The dangers of taking a path of least resistance.

The emergency of the informal and gig economy and the inability of organisations to pay a living wage have increased the need for people to actively manage their finances. This means that individuals must be able to develop short, medium and long term financial goals to manage things like education of children, health care, emergency savings and retirement planning while still managing to secure a decent livelihood.

The trouble is, researchers of financial literacy and behavioural finance have found evidence that people are not capable of taking such complicated financial decisions. A rational and financially literate individual would compare the conditions of several investment opportunities before deciding, which one to invest in. Empirical evidence suggests otherwise and that only a few do that and their behaviour cannot be explained by better financial knowledge or socio-economic status. It may simply be more appealing to choose not to choose, no matter how educated or wealthy the individual is.

Behavioural economists find that we can be myopic, have present-biased preferences (we prefer to enjoy today than have more in the future). We also struggle to project ourselves into future scenarios. Instead of comparing and choosing wisely, we may take the path of least resistance or choose not to choose at all. Always going with what has worked before is not a guarantee it’s what will work tomorrow! This reminder will help you not only change how you handle your finances, but how you think about them, too. Most of what we have learned, we learned through trial and error but mistakes when it comes to money are (you guessed right) costly.

You have to manage your relationship with money, your emotions, and take key financial planning steps so that you secure better financial outcomes going forward. We live in a time of much uncertainty, but your financial future doesn’t have to be uncertain. You can start to live your life with certainty by choosing to avoid the path of least resistance and striking out to financial freedom.

You have to realise that when it comes to investment decisions, you are inherently conflicted! You want the joy and satisfaction of enjoying your money today because you don’t know what tomorrow will bring or whether you will even be alive at all to enjoy it. On other hand, your money will be worth more if invested today and enjoyed in the future but it requires you to seek investment opportunities and actually invest. The path of least resistance normally complicates this tug of war by dragging you to what you have control about now today; which usually leads you to consumption.

I could go on and on to show that when faced with a path of least resistance, sometimes the best option is strike out on your own. It’s also true that when you walk the path of least resistance, there are no free mangoes along the way because a lot of people would already have passed that way and beat you to them. In Financial terms, we refer to a resistance level by looking at past performance. If you’ve been earning UGX 1M per month for the last 3 years, trying to earn UGX 2M is breaking through the resistance. If your earnings have never fallen below a certain limit, say UGX 500,000 we refer to that figure as the support level. So when talking about breaking limitations to your finances and being boxed in, it’s those kinds of limits that form the path of your least resistance area and which you must outgrow if you are to make economic progress.

Interestingly, when you are a start-up founder growing linearly is barely an option. The workable solution is to accelerate or grow exponentially.
This is why even if your organisation awarded you a 20% salary increment per year for the next 10 years, it will hardly make a difference. Note that your salary will only double after 5 years. In my book “The Great Financial Rebuild” I write about how I forced my boss to increase my salary 7 folds in barely 4 years by increasing my exposure and knowledge. Surprisingly, I still quit after 3 months. This was only possible because I don’t usually follow the path of least resistance.

In conclusion, always notice when your brain is tricking to choose the path of least resistance. Remember we are built for risk aversion and yet its risk that creates super returns if managed well. So seek risk, go out of the ordinary, out work everyone around you but also make sure you are working hard in an industry or place that is known to reward those that are exceptional.