Mike Branham (00:00): Good afternoon, everybody, and welcome to the webinar, Too Many Choices, Financial Decision Fatigue. I’m Michael Branham, I’m a planner here at The Planning Center. I work out of our Anchorage office. And with me is JJ Sessions.
JJ Sessions (00:16): Hi, JJ Sessions, from the Fresno, California office.
Mike Branham (00:20): And today the goal is to talk a little bit about financial decision fatigue. It’s something we see a lot in clients. It’s a reason why a lot of clients begin to work with us in the first place, actually. And so the agenda today, there’s four main areas that we hope to cover. The first is why financial decision fatigue happens. And then two ways people commonly respond to that fatigue and why they often backfire. Five practical ways to reduce the number of decisions weighing on you, how this connects to the year end and your new year planning as you set your new year’s resolutions and begin to think about your planning going forward. And then the final section is going to be a live Q&A where JJ and I can answer all of your questions. So if you guys submit questions throughout the webinar in the chat function or question function, we can pick those up at the end, but we probably won’t address them as we go through the material.
JJ Sessions (01:22): So the question is, what is decision fatigue and how does it affect us? You know, there are some estimates that we make about 35,000 decisions throughout the course of any given day. And decision fatigue really is that mental tiredness we experience when we make too many decisions in a day. It makes it harder to think clearly, to weigh our options and to make choices confidently. For our purposes, we’re gonna talk specifically about financial decision fatigue. And we see that more closely in how people deal with those financial decisions that they make. What happens as a natural result of that decision fatigue is two things. The first is avoidance. We see most people that just put off decisions, they know that there are things to be done, but they’re just not sure how to proceed.
Mike Branham (02:14): Yeah, and I think the second is just over reliance without strategy. So this is where people are using DIY tools or leaning on advice from friends, family, colleagues, but there’s no real direction or plan or strategy around the various decisions they’re making and the tactics they choose to employ. And along the way they believe they’re on track, but they have no real basis for thinking that.
JJ Sessions (02:42): So the reasons why this matters is because each of those decisions actually are fairly simple on their own. But when you start adding those on top of each other, that cumulative weight really prevents us from making really sound financial decisions. And the natural inclination is to say, hey, I’m not sure what the next step is. And so there’s a definite pause in that. What also happens, I’m on the what’s called the intro call team. So when someone goes to the website and says, hey, I want to talk to someone at The Planning Center and see if working together would be a good idea, I ask right at the beginning, hey, you know, I know a lot of times people say I’d like to, I thought I should, I really need to reach out to someone. I’ll ask them, what was it that finally made them reach out. And eight or nine times out of ten that thing was some major life event. Hey, we just had a baby, we just bought a house, we had a job change. Hey, we’re really seriously looking at retirement now. And so those decisions were postponed just because it’s hard to do all of it.
Mike Branham (03:51): All right, so JJ, you’ve talked about compounding and those life events that cause clients or potential clients to reach out and talk to us. And then the question becomes, what can we actually do to reduce the burden for those folks? What takes those decisions off their plate and how can we assist with that or what advice could we give in reducing decision fatigue?
JJ Sessions (04:14): Yeah. So the first way that we recommend is to automate what you can. This is particularly useful in your cash flow or budgeting realm. You know, we have expenses that are what we call static expenses. Those are the expenses that are reliable, they’re about the same every month. This is your home, your house payment or car payment, cell phone bill or utilities. Those bills are about the same each month. And so is there some way that you can just pay that without having to think about it? The other one falls in the goal savings category. And so this is future expenses that are going to come up. You know they’re coming. And so can you set money aside each month? One of the things that my wife loves is we have a Christmas budget. And so we take whatever our budget is for the year and divide it by 12, and that dollar amount goes into a savings account. And so she knows that starting Black Friday, the money that we have allocated for Christmas is sitting in that account ready to spend. And she knows about what she can spend and that money’s there to take care of.
