"Always plan for the fact that no plan ever goes according to plan."
We all know that one person who does stupid things and always makes really bad decisions. How frustrating is it when that person gets some good luck and the bad decision was rewarded? Likewise, we've all been in a place where we do everything right but can't seem to catch any luck. We ask ourselves why we put in the time when it seems like it never turns out our way and we see dimwits doing well and they make bad choices.
There is a difference between a good decision and the right decision. It is possible to make a great decision and have the outcome turn against you. It is also possible to make a bad decision...or worse, not make a decisions, and have that result in a good outcome. I want to encourage you to focus on your decision-making process and planning, not the outcomes.
Making a Good Decision with a Bad Outcome
For starters, I need to clarify that a bad outcome doesn't necessarily mean an outcome that harms you. It could mean an outcome that wasn't as good as another outcome you could have had. For example, maybe you were rebalancing your investments and were searching for a fund that tracked companies in foreign companies, an international fund. You got it down to a choice between two investments companies, both with low expense ratios and low turnover (both of these indicate they are low cost investments) but the only difference is they track a different index. You choose one. The other one does better over the next year. The fund you chose still did well. It doesn't matter; you still feel regret.
This is my point. If you had a good process for picking your fund (low cost, covers the area of the market you need it do, fits into your overall investment plan), then it shouldn't matter whether this fund did better than that fund. Your process is solid, and I'm giving you permission to be happy with that.
At the risk of sounding like a statistics teacher, most decisions we make have probabilities assigned to them, and there are so few decisions that have a 100% probability of success that we'll call it zero - there are no decisions that have a 100% chance of success. All this means is that if you followed your process and chose an option that would be the best option 99% of the time, one out of 100 times that would not have been the best choice. But again, that doesn't make it the wrong choice.
Don't Ask Questions That Can't Be Answered
We know that less-than-perfect outcomes are possible, and expected. The only thing we don't know is when those outcomes will happen. We don't need to in order to be okay with our decisions. It is far too easy to have a bad outcome and get really hard on ourselves. We question how this could happen. We did all the right things and we just can't win. This is especially true if you are a pessimist, inconveniently forgetting about all the wins that you've had.
The problem with feeling sorry for ourselves is that we are taking a look in the rearview mirror and asking how things went so wrong. We question our abilities. We throw pity parties for ourselves.
The thing is, though, these are the wrong questions to ask. These questions can't be answered. Asking questions that can't be answered, questions that have no relevance to us going forward, questions that make us feel bad, these are a waste or our time.
Asking Better Questions
So if doubting ourselves is the equivalent of asking the wrong questions, what are the right questions? The right questions involve acknowledging that something happened that wasn't the best, and figuring out what we need to do to go forward. We know where we are now. The question is, do we still know where we want to go? If so, we need to ask ourselves how to get there.
As the saying goes, blind squirrels sometimes find nuts. And whatever they were doing at the time will make them think that helped them find the nuts. Of course, we know it's just random luck. When we apply the same logic to us humans we don't often realize the role random luck plays. For many, it's frustrating to see someone make bad decisions and end up with good results. But those people are no different from blind squirrels. Further, if it's us with the bad decision-making process - or worse, no decision-making process - then our bad behavior is reinforced and we are likely to do it again, but not likely with the same result.
The Journey Is More Important Than the Destination
In personal finance, author Carl Richards has a saying that planning is more important than the plan; that financial planning is a process, not an event. A plan isn't static. Once we do the hard work of getting a plan in place, we know something will change. Our goals will change. We'll get a new job. We have an unexpected child. Maybe our values change. We don't know what will be wrong in the plan, but we know something will. But just because we know something will be wrong - we'll have a good decision-making process with a bad outcome - doesn't mean the process of planning and decision-making isn't important; it's incredibly important. You'll see much more success in the future with a plan than without one, but recognize the the plan is a living, breathing document. You wan to edit, revise, and revisit your plan regularly.
The process of planning is more important than the plan itself.
Mitch Anthony: The Daily Dose
Carl Richards: The One Page Financial Plan
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