Are you suffering from "analysis paralysis"?
In other words, are you unable to make decisions about your money because there are so many choices -- and so many opinions? With so much information about investing, insurance, retirement, taxes, college, homes, etc., it can be difficult to decide what to do -- so you do nothing.
If you've been overwhelmed to the point of inaction, take heart: You're not alone.
Many studies have shown that an abundance of options, while initially appealing, is actually an obstacle to making a decision. It's true whether the decision is about minor purchases or major investments.
In one study, psychologists Amos Tversky and Eladar Shafir presented students with the following scenario: You're in the market for a compact disc player and, while walking past an electronics store, you see a Sony
But another group of students was presented with the same scenario, except the store also displayed an Aiwa CD player for $159, which was also a bargain. When given the choice of buying the Sony, the Aiwa, or waiting, 46% of the students said they'd put off a purchase. Just by adding a second option, the percentage of people who wouldn't open their wallets jumps from a third to almost a half.
Having more choices also seems to inhibit people from saving for their future. Columbia University professor Sheena Iyengar studied 647 employer-sponsored retirement plans, and made a fascinating discovery. As the number of investment choices in a plan increased, the percentage of employees who participated decreased. The drop-off was modest -- for every 10 additional investment options, participation declined 2% -- but the lesson is clear: More options mean more work, and many people don't have the time, inclination, or know-how.
So if your net worth and lifetime goals are suffering from your analysis paralysis, then what you need is a beacon in the financial fog. You need a simple recipe for a well-rounded money diet. You need Dilbert.
Yes, Dilbert, that neckless, mouthless cartoon cubicle-dweller created by Scott Adams. In his book Dilbert and the Way of the Weasel, Adams offered his one-page personal finance book. Here it is:
1. Make a will.
2. Pay off your credit cards.
3. Get term life insurance if you have a family to support.
4. Fund your 401(k) to the maximum.
5. Fund your IRA to the maximum.
6. Buy a house if you want to live in a house and can afford it.
7. Put six months expenses in a money market account.
9. If any of this confuses you, or you have something special going on (retirement, college planning, a tax issue), hire a fee-based financial planner, not one who charges a percentage of your portfolio.
Scott Adams knows a thing or two about money. He earned an MBA from Berkeley, worked at a bank (got held up twice at gunpoint), and is worth millions. According to an interview with the Akron Beacon Journal, Adams says he read about a dozen personal finance books and began working on one himself. However, he found it all boils down to these nine points and he "couldn't figure out how to fluff it up."
Of course, if you don't know the difference between an index fund and your index finger, this list doesn't provide all the answers. If you need additional illumination, follow the links in each of the steps above.
But if the prospect of digging deeper into those topics will lead to more "paralysis," then go straight to No. 9 and consider getting fee-based financial advice, such as provided by our TMF Money Advisor. (Adams learned this lesson the hard way, after hiring then firing money managers who invested his assets in Enron, WorldCom, and Tyco.)
People might quibble with minor details in Adams' "book," but on the whole, it's solid advice. And if you're suffering from analysis paralysis, then the Dilbert plan is much, much better than doing nothing.
Robert Brokamp is the author of The Motley Fool's Guide to Paying for School and the co-author of The Motley Fool Personal Finance Workbook (he used many useful worksheets and checklists to fluff it up). The Motley Fool is investors writing for investors .