Make Better Decisions With A Decision Framework

Make Better Decisions With A Decision Framework

A reader named Vicki Cook left an amazing comment in my post on whether to sell or keep renting out a property I’ve owned for 13 years. She noticed things I hadn’t realized about myself. With her doctoral coursework in Educational Leadership, I invited her to write a guest post psychoanalyzing me about my dilemma. I’m confident readers will be able to make better decisions in their own lives after reading this post. -S

As a fellow landlord and long-time reader of the ONIG Financial Blog, the post, “Sell Or Continue Renting Out My Home? Passive Income Goal In Danger” caught my attention. I have asked the “rent or sell” question many times myself and I think many other landlords would agree!

Deciding to purchase a property is usually an objective task for an investor. You run the numbers and if the property meets your criteria, you make the purchase. The difference in this dilemma is that Sam purchased this property as his first home. And after a decade of renting it out, he still calls it home. Did you catch that in the post title? It’s not until he shifts to discussing the sale of his home that Sam calls it a “property.” Home and property are very different words. Emotions are tied to this decision and if they are not respected, there is much potential for regret.

After studying practical decision-making in my doctoral program back in 2010, I started using a specific decision framework we learned to make my own life decisions. The framework is adapted from Hammond, Keeney, and Raiffa’s book, Smart Choices – A Practical Guide to Making Better Life Decisions. I analyzed Sam’s “Rent or Sell” dilemma using this framework and I hope that sharing my thoughts can help you make your own better decisions.

Learning From Mistakes

Sam describes his tenants moving out as “fate” and adds that this may be “destiny to test the selling waters.” I’d prefer to call it a “trigger event.” This is not a negative thing as Sam now has a decision opportunity.

Considering the magnitude of Sam’s decision opportunity is incredibly important. There is a direct relationship between the significance of the decision he faces and the amount of effort, emotional management and reflection that will be required to make a good decision.

Sites like ONIG Financial Blog have helped me to deepen my understanding of topics including investing, real estate, taxes, and retirement planning. I know that major mistakes on the “quantitative side” of these topics have the potential to wreak havoc with my life goals. So I read and ask questions because I know that even though people learn from their own mistakes, smarter people learn from the mistakes of others – and the stories they have to share.

I also read personal finance blogs through a qualitative lens. I’ve learned the importance of being a good listener from my 25+ year career as an educator. The better you listen (and the closer you read), the more you will recognize what really matters to someone.

To my surprise, a “finance guy” like Sam began this post with his subjective feelings. Comments like “selling this condo is like selling my baby” and “I’m already free” are significant and paint a clear picture of what’s really important to Sam. They will also become an important part of his decision process. Let’s “zoom in” and do a deeper analysis of the decision question and the other information Sam shared.

Analyzing Sam’s Words

In Sam’s post “A Better Way To Prevent Financial Mistakes: Convince Others Why Before You Buy” he shares he’s learned to make better decisions using the acts of writing and listening. Sam explains that his writing leads to deeper thinking and that it is important to practice patient and honest listening.

In the “Rent or Sell” post and in comments to his readers, Sam shares many personal thoughts in addition to the income data related to the property. As a qualitative researcher, I look for patterns or themes in what he writes in addition to the numbers. Since the emotional piece really matters in this decision, we need to find a way to organize what Sam’s words mean. The patterns I noticed included – what matters most, change over time, and past tense talk.

What matters most to Sam? He wants to create more memories with family in this house, yet finding a tenant who would “love this house as if it was their own” would also work! Sam wants to avoid the stress of landlording, including dealing with things breaking, the HOA, people who break promises, and the liability associated with things like tenants jumping between rooftops during parties etc. Landlording has become a job which does not align with early retirement or his desire to have fun and enjoy his work. Sam prefers the work of his online business.

Sam has changed. He is not the same person he was in his 20s and early 30s. His attitude has also changed now that his online business is robust. Sam no longer needs real estate for financial freedom. He is already there and wants to simplify life as he gets older.

Past tense talk. You may not have noticed, but Sam makes statements that may indicate the “for sale” sign is subconsciously already up. He shares in the post that he “will enjoy not having to manage this property more than the income loss” and in the comments that “I may just buy California muni bonds with the proceeds.” Writing is deep thinking for Sam and his words speak volumes.

Recognizing the Blindspots

Making big life decisions is challenging and there are many “blindspots” that can affect your process. Narrowly focused decision questions and not spending enough time defining your goals are examples of blindspots. Sam also mentioned an incredibly important blindspot – personal bias (his property’s amazing “park view”).

Other blindspots include going with the first option you consider, being overconfident, reverting to the status quo because it is the easiest option, not even considering the status quo as a possible option, only seeking evidence to confirm your favorite option, protecting your previous decisions, and not fully understanding your risk tolerance related to the decision to be made.

Knowing this makes you wonder how anyone can make a good decision! Just remember that this is a “messy” process and the bigger the decision, the more blindspots there will be to manage.

Using a Decision-Making Strategy

People use many different strategies to make decisions. And while some go with their “gut feelings,” others suffer from “analysis paralysis.” Learning a practical framework that can be used in almost any kind of life decision is key. This framework balances objective details and subjective feelings – it’s “analysis with heart.”

