Updated: May 2
Whenever you are standing on one of life's ledges, it always seems difficult to get yourself to make the leap. Skydivers lament that standing in the plane before the jump is 100 times scarier than the actual jump. Many of us will never get to (or want to) have the chance to skydive, but the analogy works for pretty much any aspect of life (a big purchase, a job change, a home purchase, even retirement). Everyone has experienced the panic that comes right before you press the hypothetical 'execute' button to commence an activity. 'Change is good' we always hear, and a much higher percentage of big decisions lead to good things as opposed to negative things. So what causes people to balk when the time comes to make a decision? There are likely several reasons, and they vary from person to person, but most boil down to the fear that the result of the current decision will be bad. Humans have the unpleasurable characteristic of worrying more about the potential bad results than celebrating the good. I see it many times during the planning process, from the decision of actually hiring a financial planner, to starting the process of implementing a major life event. Regardless of how much prep and planning and research a person may engage in, and no matter how positive financial planning software may make a situation appear, the actual act of saying 'let's do this' will inevitably bring about a feeling of panic. And while this feeling may never be avoidable I can provide two reasons why it's irrational. The first reason is that, like the skydivers forcing themselves from the security of the plane to the unknown of a free fall, there is a feeling of relief and excitement after the decision is made. A slightly less dangerous example is that feeling you have after you hit the 'purchase' button for a plane flight purchased online. You put time (quite likely too much time) into researching different flights for convenience, price, and so on, and when you finally make the purchase your emotions can transfer from confusion/panic to excitement. The feeling of worry about making a bad decision just disappears, replaced with elation. Although, that feeling may be brief. Even after a decision is made, many people will still have moments of buyer's remorse or self doubt (even if completely unfounded). This is why my second point is more valuable, and is also where financial decisions part ways with the act of skydiving. The majority of financial decisions are never final. If warning signs are caught early and if we give ourselves a healthy amount of time, it is possible to reverse any financial path. Purchased homes can be sold, wills and trusts can be changed, retirees can even go back to work if retirement proves to be unsatisfying or the lack of a regular income becomes too unnerving. Now, this is not to say that reversing a financial decision is easy. You certainly need to provide yourself with the tools and ability to reverse a big decision. For example; selling a home shortly after purchase would have required a healthy downpayment to create equity and willingness to work within the trends of the current market. Another example (like when considering an unsatisfying retirement) would be to make sure you are not letting professional licenses lapse in the first few years of retirement to allow yourself to go back to work. Or, make sure you are familiar with alternative methods of reentering the workforce in a particular field of expertise. In short, when making financial decisions, it is always necessary to consider a 'what if' based on the possibility that you don't end up appreciating, or are comfortable with, the result of your decision. I have written many times about how a person's goals, or attitudes towards one's goals, changes over time. This is not likely to be different after the actual decisions are made. It's always important to envision an alternative path in case the goal you once cherished and worked towards turns out to be less rewarding than you thought it would be. I mentally do this with every case I encounter. I may only present two or three potential ideas to my clients for strategy discussions, but with every planning scenario I envision an almost infinite number of escape hatch strategies which I may present over time if they ever seem necessary. Not every person needs several different strategies in mind in case things don't turn out the way they were supposed to, but it's important to realize that things can change and we must be ready to deal with those changes efficiently. After all, life does not go in a straight line, but more like a Plinko chip bouncing around a game show prop. If you accept that life goals have the potential to change even when goals are reached, and you have a strategy to react accordingly, then big decisions don't need to be panic inducing. Many of life's biggest decisions are not required to be permanent.