Three Ways to Prevent
Common Decision Making Mistakes

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Let me tell you this quick story about my friend John the speechwriter. While getting ready for work, his wife told him about the article where the media officially declared that “we are in a recession.” At first, he thought nothing of it, but when he got into work, the first thing he checked was his 401K account. He sat down at his computer, started it up, and checked his balance.

“50% down? Oh my…” was what he said, but he had no idea what to do. While running his hands through his hair, he thought about Sam (his newborn son). Would he still be able to go to college? John wanted to be the sole provider, but his retirement savings lost half of its value. So, he moved it out of the stock account and into the fixed savings account. “Perfect, he thought.”

His sense of “perfect” cost him his retirement. He solidified his losses and ensured that he would never see his money again. He saw a problem and immediately wanted to fix it. After all, he couldn’t just sit back and watch more of his money disappear.

Now what did John do wrong and how can we prevent it from happening in the future?

Defer the Decision Temporarily

John was acting on emotion. His financial move was life-changing and he seemingly didn’t give it a second thought. He just had to “do it now.” Unfortunately, with “doing it now,” John didn’t take the time to evaluate his decision. So, he has no idea whether or not it was right. All he knows is that it felt good to “do something.”

When you make a major decision in business or life with emotion, you may not be thinking rationally. So, you should sit on the major decision for a few hours or days. This will help you get back into the right frame of mind for a proper decision making process.

Consultant With a Friend or an Adviser

John was also inexperienced. He was a speech writer and was by no means a qualified financial adviser. Not only did he make the decision himself, but he made it with bad criteria. He assumed that since his 401k was down 50%, it would be smart to move it into a fixed interest account. Unfortunately, just because a 401k is down, doesn’t mean you should abandon it. However, there is no way John would have known that since he wasn’t an expert.

When you are dealing with tough decisions in your business and life, you should get a second opinion. It will help ensure that you are making the right assumptions and hopefully catch any grave mistakes.

Research and Evaluate the Decision

And here is John’s main mistake. Not only did he act with emotion and without a consult, but he failed to do any research. Additionally, he based his decision on how he felt about his results. When he saw that his 401k was down by 50%, he thought that was an indicator that something needed to change. Unfortunately, John didn’t realize that you can’t evaluate your decision based on how you feel about the results.

You should never make a decision without conducting your own research. It may be easier to rely on an expert, but you need to understand what they’re talking about anyway, so do some of the work.

How Many John’s Do You Have?

Most of my friends are on their way to becoming successful. They either get paid decent money or run successful businesses. However, with all of this great experience under their belt, I can still count more than four “Johns.” So, why don’t you tell me how many “Johns” you have in your life?

Tagged as: 401k, decision making, success, Success Factors