The new year’s period often gets people thinking about what they want to achieve in the year ahead. Getting your finances on track is a common new year’s resolution, and unfortunately failing at this goal is also common. In this post I talk about the differences I’ve noticed between people that are successful with money related new year’s resolutions and those that aren’t.
It’s funny how the 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 promotion or 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 same resolution the following year?
Money is one of the most common areas people aim to get in order in the new year. But not everyone manages to stick to their resolution, and not everyone gets the results they want. I’ve seen many people to be enthusiastic about getting their finances sorted in January, only to speak to them six months or a year later (often the following January) only to see them facing the same problems. I’ve also noticed one one big difference between the people that get results and those that don’t.
Those that take positive action and make steps toward getting the things they want, are unsurprisingly the very same people that 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.
For young professionals in particular, there is another issue at play here. An issue that is a significant barrier to taking action. The more research I do, and the more I speak to people about their finances and money management, the more I realise how big this barrier is, and how hard it can be to avoid.
By far and away, the biggest factor that stops young professionals from taking action is the fear of making a mistake. And it’s a well founded fear.
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 and in the process of setting your strategy, 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, relocating to another state or country, a big ticket purchase, or setting up 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 the other day that really struck a chord. Derek Sivers is a successful entrepreneur and was one of the pioneers of digital music. He said:
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, even information pollution. This vast amount of research isn’t from kooks or unreliable sources, but instead from publications like the Harvard Business review, Huffington Post, and countless others.
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 information paralysis is further amplified when it comes to money management due to there being so much conflicting information and mixed messages. 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. Why their investment strategy is the best ever and why doing anything else would be crazy. Why their approach to property is the best to make you big money fast. Why you should buy shares over property. Why you should buy property over shares… I think you get the point.
It’s no wonder people end up confused. I ran a workshop last year 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. You don’t need another idea. You don’t need another opinion.
You need to act.
Now I’m not saying not to do your research. That’s important. But what you need to do to avoid the information overload that’s so common and get started is actually simple. I’ve put together the most important points on how to avoid this information overload below. These are based off the research I’ve read as well as what I’ve seen work in practice.
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 resource.
This resource could be an Adviser or Coach, authority figure, website, institution, or author, but whatever you choose needs to generate positive results. Take the time to understand whether the source you’ve chosen can help with what you’re looking for.
If you’re looking for strategies to grow your savings or investments and you’re young, choose a source that has a track record of being able to deliver on this. If you’re looking for information to help you manage your cashflow better, find a source that has practical advice on how you can do this. If you’re looking to buy property… well you get the picture.
Ensure the source you choose has experience in the areas you think are important, the ability to help you identify and help with things you might not have thought of, has a proven track record of positive results, is ethical and reputable, and is a brand, person, or source you are comfortable with. If your source meets this criteria you’re onto a winner.
And if you find a winner, you don’t need to spend more time researching. You don’t need to delay action further. You don’t need to wait for the ‘perfect’ time. You need to take action.
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 at the bank, investing in your super. These strategies are the most common, and the least sexy. But sexy isn’t always best, and 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.
Don’t get caught up in the hype. The glossy brochures, the marketing messages, the buzz words, the prawn cocktails… These things can all distract you from the most important thing when you’re looking to set up a money management strategy or investment, which the return you can (reasonably) expect and the level of risk involved in your strategy.
If you keep your financial strategy simple, you’ll benefit through 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 understanding and financial literacy, reduce your stress levels, and give you confidence you’re headed in the right direction. Less is more.
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’ve met people (normally engineers) who have spent countless hours of analysis trying to figure out which is the ‘best’ possible investment. They spend all this time which invariably results in delayed action in the hope of somehow choosing the very best possible investment.
I was speaking at an event recently in Sydney about money management for young professionals. I was part of a panel, and one of the other panelists was the Head Economist for a large Australian property investment group. In the Q&A session at the end of the formal presentation, one of the attendees asked a question about property investing.
The attendee was a young guy in his early 30’s wearing a suit and seemed pretty switched on. He noted that he was looking to invest in property and had been doing a lot of research on different suburbs, trying to figure out the very best place he could buy property. He had been analysing the rental income on properties in various suburbs vs. the price/value growth. He’d been researching for over 12 months, and I could tell from his tone he was frustrated because he wasn’t any closer to making a call. He told of the spreadsheets he had put together and asked about the approach this economist took when assessing property investments.
This was clearly someone that had gone a little over the top with their research, but it’s more common than you might think. The thing is, it’s impossible to know which suburbs will be the best to invest in. Nobody knows. If it was possible, someone would have discovered the secret already.
There are investment companies with virtually unlimited resources that would love to have this knowledge. They would profit significantly if they knew the best place to buy property, through either buying property directly or selling this knowledge as a service. I’m going to let you in on a secret here – nobody has cracked the code.
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.
As we’ve already discussed taking action is key, and apart from being pretty much impossible to find, waiting on the best investment to come along is something that takes a very long time.
Settling for ‘good’ and taking action now is a winning outcome here.
