Bias for Action: Benefits and Risks for Financial Independence

How do you respond when you find yourself stuck in a freeway traffic jam? Do you just sit and move slowly growing more frustrated? Are you content to stay the course, knowing you’ll get home eventually? Do you seek out an alternate route even though it may not be faster in the end?

I myself feel the need to be moving. I’ll get off and weave through any other route that keeps my wheels turning. Sometimes, it ends up taking me longer. I’ll make that choice every time because it’s better than standing still.

This is just one example of my bias for action. In this case, I’d literally rather be moving than sitting in place.

It’s been a huge benefit to me professionally, but it’s not without downsides. Let’s explore the benefits and risks of a bias for action.

What is a Bias for Action?

“Bias for action” is a bit buzzwordy. (Is that a word? I’m not sure, but you know what I mean.) Anything that Amazon (or any large corporation) considers a leadership principle is likely to become cringe-inducing business speak.

Sometimes, you’ll see bias for action described as quick decision-making. Or, a heavy focus on doing over analysis. It may even sound almost like attention deficit or the need to change for change sake.

But, a healthy bias for action is not always doing over thinking. And it certainly doesn’t mean always choosing action over stasis despite my example above.

The core of having a healthy bias for action is that when faced with a decision you are willing to take calculated risk. That is, you don’t need to be pulled out of the status quo by overwhelming evidence.

What does this look like for me personally?

Some people resist change. In education, it’s a common fear. To get many teachers to move, you need to overwhelmingly convince them that change is better. This is likely a cultural response to constant external change initiatives.

I’m not sure where it developed, but I’ve always had a bias towards action.

I think deeply and consider options carefully while striving to make solid decisions. But, when faced with a choice, if the pros and cons balance equally, I’ll choose action. Unlike some, I don’t need to be convinced to act. I crave it.

That’s not the same as acting when it’s clearly a bad idea. I can be convinced to stay put. But, I need to be convinced to do so, rather than the more common inverse.

That’s how I think of a “bias for action.” Overall, I believe having the bias has been a benefit to me personally. Yet, I know it also creates risks.

Do you have the same bias?

Let’s explore the potential benefits and risks of having a bias towards action while pursuing financial independence.

Benefits for Those Pursuing FI

FI Requires Action

Pursuing financial independence requires a change from the status quo. It means taking action and doing things differently than those around you.

You need to make conscious choices to spend less, save more, and invest the difference. You also have to become comfortable with the unknown and willing to invest time and effort in an unknown future.

A bias for action makes those things easier. When I was comparing my current expensive house to the potential savings of downsizing, it was a very close call. Having a bias for action tipped me into downsizing. That one change significantly accelerated our path to FI.

If we were uncomfortable with change we would have stayed in the larger house instead of moving to a smaller less-expensive home. We’d have been fine, but our FI date would have been much farther out.

That’s just one example.

Those who are most comfortable staying put are more likely to end up following the traditional path. That’s okay. But in this case, I consider a tilt towards action a clear benefit.

Professional Opportunities

We’ve all been in those work situations where something gets debated endlessly. The rest of the group can’t make a decision or keeps circling around the same arguments.

The person who is willing to step up and just make a decision is important to the group. (As long as they’re not just steamrolling everyone else – that’s destructive long term.)

I’ve experienced first hand how this willingness builds leadership opportunities. For me, it led to a quick climbing of the education career ladder, despite me not actively seeking it.

Being willing to change also built strong relationships with my colleagues. As a teacher, my bias for action led me to volunteer to take teaching changes virtually every year. I craved the change and opportunity, while others craved staying put.

The same was true as a school principal – I’d gladly take on any new challenge. This gave me a lot of opportunities.

I’m betting the same is true in your career field. A bias for action can help you advance, if you’re interested.

It can also lead to entrepreneurship. Most entrepreneurs have a natural bias toward action. You have to take the leap at some point.

No Analysis Paralysis

Financial topics can be fraught with contradictory information. While we want to assume numbers are clear, financial projections require all sorts of assumptions and small changes can make a big difference.

It can be easy to feel frozen by all the information and choices we face with money. Consequently, some people become paralyzed by the choices and don’t act at all. The search for the optimal prevents them from making a good choice.

Those with a bias toward action won’t suffer from this severe limiter. They can review the available information and then leap without feeling 100% sure. It is almost always better to do something positive than to do nothing at all.

Accelerated Progress

Once you build your first financial independence plan, you have a road map to success. After that, it’s largely a game of waiting. Just keep saving and investing and you will eventually reach FI. This is good, but it can become challenging to wait.

If you’ve got a bias for action, you’ll probably find yourself constantly looking for new opportunities. Can you find a new side hustle to earn just a little bit more?

Is there some way to reduce expenses that you haven’t seen before? A bias towards action will lead you to consume new information and seek out new opportunities. This has the potential to accelerate your progress to financial independence. (It’s also a risk..but that’s the next section.)

Ability to Adjust

If you’ve got a clear and safe plan that will get you to financial independence, it’s tempting to stay put. Sometimes, that might be the right choice. Other times, it may be costing you.

As an example, assume you’ve made an investment choice inside your workplace retirement plan. You’re seeing comfortable safe returns and the fees are reasonable. For many, this may be just fine.

But if you dig in, you see another investment with similar risk and slightly lower fees. Is the hassle of learning more, contacting the company, and filing the appropriate paperwork worth it? If it’s a close call, many won’t make the choice to act.

If you’ve got a bias towards action, you’d find yourself making the extra effort to make the change. And, you’d be willing to expend the energy for even a small benefit.

Risks for Those Pursuing FI

As with many things, the benefits can also become risks depending on how they show up.

