work or hobbies we find engaging and challenge us. Taking care of our health and being a good person. And having strong relationships with friends/family to share the good times with.
Funnily enough, most of the stuff that actually satisfies a human, doesn’t cost all that much.
So why not mesh this idea with the dream of living a wealthy and free life?
We can all make better financial choices, by recognising which things make us truly happy. And also seeing, the expensive options are just another way to solve the same problem, in a more costly manner.
The result is, we can save and invest a ridiculous amount of money, while living a good life. This allows us to purchase our freedom, in less than a decade.
Finally, let’s start thinking more rationally, when solving problems or meeting our desires. And always aim to get the same result, in a far more effective and efficient way.
Note: The ‘irrational’ spending can come later (if you like), after building Financial Independence and the happy foundations of a good life.