Mike Branham (05:18): Yeah, we see clients do this with things like vacation or travel. We see them do it with a big house project they have coming up. If we can start to put money away regularly for things that we know are gonna happen, but they’re not monthly occurrences, having that cash set aside or knowing where those expenses are gonna get paid from because you’ve automated a savings plan towards those goals can make a huge difference.
JJ Sessions (05:45): Yeah. There’s a caution there though. Again, we talked before about automation without a strategy behind it really is that over reliance without a strategy. And so automating your payments only lightens the loads if the amounts that you’ve chosen and the destinations are on purpose.
Mike Branham (06:03): So in addition to automating what you can, another way to reduce decision fatigue is simply to reduce the number of choices or decisions you have to make in a given day. And we’ve seen some really well-known figures implement plans to do this. For example, Steve Jobs had the same outfit that he wore every day. And in fact, we know somebody in the planning sphere that does the very same thing, the same color, the same shirt every single day, the same outfit every single day, so that you know. That when you see these people, it’s a branding thing at some point. But when they implemented that, it was simply because they have to make thousands of decisions later. The last thing they want to do is fret over what am I gonna wear today as I go through my day? And so it’s the principle, not the literal habit that every decision you move from your day is bandwidth freed elsewhere. And that can apply to finances as well when you talk about well chosen accounts or tools that you use rather than having many scattered ones across a number of different custodians or platforms.
JJ Sessions (07:08): Yeah. And while the next strategy is keeping it simple and talking about that, accounts, it’s more than just the number of accounts. It is the strategy behind it. You know, clients will come and say, hey, do I do a Roth IRA? Or maybe if income limits don’t allow you to qualify for Roth IRA contributions, there’s something like a backdoor Roth. We help people all the time allocate those dollars and take advantage of that strategy. We have a lot of clients that have tons of CDs or money market accounts. And so there’s no real purpose behind it other than hey we just want to have somewhere to set it aside. Which then leads to the other thing that we talked about, which are you know having a number of different accounts out there without a clear strategy. Over time, especially in the environment that we’re in where people tend to change jobs fairly frequently, they’ll end up with multiple 401(k)s kind of scattered. And Mike, as we were talking about this, you mentioned a client that had a specific situation just like that.
Mike Branham (08:13): Yeah, this is just one of many examples when you talk about reducing the number of decisions and keeping it simple. We had a client come in with, between them they had fifteen accounts spread across multiple custodians with different account types. They had former 401(k)s here and they had brokerage accounts there and maybe a Roth IRA and or an IRA and a different custodian. And it was overwhelming for them to try to put all of it together and come up with a complete strategy for managing their investments. And so what we helped them do is reduced those fifteen down to about five. And that actually was well timed because on the back end of that, they started inheriting assets. And so we added accounts there. And so we could take an overwhelming number of accounts that led to an overwhelming decision tree on where should this investment go or how should I invest there and really simplify it for them. So they had a coordinated strategy with a reduced number of accounts. They could go to one place and track a review or look at all of the things that were going on in those accounts. And quite frankly, later in life, it will lead to some clarity and some fewer decisions as well when you only have to take one required distribution or you only have to, you know, think about beneficiaries in one place. And so sometimes keeping it simple and not overextending yourselves on the investment side of thing can make the rest of the planning decisions and conversations that much more simplified.