Increased Investment Risk

There are a lot of dangers here if you prefer action. Good investing requires deliberate intention and a willingness to stay the course.

Less Sound Initial Investment Decisions

This is the opposite risk of analysis paralysis. A bias for action may get you into an investment that you shouldn’t make because you haven’t done enough learning or research.

As an example, you may read that investing in real estate is a great path to FI. You even know about the 1% rule. You see a property that you believe fits the rule. If you have a heavy bias towards action you may make the leap immediately. You didn’t do your due diligence, you didn’t include all the costs, and you now own a property that you have no idea how to manage.

Another – a teacher learns that pre-tax retirement investing is great and immediately invests in a 403b plan. Unfortunately, their district hasn’t protected them and the only option is a fee-loaded annuity. A pause, or a bit more analysis, may have allowed them to make a better decision.

Frequent Trades

If you are uncomfortable remaining with the status quo, you are more likely to be an active investor. You may believe you can beat the index, time the market, or pick individual winners more successfully than others.

Trading frequently while doing less initial research increases risk on its own. Add in more frequent trading fees and you are creating a drag on your earnings.

In general, you shouldn’t constantly tinker with your investments. You could find yourself paying unexpected fees or incurring transaction costs. Frequent action hurts you here.

Catching a Falling Knife

This is another example of market timing that you may be susceptible to. We’ve all heard the “stocks are on sale!” trope when the market takes a dip. If you have a bias for action, this is a call to invest more money!

You pour your money in quickly and the market falls further.

In the long term, this may not be a bad decision – but you’ve certainly acquired more risk.

Selling at the Bottom

A bias towards action doesn’t make you more resolute or more clever than others. You may still have the same fears and a higher, or lower, risk tolerance. If a market move down suddenly exceeds your risk tolerance and you’re biased to make a move – you could sell at the bottom and bake in your losses.

Slipping from the Path

While a bias for action may help you accelerate progress or make helpful adjustments, it could also pull you off the path entirely.

Ultimately, financial independence takes time. The initial steps lead to the wealth accumulation phase which is largely about continual incremental progress over a period of years. This phase takes time and can be boring. Indeed, I’m in it now and struggling with the wait.

If you’ve got a strong bias for action boredom can be very challenging. You may find yourself making unnecessary tweaks, seeking out change for change sake, or shifting focus entirely.

Consumerism

One of the greatest dangers of a bias for action is simple consumerism. When weighing a purchase, a bias for action will push you toward making the purchase more easily. Obviously, if you are trying to control costs this is less than ideal. You can quickly fall prey to lifestyle inflation.

Sometimes the only thing keeping you from a purchase is the knowledge that the money will be more useful down the road. If it’s that close, a bias for action can lead to YOLO thinking.

Sometimes, a heavy bias also shows up as change for change’s sake. You may buy something just to shift up your life or kickstart a new obsession.

Relationship Risk

Pursuing financial independence in a relationship requires communication and being on the same page. If one partner has a bias for action and the other is change resistant it can lead to relationship stress.

You can hear some examples of that in this What’s Up Next podcast. Both couples provide clear examples of the rubberband effect and resulting stress.

Ways to Mitigate the Risks

I have a bias towards action. I’d say it’s moderate, rather than extreme. I’ve certainly known and worked with people that have a very heavy bias for action – they literally can’t sit still.

While a willingness, or even drive, to change can be a benefit it can also be destabilizing. Are there ways to get the upside and lower the risk? Here are ways I recommend limiting the risks of a bias for action.

It largely comes down to building systems.

Automate Your Finances

There is a reason this is a cornerstone of so much personal finance advice. If you designate where your money goes up front, it helps limit your choices and prevents emotional decisions. It’s hard to spend impulsively if you’ve limited your access to your own money.

The same is true for investments. If you auto-invest your money into proven investment choices that you’ve had time to research you are less likely to make spur of the moment decisions that harm you.

Written Investment Policy

To limit the investment risks, create a written investment policy. This is actually a good idea for anyone because it prevents you from acting emotionally when faced with big market moves or unexpected losses. It’s especially critical for those with a bias for action. Stop Ironing Shirts provides a great example of an investment policy statement.

Spend time to create a plan for your preferred investments, asset allocation, and response to windfalls or losses. Then, you’re less likely to make a spur of the moment decision that harms you.

Set Aside Money for Impulses

This isn’t a system I use, but I know others have had success with it. Set aside a certain amount of money that you can use impulsively. For some, this may be to satisfy that need for action or movement, even if it’s light consumerism.

Others will include a small percentage of money in their investment policy statement they can allocate to individual stock picking. For example, you may allow 5% of your assets in individual stocks. You recognize these are riskier, but it satisfies your need to tinker or act frequently while the bulk of your investments remain free from your bias for action.

Focus on the Future

Have a clear long-term vision of what you’re trying to achieve. Whether it’s a specific purchase, financial independence, or early retirement creating a picture of where you want to be down the road is a useful anchor.

This is the strategy I use to counter my own bias in areas that my systems and investment policy do not cover. When faced with a significant decision, I intentionally build in a check against my future vision.

This prevents in-the-moment decisions and keeps me from switching up the long-term plan.

The Benefits Outweigh The Risks

I’ve found that the benefits of a bias for action outweigh the risks for my personal pursuit of financial independence. Especially when mitigated with the strategies above, a willingness to not settle for the status quo has served me well.

Remember, reckless decision-making or ignoring evidence entirely is not a bias for action. It’s just being reckless. Instead, make reasoned decisions but recognize that you may be easily persuaded to action and mitigate those risks. In the end, I believe you’ll come out ahead.

How about you? Do you lean towards maintaining the status quo or toward action? What benefits and costs have you experienced due to your natural orientation?