Are you having trouble making a decision when it comes to investing? Do you find yourself overthinking your options of what investment or which investment company to choose and then unable to make a choice? In this article, we will provide some insight into why we tend to over-analyze and not accept the simple answers to investing that come to us, and how to get past it.
We have all heard countless times that it’s important to plan your finances in order to achieve your goals. However, having a plan does not matter if no action is taken afterward.
A recent study by the ANBIMA (Brazilian Financial and Capital Markets Association) provides some insight into how our approaches to planning differ. The research study surveyed 450 people, aged between 18 and 70 and from different income brackets, to map out their lives in terms of their finances. The data showed that there are 5 types of personas, each depicting a different way of managing their capital. The study subjects were all Brazilian, however, you may find some similarities between you and the persona despite the differing national origin.
Which persona describes you the best?
- The builder: this persona is the type that shows slow but consistent growth, but with no distinct long-term goal. The focus is rather on just going to the next step. The changes to their finances come in small increases.
- The carefree: this persona just goes with the flow, and does not stick to any particular plan regarding finances or lifestyle, and instead changes their financial plan accordingly when needed.
- The chameleon: befitting the name, the chameleon persona can adapt to any circumstances they are in, with the ability to make do and find a solution no matter what.
- The dreamer: the dreamer does not have any fixed or strict financial plan to help them move towards their dream, and instead their dream is the only thing that keeps them motivated to move forward.
- The planner: as the name would have it, the planner has a distinct and solid financial plan, based on calculations and clear goals. If however, life changes occur, the plan is changed accordingly.
Based on the data from the study, the majority of the people did not view money as an end goal, but rather as something that enables them to achieve an important experience or life event. So instead of trying to save a certain amount, they just start saving without any real plan.
The simplest answers are ignored
One of the reasons we put off having a saving plan is the anxiety surrounding the plan creation. The other main reason is that we don’t agree with the answers that we find when we start searching. Either we find ourselves overwhelmed and end up taking no action consequently, or we want to keep looking for the answers we want.
Oftentimes, our behavior is not rational. We like to overthink and complicate things, which leads us to procrastinate rather than take action, when in fact the simplest answer can provide us with the most favorable outcomes. Many people say that the reason for not saving more, or not saving at all, is because they need more time to think properly and plan it out. But the more complicated the plan gets, the more people are discouraged from making a move towards the economic goals and lifestyles that they seek.
Based on past research, data shows that we will most probably take action when we have a clear idea of what our intentions are. Intentions differ from goals in that goals tend to be more specific. For instance, financial goals tell us exactly how much we need to save in order to cover our child’s education, accounting for every penny. The intent, however, moves us towards creating a saving plan that will take into consideration uncertainties such as higher fees, extracurricular expenditure, and other unforeseen costs.
Strict plans and budgets become obsolete the more you plan into the far future ahead. Given the constantly evolving world we live in, it is incredibly hard to predict what our retirement will be like in 30 years, or the financial needs we will have for the lifestyle we want.
Investing in our future is not an accurate or precise method. It is, however, important to have an approximate goal or target to aim for, to keep you going the right way. A vague goal also helps to avoid barriers such as over-thinking and over-planning and not taking any actions.
Planning for different personas and unforeseen possibilities
Regardless of factors such as age and reasons for investing, there will be a point where you may need to use the money, and your available options will depend on the amount of savings you have accumulated. The point is that it is more important to start investing as soon as possible so as to have better options later on, rather than procrastinate now in search of the perfect plan to reach your financial target.
Often by saving the “right” amount, along with a good return on investment, and waiting until the age of 65 to draw an income at the right levels, you can then survive on your savings for 30 years. However, even if you saved less, it is still better than not having saved anything at all.
You can achieve your financial goals, or even surpass them, with the understanding that the more you put towards your future, the more options you will have in terms of when to start a business, or quit your job, what kind of home to build, or even travel plans and lifestyle needs.
Based on ANBIMA’s research study, the conclusion is that there are five different personas, only one of them being a planner. The goal is not to convert everyone to a planner, but rather, to understand that the most important thing is to just invest, rather than trying to devise the perfect plan for investing.