So I think the fourth way that we want to talk about today is that we like to set policies in advance for clients. And what we mean by this is, and this is especially valuable for some of our self employed clients, but it’s broadly, broadly applicable. You know, take for example, if you are self employed and you think about, okay, I have revenue coming in. And it’s not like a W-2 position where an employer is going to take out and withhold Social Security, they’re going to pay for the life insurance, the health insurance, they’re going to make my retirement account contribution on my behalf. Now I have to do all of that myself. So let’s set some real base level policies based on the best information we have at the time on what percentage should you set aside for taxes? So every hundred dollars earned in revenue, and we’re using a hundred just because it’s simple. For every hundred dollars earned in revenue, set aside X percent for taxes. Maybe it’s 40, 45, because you’ve got to cover federal, self-employment, state, in some places, local taxes. And so let’s aggregate that together into one percentage and set aside into an account where you know those tax payments are going to come from. And then we’re going to set aside Y for retirement savings. So you’re going to save, either make contributions along the way, or in some cases it’s better to make them all at once toward the end of the year. But you have cash set aside and available because you’ve done that along the way as part of your revenue policy. And then you know that the rest is available to go toward your lifestyle and all of the cash flow spending and plans that JJ referenced in an earlier slide. And so it really does simplify things for people. They don’t have big surprises in April or when it’s time to make an estimated payment. They know what savings they have available at the end of the year for their Solo 401(k) or their SIMPLE or their SEP or whatever that case may be. And so the payoff is that you actually know what’s available to spend and there are no surprises down the road. I think there are some additional examples beyond just the self employed clients that JJ and I’ll run through.
JJ Sessions (11:44): Yeah. So often there’s a bonus and sometimes it’s more than expected or some other windfall. There should be a decision made before that money comes. What amount will be going towards savings? What should you be paying towards some debt of some kind? And of course you should have some to enjoy, but making sure that there’s a decision made ahead of time, otherwise the default can tend to be more to that enjoyment side than the other.
Mike Branham (12:13): Yeah, and I think the same holds true with raises. So we all get, or not all of us, but many of us get raises every year, even if it’s just a cost of living adjustment on our average salary. And so having an idea of how we’re gonna allocate each year’s raise before lifestyle catches up and lifestyle creep comes in. So for example, if I’m gonna get a three percent or a five percent raise this year. I know that I’m going to up my retirement plan contribution by a little bit if I’m not already maxing out. Or from the net amount, I’m going to put that much towards a brokerage account or a Roth IRA or some other education savings for the kids so that we know that our savings plan is keeping up with our income increases. And then for those that we work with that are executives or receive executive compensation, like RSUs or PSUs or even options, those payouts tend to come all at once, one time a year or a couple of times a year. So what policies are we going to set to handle those? So we know what is being saved towards some of the goals we have, whether it’s our Christmas account or our travel fund or our house renovation account or our retirement savings or our education savings, when we get those big lump sum payments throughout the year, what percentage is going to go to our various goals and what percentage can be used for lifestyle spending and the rest.
JJ Sessions (13:38): The next is a spending threshold rule. Sometimes between spouses or partners, it’s a good idea to either check in to say, hey, I’d like to spend over a certain dollar amount. Those surprises can derail a lot of things. And those surprises and the derailing that comes as a result can cause some conflict that we, you know, we can avoid by simply setting in place, hey, if it’s going to be over a certain threshold, let’s talk about it. And let’s put a forty eight hour hold. Why not wait a couple of days to say, is this really what we want? Or is it something that we can wait on? The next one is annual giving. We have a lot of clients who are charitably minded, and it’s important to them that they give a certain amount to the causes that mean the most to them. And so we encourage them to set the amount and to make sure that they have their priorities set ahead of time so that it’s easy when the end of the year comes and there’s you know, requests that come in the mail, they can say, well, if we’re going to give these above and beyond our threshold, we can make that decision. But it’s easier to also say, hey, we’ll keep you in mind, you’ll be the first in line next year.
Mike Branham (14:51): And I think TPC uses policies within their own business as well. I mean, if you think about our market price adjustment, we move five percent from like stock to bond or bond to stock, depending on where market valuations are. And that’s not an emotional decision on our part. We’ve gone through and set preset triggers on when that occurs. We’ve set policies in advance on when those shifts occur to avoid decision fatigue on our own, to avoid relying on emotion and to put a strategy in place on how we can use policies to better serve our clients.