1) Develop the Decision Question. Look at the question you are trying to answer and make sure it is the “right” question. For Sam – Is it really rent or sell? Or is it about his passive income goal? Or is it something else? Only Sam can answer that question and the more time he spends clarifying the question, the better chance he will make a good decision. Asking a broad question matters too. “Rent or Sell?” may bias his thoughts and prevent him from considering more creative options.

2) Define Your Goals. In order to define your goals, it’s important to consider what you need or want, and also what you want to avoid. We can generate goal statements from “what matters most” to Sam. He could use short phrases such as – simplify life, avoid tenant hassles, more focus on online business, limit stress, enjoy my work. “Generate $36,000 per year” could also be a goal if that was a want or need Sam identified.

He may also notice that “avoiding tenant hassles” overlaps with “limiting stress.” The tenant issues are a “means” goal to the “end” goal of less stress. The means goals you identify can now be included as part of the end goals. But end goals such as “limit stress” are the ones used to make the final decision.

We can even call some end goals decision principles. These principles will likely stay the same from one decision to the next because they are what you value most. Sam even says “my end has always been happiness and freedom.” He has already identified a few of his key decision principles.

Frontloading your efforts on the decision question and goals will speed up the decision process and increase your chances at maximizing your satisfaction with the decision. You will be better prepared for future decisions too!

3) Generate Creative Options. What options have you already identified? Think broadly here! Remember, if we use the question “Rent or Sell” – we may not even consider options such as using a property manager, having family move in, leaving it vacant, or moving back in. Make sure to look for limits created by the decision question itself!

4) Create a Results Table. Look at the Results Table below. Note: These are not Sam’s thoughts or words. I ranked the sample goal statements for the purpose of this example and made up the options & results. The results describe how each option could meet the sample goal statements. (You can include actual data/figures rather than terms in the results chart when appropriate.) I have also done some of the comparison (from Step 5) on the table too.

Use A Decision Table To Make Better Decisions

5) Use the Results Table to Compare Options. This is the point in the decision process where you narrow down the options.

  • Look across the rows to see if any goal is met equally by ALL of the options. If this happened, cross out that goal and row of results. This will not help you narrow down your options. Sam does not have to worry about this in the example I provided.
  • Review the extremely important goal(s) that you identified (probably the first one or two goals). Are there any options that don’t meet the goal(s) that matter most to you? If so, it is highly unlikely you will be satisfied with these options – even if they meet more of the goals further down the list. Remove those options from consideration at this point. In this example, Sam would cross out the column Keep Renting & Self Managing because is not likely to meet the two most important goals (that I chose for him).
  • Now choose two options (columns) and compare them from top to bottom. Does one clearly “beat out” the other in terms of the meeting your highest ranked goals? If so, remove the “losing” option from consideration at this point. If they are similar in terms of meeting goals, keep both options “in the mix”. In this example – I chose to first compare Sell vs. Rent with Property Manager. The results for Sell are equal to or greater in for every goal. Sell “beats out” Rent with Property Manager, so Sam crosses Rent with Property Manager out now.
  • Continue this process (comparing two options at a time) until you have options that appear to “tie” or until the best option is clear. In this example Sam would only have Sell vs. Leave Vacant left. There are two differences noted in the table. Happiness is likely greater if left vacant because Sam still owns the property. I included the goal of Generate $36K just for the example – and if it was really desired or needed income, Sell would be a better decision than Leave Vacant. Since Sam has commented that the money isn’t necessary, we will consider these two options as “tied.”
  • For “ties” – determine the tradeoffs you will need to make if you end up choosing that option. If the tradeoffs for one option are more appealing than the tradeoffs for the other, remove the lesser option from consideration. If Sam “Sells”, the tradeoff is losing the chance for his family to live in the house and the chance for the value to continue to increase. The tradeoff for leaving the property vacant would be possible stress from the increased expenses and lack of income.
  • At this point, you may have a clear “best” option or you may have only been able to narrow it down to two or three options. If you have more than one option, it is time to reflect on your goals, the tradeoffs, and seek blindspots that may be biasing your thoughts. With more work, you will likely determine one option is “better” than the other(s).

In this example, it is likely that the option of “Selling” would meet more of Sam’s goals (the goals that I created and ranked for him). But he also needs to remember that he is the one making the decision and this information is just there to help guide him along the way. He can come back to the chart at any point and make changes – or he can simply ignore it and choose another strategy. But he will have done important work here – work that can help him move forward in making the decision.

Attributes of Making Good Decisions

Making poor decisions can set you back years on your goals while creating tremendous stress that can negatively impact your life, health, and relationships. Using a decision-making framework will help organize your thoughts and effectively compare options you are considering.

Sam closes his post with “regret is one of the biggest reasons why I’m hesitant to sell.” I’d suggest that working on the right question, defining your end goals and using a decision-making process is key to minimizing regrets and limiting the fear of the unknown. And for you quantitative folks – keep in mind that both your head and your heart matter in making good decisions!

Author bio: Vicki Cook is a wife, mom, professor, landlord, and learner who has finally decided that she and her husband have reached “FI” (financial independence).  She is “downshifting” her full-time work as an educator to focus on new adventures and has just started her own blog, Make Smarter Decisions.


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Updated for 2021 and beyond.

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