Making good decisions

I recently listened to a great documentary on ABC National radio’s Ockham’s Razor. A marine science expert, Paul Hardisty spoke about the plight of saving the Great Barrier Reef.

“Every day we make hundreds of choices, big and small, that build to become the story of our lives – the friends we make, the careers we choose, our partners and our purpose.”

“…..If we’re to make better choices we need to start paying more attention to how we make them.”

He related decision-making to all types of regular, real-life decisions and I completely related to his point that tactics and assessing the over-arching motivation often get messed up. People jump into the micro-decision often too quickly, and this is a foundation for long term mistakes.

He used an example of someone buying a car. They were confused by the decision to purchase one particular Tesla model over another. One model offered all of the interior features they were hoping for, but was larger than they’d hoped for. The other, suitably-sized model was missing the internal features on their wish-list.

Oh, what to decide?

Yet Hardisty noted that they hadn’t examined their over-arching motivation.

Were they aiming to buy a suitable vehicle? In which case, could they consider other cars?

Were they looking to support green cars? Or were they looking at establishing a healthier footprint on the planet, and if so, could they contribute to society in a different way than purchasing an electric vehicle?

Did they even need a car?

I listened to his logic and immediately thought about the numerous phone calls and emails I receive from prospective property buyers who also pounce into options before they step back and ask themselves what they are looking to achieve.

I received a call just last week from a lovely couple who had spotted a property on the internet in the days/weeks prior to their mortgage broker having sufficient time to complete their pre-approval.

The property had no obvious flaws and looked good, but I couldn’t answer their questions. I could assess the property’s likely selling price and I could detail it’s title plan attributes, but i couldn’t tell them if it was suitable for them, nor could I tell them if ‘something better’ was likely to emerge on the market in the following weeks.

This was because I didn’t get the opportunity to work with them on their over-arching motivation. Instead of engaging with me at the commencement of their journey and stepping through their long term plans, their current situation and their specific wish-list, the conversations I had with them were hurried and with a degree of panic on their part.

They had stumbled over a property they liked, yet I didn’t have a clear picture of what they were trying to achieve.

Their tactics conversation preceded their strategy conversation.

This type of situation strikes many prospective buyers, but it’s only just one example of an important decision process being tipped upside-down.

Another common example includes that of an investment property purchase decision being based on emotional reasons.

It doesn’t require much imagination to reflect on how such a dilemma can arise. Many holidayers start dreaming up a coastal retreat while on holidays and find themselves lingering around the local real estate agency’s window, taking in the glossy pictures and descriptions of properties for sale.

Before they know it, they have retro-fitted their new idea into their property investment strategy.

Their mortgage broker then gets the urgent call, the rush is on, and they wind up negotiating a significant purchase for something that wasn’t on the horizon a week prior.

Buyers often get emotionally excited about something that should always be a pragmatic, business decision. Whether it be a coastal, holiday house purchase that they have conveniently bundled up in their own minds as a sensible investment decision, or a property that they plan to offer their children to use in future decades, these types of irrational or emotional choices can derail what could have been a good, sensible decision.

A much better decision-making process should include the following questions, long before any shopping or short-listing activity takes place:

• Do you wish to build future wealth?
• How much do you wish to build, and for what reason? (ie. to supplement/provide a retirement income? To retire earlier? To help children? To do something philanthropic?
• How does your lifestyle, cashflow and future plans tie into your investment property desires?
• How many properties will you need to get to your goal? (This will require projections and calculations – something that may require the help of a planner)
• What price point and performance do your property assets need to deliver?
• Where does your long term home fit in?
• Have you provisioned for risk?

Without these critical questions being carefully examined, any acquisition plans are purely tactical, and the over-arching plans may be getting kicked to the curb.