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 or Money Coach that is 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, because whether that’s young professionals or any other group no one strategy is best. I discussed in this post why there is no one set of good decisions, and how the best option for you depends on where you’re at, what you want, and how you feel about different options. But a professional will be able to explain the most important things for you to think about and should be able to distill this further into the key questions you need to answer to establish the strategy that’s best for you.
Choosing to outsource your research in this area will save you a lot of time, give you more confidence in what you’re doing, help you make better choices, and will likely also make you aware of some other options or strategies you may not have considered.
While most people aren’t experts in personal finance, your intuition and the way you feel about things is a good indicator of whether they’re 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.
I think we’ve all been there. You read a book about exercise or nutrition, personal development, or professional development, you get some great ideas, and you’re ready to take action. Now I’m not talking here about where you make a decision to do more research, I’m talking about the situation where you might have found one resource and plan to act on the ideas.
But a funny thing happens. For some reason you don’t act. The book becomes buried in mail or tidied into a drawer or on the bookshelf, you get caught up, and you don’t end up actually doing the action steps you fully intended to. Avoiding information overload is important, and following the steps above will place you well to cut through the noise and increase your clarity on your options. But this is only half the battle.
You then need to take action.
Let’s face it, this can be challenging and sometimes difficult to juggle with all the other things going on in your life. This is where it can be helpful to have an accountability loop and someone to push you.
Now I must admit I am a bit of a coaching junkie. I have a business coach, a multimedia coach, a mindfulness coach, a mentor, and an accountability group. I meet with these people regularly to help me get results in different areas of my personal and professional life. Now I’m a pretty motivated person, and I like to think that even working alone I would work hard and probably get some reasonable results.
But, I know working with my coaches and accountability partners generates even better results. One of the biggest benefits of this coaching and support is the accountability loop created in a coaching relationship. Now don’t get me wrong, these coaches know much more than me in their areas of speciality and give me great tips and insight about things I wouldn’t have otherwise considered. But, for me the biggest benefit by far is that accountability loop.
I know that if I go to my business coaching session without having completed my action items, I’m not going to be making good use of my time or the money I’m spending. I know that if I see my multimedia coach without having completed the projects I was tasked with working on, he will be disappointed and I won’t be using my time or effort effectively. So I do the work (most of the time) and get better results sooner. Sometimes, I must admit things do get in the way and I don’t get as far as I’d like, but when I have a session with an accountability partner I get the push and it gives me motivation to keep things moving.
Money is another where accountability generates better results. The first step with money is the hardest, whether it’s getting your cashflow sorted, starting an investment plan, buying property, or starting a business. Having someone to give you advice, guidance, narrow research, and push you to act will help you take that step sooner and with more confidence. This means for young professionals there’s benefit to be had from having someone to help you kick off your strategy.
The short term benefit of acting now is a boost in your confidence and reduction of stress. But perhaps just as important is the fact taking action now has a significant long term financial benefit through increased compounding returns. This means reaching targets sooner and/or with less sacrifice. Personally I feel the confidence and reduced stress alone would more than cover the investment you’ll make in getting some help, but definitely the extra money you make long term will offset any costs involved (and then some).
Consider this simple example. You invest $50 per week into a share type investment returning 7% p.a. (note this return is conservative as the expected return from this investment is over 8% p.a.). Now in this example we’re not talking about a huge amount of money (only $50/week) but this is just a basic example to illustrate this point. This means you’re investing $2,600 each year, and over 25 years your investment would total just over $65k. Because of the 7% annual returns compounding over 25 years, the market adds another $110k and your investment ends up being worth over $175k at the end of the 25 year period. Now this sounds great right?
Now consider if you would have started on the same investment five years sooner. Same contribution amount, same return, but an extra five years of regular investments because you started five years sooner. Over the extra five years you would have contributed an additional $13,000 (@ $2,600 per year). But this five years makes a big difference because of the compounding market returns and over the 30 year period your investment would grow to $264k. Starting five years sooner means an extra market driven return of over $89k. If you were investing more your benefits will be amplified.
This basic example shows the benefits of acting sooner. Even if you invested $10,000 in good advice to set your strategy and push you to act your investment would be returned many times over.
Are you struggling with information overload and worried about making a mistake so do nothing? Or suffering through inaction because you’re overwhelmed with options? Or maybe, just maybe, you’re experiencing some procrastination that’s holding you back? If you answered yes, seek some help. I promise you’ll thank me later.
I hate seeing people suffering through inaction. Inertia is actually my least favourite word. The costs are high, both in terms of the opportunities you miss and the stress that is caused by not having a solid plan in place.
If you follow these steps, you’re going to be well placed to cut through information overload and take action. I urge you to push through this pain point and get started because 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 giving you better returns, more money, and reaching your targets sooner.
Don’t fall into the trap of information paralysis. This is a real issue and threat to your ability to act, but it can be successfully navigated. It’s always possible to tweak, refine, and adjust your strategy later, so the direction you take now doesn’t have to be the path you follow forever. Just like sailing an ocean liner, it’s easier to course correct once you get started so don’t delay. Avoid the trap of inertia that’s so common when it comes to money.
You don’t have to make huge sacrifices to achieve money success, but you do need to the rules of the game. Get Unstuck outlines a proven, simple but highly effective framework to help get your financial sh!t together and ‘adult’ with money.
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