It is estimated that on an average day, adults make approximately 35,000 decisions. Some are small, like the color shirt or blouse to wear, which belt or is a sweater better? In “normal” times, these decisions may or may not feel easy. But, as we all know, life is anything but “normal” right now. In addition to small choices, we also now face additional and more consequential choices regarding our physical and mental health, the well-being of our loved ones and community, or our financial future.
In our “new normal,” we are faced with many areas of uncertainty — with the medical and health challenges created by the spread of COVID-19, about the global economy and with the state of the stock market. Although these issues are connected, each will likely have its own path forward. In addition, the significant mental stress caused by this uncertainty can make it even more difficult to make good decisions.
How then do you make the best personal decisions about your financial well-being when so much feels unknown about the next few weeks, months or even the next few years? In the face of uncertainty, it is still possible to make valuable financial decisions and doing so can help avoid permanently costly mistakes.
With medical challenges prominently in the news, let’s look at how medical professionals and other business leaders navigate uncertainty. Many use the SCOPED checklist to facilitate decision-making in uncertain situations. SCOPED is shorthand for clarifying the following:
- Situation: Known facts about the patient’s condition
- Choices: Available options
- Objectives: Patient’s goals and priorities
- People: Roles and responsibilities of all parties involved
- Evaluation: How patients’ choices affect their objectives
- Decisions: Determining which choice is best and next steps
When there is uncertainty, it is very helpful to clarify what is known, what the goals are and what options are available and then repeat the process as new information becomes available and as priorities and goals change. Similarly, good financial decisions can be made, even with great uncertainty, by following a process and then repeating it. Here is an outline to follow to help make plans and decisions, both big and small.
Follow a process
- Gather information – What is important to you? What do you know about your current situation? What don’t you know about the future?
- Identify options – What choices are available to you? What do you prefer or not?
- Make a decision – Take a step forward and implement your preferred option. Keep in mind that it is often fine to make a small decision and leave other items undecided. You may be better off, and it may feel easier to approach things in smaller bites.
- Monitor progress and repeat – See how things go. Repeat the process as new information becomes available about your financial picture or the options available to you.
With this process, you can make effective decisions even when a lot is not known about the future. Importantly, this process also can help you avoid making very expensive mistakes. Here are some additional suggestions to help you navigate these challenging times.
Take it one step at a time
To make a wise choice, you probably do not need to have your entire future figured out, and it may not be helpful to try. We each have limited capacity to make decisions, and if we are under stress, we may have even less capacity to do so. Only make decisions about the areas where you have enough information and wait on others until you know more. As they say, eat the elephant one bite at a time. What small step or steps can you take today?
Leave yourself runway
Thankfully, airports are not designed with the minimum runway length a jumbo jet may need to land. Any number of things are uncertain: wind, rain, ice or mechanical integrity of the plane. All of these are reasons runways are designed much longer than likely will be needed.
Similarly, you can make good financial decisions for yourself with the same perspective. Leave yourself flexibility to navigate an uncertain future, provide opportunity to take advantage of new information and protect yourself when things do not go as hoped. For example, if you are worried about your business for the next couple of years, you may prudently decide to save some cash.
For most retirees, it is sensible to have some conservative savings and some investments that may grow in the future but may not do well in the near term. The balance between the two depends on the amount of runway that may be needed until markets recover. While we do not know when stock markets will fully recover, we do have historical perspective to know they will probably recover at a time that is different than when the economy recovers.
Finally, while it’s not part of the official process, celebrate in some small (or large) way when you implement a decision. Perhaps it is a piece of chocolate, sitting on the porch with lemonade or telling a friend or family member about the positive step you have taken. You just may have to save the celebratory vacation until times are more certain.
Even in “normal times,” we do not know what the future will bring. Instead, the future just usually feels a little easier to predict. But in uncertain times like this, it is still possible to make very good decisions that allow us to do our best for ourselves, our family and our community.
Following a process can help you feel better amidst uncertainty and help you avoid costly mistakes. Try to clarify what you know. Ask yourself what small step or steps can you take now? Implement your choices and then determine when you will come back to look at things at a later time. And, as always, consult your financial adviser for help in making your choices.