JJ Sessions (15:23): Finally, number five, one option is to work with an objective third party. You know, there are multiple reasons to do that. Expertise, of course, would be the first one. This is what we do day in and day out. We know the landscape, we know changes as they pop up, and we know the opportunities that can arise and how it applies to the specific clients we work with. The other one is having an accountability partner. I have this in my own life in other areas where I report in to make sure that I’m staying on top of the things I need to do. But again, having someone who you are accountable to has shown to help you achieve goals better and more quickly than not having one. Shared load, like we will give you homework and in return we’ll do a lot of the background work that we can too. And so offloading some of that decision making or partnering with someone to make those decisions can be a very valuable thing. And the last thing is we have a lot of smart clients that could certainly do everything that we do. And they also know that they’d rather spend their time doing other things. They know that we’re there. They know they can ask any questions and get the answers that they need, and they can be as involved or as hands-off as they want to be. And so having someone they can say, I’m gonna push this to you, you take care of this, I’ll check in on it, they’re handing the ball over so that they can go focus on the things that are most important to them. Do they wanna spend time with their family? Do they want to spend time in causes and other things that mean more to them than having to manage the kind of minute details of the financial lives.
Mike Branham (17:04): Yeah, I think that’s a good point. The first four strategies or ways that we talked about reduced the load of decision fatigue and the last one really helps share it. So to recap the five ways that we talked about, the first is to automate what you can. And a lot of that happens within your cash flow. Where can you automate lifestyle expenses or life expenses? Where can you automate goal savings? The second is to reduce your decisions overall. So remove the choices that don’t matter to free up room for the ones that do. The third is to keep it simple. It’s a simpler strategy, fewer accounts, fewer tools or things that you have to think about, places you have to go to within your financial life. The fourth is to set some policies in advance. We went through a number of examples on policies that can be set and how we use them within our client base. And the last one is to potentially work with an objective third party where you gain expertise and an accountability partner, and can help share the load of some of that decision fatigue along the way.
JJ Sessions (18:04): Yeah, so the question is, why now? Why are we talking about this now? Well, we can’t time the big triggers in your financial life. But the end of the year seems to be a time when people start reassessing and thinking about what is to come, what changes need to be made, what adjustments need to be made. And then today’s key takeaway is engaging with a third party and you know, talking to a planner can ease that fatigue. Delegating some of that responsibility now can help us so you can go into the new year really confident that your plans are in place, that you’re making the right calls and decisions so that you can focus on what’s important to you.
Mike Branham (18:45): Yeah. JJ, you’ve given a little bit of a call to action. But I think it’s important for us to position what we are and what we aren’t. And so The Planning Center is not a family office. We advise on and coordinate across a client’s financial life, but we don’t execute every piece of that. Some work stays with the client or we have to rely on other professionals for certain things. For example, we engage in estate planning conversations with clients, and those are often very deep. We can give you a roadmap when you go to an estate planner on what’s important to you and what aspects of your wishes and future legacy you want included in that plan, but we’re not attorneys and we can’t draft those documents. So that’s one example of where we do rely on other professionals to help execute the work that we outline with you as a client.
JJ Sessions (19:35): Yeah. Likewise in the insurance realm, we don’t actually sell any products, but we look into the breadth of your insurance coverage, whether it’s your disability insurance, life insurance, health insurance, homeowners. We want to make sure that you’re clear on what you have. And if we see a shortfall of some kind, we refer you out or give you the invitation to go out and buy that coverage from whoever you have used in the past.
Mike Branham (20:03): Yeah. Now what we do is we help create a safe space for everyone, our clients and our employees, everyone to talk about money and navigate life’s transitions. And that’s really important. Clients come to us because they don’t want judgment when they work with an objective professional. They want a safe space to talk about their successes and their failures, and for us to help them put that all together into a coordinated plan for their future.
And we also help people find clarity through stewardship and connection. And so what matters most to you is what matters most to us. And while you’re delegating or offloading some of those decisions to us, we take that part of our role very seriously.
JJ Sessions (20:45): So I think we have time for some questions and if you have any, we’d love to have you put those in to the chat and we’ll go from there.
