One of my clients, June, struggled to increase her online presence as she didn’t achieve the desired reach. Despite putting in a solid effort, expanding her online visibility was crucial for realizing her goals online. She was worried about her business hitting a plateau.
Then, she received an email from an online marketing company offering a “guaranteed” increase in online reach and also promising 3x sales if she signed up for a year-long new Mastermind Program. Plus, in the email, there was an enticing “personalized” offer: she could join the program with a 33% discount if she enrolled within 3 hours. June, feeling desperate and anxious about her business’ online presence and possible future, immediately signed up for the program without hesitation, hoping it would resolve her problems.
The monthly cost of the Mastermind Program amounted to $6,500 … a month when her monthly revenue was between $10,000-$12,000. She committed a significant portion of her budget to the program without thoroughly researching the company or the program or considering other options.
June made an impulsive decision based on her emotional state and a desire for a quick solution to her perceived business problems. The decision was made in a moment of urgency and eagerness to enhance her online presence.
We’ve all been there … and not only once. As business owners or even as individuals, oftentimes, we cannot resist but make impulsive, quick decisions.
Impulsive decisions
Impulsive decisions are decisions we make hastily, often without sufficient consideration of the potential consequences. They typically arise in response to immediate emotional impulses, desires, gut feelings, pressures, or immediate gratification rather than from a deliberate, reasoned analysis or planning.
Impulsive decisions tend to prioritize immediate satisfaction over long-term consequences. This short-termism can lead to overlooking the bigger picture or regrettable, harmful consequences.
June signed up for the Mastermind Program because of the time pressure, fear of missing out on the discount, and despair about finding the holy grail of online marketing. Her desire to get her business out of the plateau was so fierce that she forgot to reflect on the potential risk or consider alternative solutions.
Why do we make impulsive financial decisions?
There are many factors why business owners make impulsive financial decisions:
- Time pressure: the fast-paced nature of our biz life and the marketplace might compel us to make quick decisions to not miss out on opportunities without adequate research or fully considering all options.
- Emotions: Business owners are humans; hence, we all have emotions. Sometimes, you’re emotionally so invested in your business that you are not able to make a decision based on logic. Some of us trust our gut feelings when it comes to financial decisions. And there are cases when our choices are impacted by personal biases rather than objective economic analysis.
- Overconfidence: a business owner may be overconfident in their abilities, believing that they are capable of making decisions based on their “beliefs” and not on thorough analysis, resulting in underestimating the risks involved. A typical example is when you are confident that ABC investment’s market value will increase by 40% within the next two months, and you’re so sure that you’re making the investment decision in a blink without checking any financials or reliable sources.
- Lack of financial knowledge: a business owner may make impulsive financial decisions without solid financial background and experience. Rather than asking questions and admitting the hiatus, they’re quick to make decisions “to get over it and move on”.
Impulsive financial decisions – good or bad?
That’s a tricky question.
While I believe financial decisions should be based on logic and objective analysis, I must admit that impulsive decisions may be advantageous in certain situations.
A few examples:
- Gut feeling: tuning into your intuition and trusting it when it comes to financial decisions could be beneficial. This is especially true when saying NO to a straightforward, logical option that might cause harm to your business in the future.
- Experimentation: you may make quick decisions when you want to test your market by doing a couple of experiments. You quickly decide, then act on it, analyze the results, and learn from the consequences or small failures and successes.
- Innovation: if you’re working in a creative and innovative environment, spontaneity strengthens the creative process. Impulsive decisions may lead to novel approaches and solutions.
I must add, though, that in all the above situations, the prerequisite is that the decision-maker is aware of the financial framework or overall possibilities. For instance, in the case of experiments, you need to have a rough figure in mind (we might call it a budget if you like) of how much you dedicate to testing out this or that strategy.
Possible consequences of impulsive financial decisions
Back to June, she was over the moon when the results of the new online strategy she learnt in the Mastermind group began to materialize in her bank account. She felt validated in the decision as her revenue continued to grow … for 6-7 months … and then a tremendous backlash. She needed to invest in new platforms and also engaged an external advisor she met in the group to manage her online profiles. Her revenue was somewhat higher, though not tripled as promised. But her expenses got out of the root, so for the first time in her business life, she had real cash flow problems. That’s when we met.
The lesson June needed to learn is that impulsive decisions may bring you short-term success and relief from the original issue, stress and anxiety. Still, there may be negative long-term implications that she could have assessed pre-decision-making.
Acknowledging the positive outcomes of impulsive financial decisions like short-term satisfaction and gratification; more often than not, impulsive financial decisions result in spending money unnecessarily, leading to financial difficulties and more stress in the long run. It may also expose the business to unnecessary financial risk that could have been avoided with careful planning.
Further tips in case you make impulsive financial decisions
I’m an eager advocate of conducting financial analysis before decision-making or at least having a rough plan in mind in terms of the potential financial outcomes. Therefore, I use a Spending Decision Framework for all of my financial decisions in the biz. It’s easy to use and after a while, it becomes second nature. So even in an impulsive, time-pressured situation, I can just run through the framework in seconds, and I make the decision with ease, knowing that I assessed the circumstances the best I could.
Learning from the consequences is the best way to fine-tune your ability to make quick and instant decisions. Hence, it’s a good practice to reflect on the results of your decisions from time to time. Make a list and be honest. Don’t sugar-coat it; if an impulsive purchase was a failure, admit it and identify the why: what led you to decide in favour and why it failed you.
Takeaway
While impulsive decisions may sometimes be necessary or beneficial to your business, the critical factor for sustainable results is balancing them with careful planning and being aware and considerate of why you made those decisions.
Developing and using a decision-making framework can mitigate the risks involved while taking advantage of the benefits of innovation and adaptability.
I believe in You: you’re a champion 🏆
