How to get over the fear of making a financial mistake

tl;dr - Go make a small financial mistake.

Fear of making mistakes is a common emotion. It shows up in all areas of our life, but it's especially pernicious in the world of finance.

The consequences of being afraid

Time is money. And time is something we can never get back. When we procrastinate about making financial decisions, we lose time, and that time is gone forever. Not making the decision can sometimes cost us more than we would have lost if the decision actually turned out to be a poor one, money-wise.

Meet Frank and Gerry, two guys afraid of making financial mistakes

Frank and Gerry have very different careers and come from very different family backgrounds, but they both have this common underlying fear. And it paralyzes them in different ways.

Frank is an experienced financial professional, and has all the investment/tax/debt type stuff figured out. Yet he struggles with indecision over small things:

  • "I'm too risk-averse, it's difficult for me to make decisions"
  • "I'm always thinking of the negatives of any big decision"

Not just big decisions, as it turns out:

  • "My wife and I have been together for 8 years--she gives me flak about my indecisiveness. Over small things. I have a hard time deciding what to buy at the grocery store"
  • "I feel like I'm being price-conscious. I'm comparing the price of two tomatoes and wondering if it's worth spending extra for the organic one"

Knowing Frank's life and his career, I know that buying an organic tomato versus a regular one is a complete nonfactor in the grand scheme of things for him. But he's so afraid of making the wrong choice that he defaults to making no choice at all.

Gerry is on the other end of the spectrum. He's a solopreneur, not a big corporate guy like Frank. He grosses nearly $200k annually, has learned to become comfortable with taking personal career risk, and overall lives a simple lifestyle, well within his means. But he's totally paralyzed by even looking at the big picture of his financial affairs:

  • "I worry about whether the amounts in my account are going up or down, so I'd rather not look at them... sometimes I'll go four months without looking at my bank account"
  • "Regarding investing, I'm afraid of doing something stupid with the money"
  • "I like gambling--small amounts--for fun, but there's something about finance and investing, missing that big stock, that turns my stomach"
  • "I tell my financial advisor to put everything in low-risk"

Indecision is costing these guys. In Gerry's case, nonexistent oversight over his own financial affairs is costing him a lot of money. In Frank's case, his inability to make small decisions could cost him his marriage.

The solution: go make a mistake

With both of these guys, I told them there's a simple path forward: go make a mistake.

For Frank, I told him that next time he goes to the grocery store, I want him to make a snap decision about what to buy. Doesn't matter what it is. But one, instant, immediate purchase with no deliberation. And then I told him to take an inventory of his emotional state and write about it.

For Gerry, I told him to go make an investment mistake. Take $1000 (which he can afford--he showed me his investment account) and go put it in a stock. I don't care which one. Just do it, and see how it feels to make a "mistake."

(Side benefit--if Gerry were to make 20 random "mistakes" of picking stocks, he'd actually end up with a balanced, diversified portfolio. He'd see after 20 picks that about half of them turned out to be good buys, and half underperformed the rest of the market. Proof that confronting our fears almost always leads to good outcomes, in ways that we never would have imagined.)

Your homework

If this note resonated with you, here's what I want you to do:

1) What's an area of your life where you feel afraid of making a mistake, financial or otherwise?

2) What's the smallest version of that mistake you could make? For example, with Gerry, rather than dumping his entire investment account into a "mistake", I invited him to use an amount of money he could afford to lose.

3) Go make the mistake.

4) Check in with how you feel after you made the mistake. Was it as bad as you thought it would be? Are you dead? If you learned something, what did you learn?

5) If you feel like, send me a note on your progress as I asked Frank and Gerry to do!

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