By Emily Guy Birken
Financial media delights in scolding people for their money mistakes. Whether you are listening to a podcast in which the host is dumbfounded by a caller’s total debt or reading the countless hand-wringing articles lamenting the average person’s lack of retirement savings, the message is clear: Shame on anyone who doesn’t have their financial house in order.
These clips and articles may trigger deep feelings. You might pat yourself on the back for avoiding the outlined pitfalls or you may wallow in self-loathing for stumbling on the path. No matter what emotions well up, you’re accepting the premise that financial choices are either “good” or “bad” and that it is up to you to avoid the bad ones.
This kind of binary thinking is painful—and counterproductive. A financial life free of mistakes is impossible, and you’re more likely to cause yourself financial harm by focusing on blunder-avoidance.
Voltaire’s famous dictum “Perfect is the enemy of good” applies to money management as well as to other aspects of life. Here’s how to keep perfectionism from hurting your bottom line.
Embrace your strengths
Fixing your shortcomings is often touted as the way to improve your finances. For instance, if you’re carrying credit card debt, standard financial advice would tell you to cut up your cards and white-knuckle your way through months of deprivation until you get the debt paid off.
The problem with such a plan is not just that it’s unreasonably punishing and hard but also that it ignores your actual financial strengths. You have any number of underrated financial skills that could be helpful. Leaning into those strengths is going to lead to more sustainable solutions than trying to “fix” something you lack.
For example, perhaps you’ve never once made a late payment. In that case, you could assign yourself a second, smaller payment deadline each month. Or maybe you earn the highest bonuses at work each year. You could earmark some of that money to pay off your debt. Or you might be the person who always manages to find the best deal on anything you’re planning to buy. Why not send some of what you save on necessary purchases to your debt?
Starting with your financial skills—and make no mistake, you are very skilled at some aspect of finance—will give you a sustainable template for solving your money problems.
Let go of your fear
You can probably remember a time when you put off making a decision because you didn’t have enough information. You wanted to make the optimal choice, but felt overwhelmed by the number of options available or your own lack of knowledge. For example, you may have put off choosing the asset allocation for your IRA because you want make sure you’ve made the right decision for your investments.
Unfortunately, delaying this decision will cost you more money than quickly picking a less-than-perfect asset allocation. While you hold off on making IRA contributions until you have determined the “best” asset allocation, you are losing out on valuable time for compounding interest. Your fear of making the “wrong” decision leads to an objectively worse outcome.
Letting go of your fear of doing it wrong will free you up to get it done—which is more important than perfection.
Focus on process, not outcome
Perfectionism is all about trying to ensure a good outcome. You don’t want to be in a position to kick yourself in the future because of a bad decision. But there is no way to control the outcome of your money decisions since no one has a crystal ball.
For example, even if months of research lead you to a basket of investments that have historically outearned the market as a whole, there’s no guarantee they will continue to be winners. And you will have missed out on those months of growth while you researched.
What you do have control over is your process. For instance, perhaps you can afford to consistently send $250 per paycheck to your IRA. Since you’re not certain of the “best” asset allocation, you choose an index fund to invest in.
The consistent process of investing $250 every two weeks ensures that you are benefiting from dollar-cost averaging. This strategy helps reduce the impact of market volatility, because your $250 investment buys more shares when the price is low and fewer when the price is high. That means you own more lower-cost shares that can increase in value and fewer higher-cost shares that can decrease in value.
Getting hung up on the uncontrollable outcome of your financial decisions means looking at each decision as either good or bad. Focusing on the process, on the other hand, leaves room for imperfect choices.
Treating money decisions as either good or bad ignores the entire spectrum of functional, sustainable, and attainable choices that are available to us. Embracing your personal financial strengths, letting go of your fear of mistakes, and creating a process you can follow consistently will serve you far better than aiming for perfect money decisions.