How the 10/10/10 rule can help you make effective financial decisions

Our daily lives revolve around making decisions, from what you have for breakfast in the morning to the time you decide to go to bed at night.

But in a wider context, many of the bigger and more detailed decisions you have to make can have a long-lasting effect on your life.

Important choices such as what you study at university, who you choose as your life partner, and where you decide to live can all have an effect on you that will reverberate for many years into the future.

Because of the understandable high stakes involved in a lot of your decision-making, it’s important to give some thought to how you make decisions, and how you can give yourself the best possible chance of avoiding poor ones.

The dangers of making poor decisions

There are many factors that can negatively affect your decision-making process. These can include both outside influences and personal issues unique to you.

Such factors can include:

• Your own personal experiences
• Your current state of mind
• Receiving poor or misguided advice.

If you consider all these potential influences, and the natural instinct many people have to rush making a decision, it’s easy to envisage a situation that can lead to disaster.

Because of this, you won’t be surprised to learn that there is a whole range of tools, advice guides, and books, that outline different methods to help you with your decision-making.

Just a quick Google search will tell you that no end of self-appointed as well as legitimate behavioural experts have their own suggestions.

Somewhat ironically, the decision you then face is which method will work for you!

Using the 10/10/10 rule to help navigate your way through your life choices

The concept of 10/10/10 was devised by the business writer, Suzy Welch.

In her 2010 book 10-10-10: A Life-Transforming Idea, she developed the concept as a method to help you make decisions in a structured way rather than simply jumping to a conclusion and following your gut instinct.

To use 10/10/10, you are encouraged to think about your decisions based on different time frames, and ask yourself three questions:

• How will I feel about my decision in 10 minutes?
• How will I feel about my decision in 10 months?
• How will I feel about my decision in 10 years?

By doing this you can gain valuable insights into the potential consequences of your decisions, financial and otherwise, to help you make more informed and rational choices.

Managing the desire for short-term instant gratification

On a hot day, you may feel the impulsive urge to buy yourself a cold drink or an ice cream.

In terms of the 10/10/10 method, in 10 minutes you’ll be glad you did, and the other two time frames are irrelevant.

But what if your impulse purchase is something far more expensive, such as a new car or an expensive holiday?

In 10 minutes, you’ll have the thrill of being the owner of a new car. However, in 10 months the excitement will probably have worn off, and you may still be making the monthly repayments.

Likewise with a holiday, in 10 minutes you’ll be planning your itinerary but, 10 months on, the effects of the holiday may have worn off and you may be regretting not using the money for something more practical.

Using 10/10/10 doesn’t preclude a sudden, unplanned financial outlay, but it encourages you to think through the consequences.

10 years is a realistic time frame for financial planning decisions

As I have often stressed in these articles, it’s important to appreciate that financial planning involves thinking about long-term objectives.

At a basic level, I would always recommend you look at a minimum time frame of five years for investments while – in the longer term – setting money aside for your eventual retirement could be a process lasting 30 years or more.

In the context of using 10/10/10 to support your financial decision-making, it can be beneficial to think of your future self and consider what you may be doing 10 years hence. How could a particular decision affect you in the future?

From a retirement perspective, for example, if you’re 45 now your planned retirement could be at least 15 or 20 years away, and very much in the distant future.

But from the perspective of where you will be in 10 years, at that stage you could only be as little as five years away from stopping work and living on your accrued wealth.

So, by looking ahead 10 years, you are creating an important landmark on your journey to retirement and forcing yourself to take stock before making any impactful decisions.

Making effective financial decisions can be the key to your future wealth

As a financial planner, I’ve always recognised the importance of effective financial decisions.

Your finances are the engine that drives your life, so the choices you make are incredibly important.  A wrong decision can have a potentially detrimental effect on your future wealth and wellbeing.

Because of that, it’s worth taking time to find yourself an effective method that will support and enhance your decision-making process.

Interestingly, 10/10/10 comes with the endorsement of Warren Buffett, who knows a thing or two about making successful financial decisions.

The three time frames, and in particular the 10-year perspective, can provide you with a structured method and encourage you to gain some important perspective on how your immediate choices can affect “the future you”.

A recent BBC article considered the issue of thinking about your future when making decisions, and it’s certainly the case that by always focusing on a longer-term perspective, you are putting yourself in the shoes of your future self and where you hope to be.

Perhaps more importantly, you’ll enjoy better continuity and consistency in your financial decision-making process.

Get in touch

If you’d like to talk through your own financial plan, then please get in touch.

You can call me on 07769 156 250.

Please note

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Equity investments do not afford the same capital security as deposit accounts.