Decisions, Decisions…
There’s a statistic out there that we make over 30,000 decisions every day. I’m not sure I believe that number, because I think it probably has a very loose definition of what a decision is. If I stand up with more weight on my right leg than my left leg one could argue I’ve made a decision, even though it was almost automatic. As I approach the closed door I will reach out with my hand to open it, but I don’t consciously decide which hand to use unless I’m somehow restricted.
Whether the number is right or wrong, we can probably all agree that we have to make a lot of decisions daily, with everything from which mug to use for our morning coffee and what breakfast to serve our cat at one end of the spectrum, and the opposite end having such decisions as whether to save the life of one person over another. I could go down the whole free will/determinism rabbit hole, but that’s dangerous and would lead to a post that never ends.
Decision Fatigue
There is a concept in psychology called decision fatigue which explains that the quality of decision-making reduces in line with the number of decisions we have to make. I also suspect that the weight of each decision can play a part, i.e. making five tough decisions could have the same effect on decision-making stamina as fifty small decisions. In some ways, the concept of decision fatigue may seem counter-intuitive, as the key to improving any skill is practice. However, one must remember that with any practice rest is as important as the practice itself.
If we get worse at analysing situations and making decisions the more we engage in it during a short period, then it’s easy to see why automating as many decisions as possible would be a benefit. Steve Jobs, of Apple fame, was known for wearing the same outfit every day. He did this to reduce decision fatigue. Some people have the same breakfast, or lunch, each day for the same reason; it’s one less thing to think about.
When investing many possible decisions have to be made. You have to decide;
- How much to invest.
- Where to invest (which platform).
- The type of investment (the product or commodity, for example).
- The exact investment within the chosen product.
Then, on an ongoing basis, you have to decide to keep investing or cash out, diversify or follow a more focused path.
Gambling
When I was struggling with my gambling addiction several years ago, I came across a podcast that played a huge part in helping me kick the habit. It’s the After Gambling Podcast by Jamie Salsburg in the US; he’s a great guy and I’ve had a couple of chats with him, so you should check out his podcast and content. Anyway, in one of his episodes, there was a discussion around how total abstinence was easier than partial, and I think that feeds into this debate around decision-making. With total abstinence from gambling, you make a single decision to not gamble in any way, shape or form. This is everything from online poker to a raffle at work. No exceptions which means no decisions have to be made in the moment.
Investing can be looked at similarly. I always say the process is the most important part of investing. Follow the process and the results will come. I believe that process is the mechanical, repetitive, and largely automatic process of investing bit by bit over a sustained period. That’s where the real returns are.
Lattes and Avocado Toast
It’s pretty much a meme at this point, where someone gives up avocado on toast and is suddenly a millionaire. There are countless posts out there where people say you can give up a latte each morning from Starbucks and you’ll save hundreds each year. Well, yeah, you might, but I don’t see the benefit of depriving yourself of a simple pleasure each morning if you enjoy it. There are bigger wins out there, like switching your utility tariff, or mobile contract, or buying a car that meets your needs rather than your desire to be cool. What I’m saying is that stressing over whether to have a latte each morning from the coffee shop, or a cup of warm dumpster juice from the office vending machine is just not worth the mental energy.
Automation
So the real message here is that I think automating some, or most, of investing can help reduce decision fatigue, and allow you to make better decisions in other areas of your life.
In a world inundated with decisions, navigating decision fatigue requires a delicate balance between automation and mindfulness. By automating routine choices, particularly in areas like investing, people can liberate themselves from the cognitive burden of decision fatigue and focus their energies on pursuits that truly matter. The journey to financial independence should not be about deprivation but about achieving a balance between financial prudence and mindful living.
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I think the latte factor is more about considering that you can chose a cheaper option that can achieve a similar result.
A coffee at a chain coffee place is £3.50 to £4 or so. 1 a day for a 5 day working week is coming in at £80 a month. You then need to consider if that is something you get value from. I used to take a flask to work of coffee each day. The brand of coffee I favour is £4.50 for a 250g pack and makes approx 15 cups. So that’s coming in at 30p a serving.
It then comes down to either the 80:20 of it, or you could consider is a store bought coffee worth 13 times the price of a home made one?
Finally, the latte factory to me is a symbol of the fact that small actions make a big difference. A coffee a day alone makes very little difference, but it’s one of the numerous (maybe not quite 30,000) decisions you can make through the day that move the needle.
Small actions can definitely make a difference over time, but some people do spend an awful lot of mental energy worrying about this sort of stuff, i.e. a few quid a day on a coffee that they enjoy, as opposed to spending some time saving money on their bills, mortgage payments, car payments and so on. There’s the time/money calculation as well. I used to take a flask into the office each day before Covid, but it took time and energy to make the coffee, clean and prep the flask and so on. Sometimes the juice is not worth the squeeze. I do get what you’re saying though, but I think this is one of those things that is unique to each person. As long as spending is mindful and responsible, I don’t think we should hammer people for enjoying a latte.
Further to the above, I personally don’t automate my investments for 2 reasons:
1) I like the feeling of making a positive financial decision with my finances.
2) I like how I can challenge myself on each payday to live on a specific amount for the remainder of the month, and vary the amount I invest, usually to the positive when compared to my benchmark.
If that works for you then carry on doing it. Different people have different methods, and you’ve got to do what’s right for you, kind of like the Sleep Well at Night test. I get the impression that you’re very much on the ball with investing, so you probably get a lot of satisfaction from the research and the process. For people with less confidence, knowledge, or experience, automating their investing into a simple global index is probably the best thing to do until they have a solid foundation of knowledge.
When I was 5 days a week in the office, my colleagues used to laugh at the same lunch I had every day but I did it because it was convenient and one less thing to think about. I loved it when they introduced ‘work polo shirt day’ as I didn’t have to think about what to wear that day! If I could have gotten away with it, I would have worn the same outfit every day but harder for a woman to get away than a bloke a la Steve Jobs or Mark Zuckerberg!