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I read constantly and I’m obsessed with personal finance. I try to keep balance in my life, so not every book I read is explicitly about personal finance. Some though are just so clearly linked to financial independence that it smacks you in the face. Annie Duke’s Thinking in Bets is one of those.
The book is an important read about how we overcome uncertainty, biases, and our own patterns to make better decisions. Good decision making is a cornerstone of financial independence. So, here are 15 FI Quotes from Thinking in Bets: Making Smarter Decisions When You Don’t Have All the Information.
Duke is a professional poker player who thinks deeply about how we learn and make decisions. Those of us pursuing financial independence can benefit from her insight. I hope you enjoy these snippets. Then, I recommend you read the book!
Previous Series Entry 15 FI Quotes from Atomic Habits by James Clear
1. Thinking in bets won’t make self-serving bias disappear or motivated reasoning vanish into thin air. But it will make those things better. And a little bit better is all we need to transform our lives. If we field just a few extra outcomes more accurately, if we catch just a few extra learning opportunities, it will make a huge difference in what we learn, when we learn, and how much we learn.
I open with this quote because it perfectly captures why this book is valuable to anyone interested in financial independence (FI).
Pursuing FI is all about transforming our lives. It requires recognizing and learning new things, or unlearning “obvious” things we have always believed. To do that we need to recognize and deal with our bias, and the systemic biases around us.
Small changes or tweaks add up and matter in big ways over the long term. The aggregation of marginal gains is real and transformative. This quote is a call to make those small changes that matter in our decision-making.
2. As we learn more about how our brains operate, we recognize that we don’t perceive the world objectively. But our goal should be to try.
The point of the whole book, and critical for anyone looking to make more effective choices. For some, incredible income or good fortune (windfall money) will allow them to achieve financial independence.
For most, it requires a series of informed choices. Such choices are difficult in a world of sensational money media, confirmation bias, and predatory practices.
Investing in stocks will get you a 10% return! The averages say so.
Bitcoin will replace fiat currency, a guru said so.
I made a million dollars this way. You can too if you do exactly what I did.
Can you sort through your bias and the established beliefs around you to make objective decisions? It’s not easy, but you’ll be more effective if you do. Even a bit.
3. It feels better for us to imagine the world as an orderly place, where randomness does not wreak havoc and things are perfectly predictable.
“Making better decisions starts with understanding this: uncertainty can work a lot of mischief.“
Look, I’m going to cheat a little bit on the 15 quotes things. Some of the clearest connections in the book are reinforced multiple times. In this case, it’s the idea of uncertainty and the desire to pretend the world is certain.
This connects perfectly with why so many pursue financial independence. You may believe it’s because they hate their job, or want to be lazy and do nothing. Most often, it’s for a sense of control over their lives.
Achieving financial independence allows you to wrest some of the uncertainty back from world. You are no longer economically dependent on the whims of a boss. You can choose what projects or tasks to take on, or challenges to seek.
At the same time – these quotes are an important reminder. Building a true FI plan requires accepting and factoring in uncertainty.
4. Looking at the world through rose-colored glasses is natural and feels good, but a little naysaying goes a long way.
“…We need to have positive goals, but we are more likely to execute on those goals if we think about the negative futures.“
“Dreaming about achieving a goal apparently didn’t help that goal come to fruition. It impeded it from happening. “
Yes – I cheated again. There are a lot of quotes about the importance of paying attention to potential bad outcomes.
If you are pursuing financial independence, you can’t just dream about a positive outcome. Instead, consider and anticipate all the things that can happen along the way. Build flexibility in your plan. Avoid over-optimistic projections. Understand sequence of return risk and don’t be just a blind adherent to the 4% rule.
How will your plans change if you lose your job? What if you face a medical emergency? How will you respond to a 30% stock market decline?
All of these things are real possibilities. Don’t pretend they aren’t. Instead, factor them into your planning.
By doing so you will be better positioned than just about anyone else when bad things happen. You’ll have less debt, an emergency fund, and a clearer idea of your financial options than the vast majority of other people.
5. The way our lives turn out is the result of two things: the influence of skill and the influence of luck.
For some readers, this may be the most controversial quote in the whole book. And that’s dangerous.
I don’t fully understand why, but some people absolutely cannot give up the idea that everything they’ve ever achieved is due solely to their own effort. They push back at any suggestion of good fortune, privilege or just blind luck.
Here are so more quotes that get right at why this keeps them from making the best decisions:
“When we work backward from results to figure out why those things happened, we are susceptible to a variety of cognitive traps, like assuming causation when there is only a correlation, or cherry-picking data to confirm the narrative we prefer. We will pound a lot of square pegs into round holes to maintain the illusion of a tight relationship between our outcomes and our decisions.“
“When our self-image is at stake, we treat our fielding decisions as 100% or 0%: right versus wrong, skill versus luck, our responsibility versus outside our control.“
“Outcomes are rarely the result of our decision quality alone or chance alone, and outcome quality is not a perfect indicator of the influence of luck.“
You’ll be a better decision-maker if you can honestly assess outcomes and avoid attributing everything good to your efforts and everything bad to an outside force. If you have to err, take responsibility for it all. But, that isn’t the best way to go.
If you make a choice and it works out – was it all you? If you assume so despite contrary evidence, you may make that same choice again and lose money this time. The reverse may be true as well.
Instead recognize that it’s both. Yes, working hard matters. Yes, spending more time learning matters.
And, still sometimes luck, good or bad, will happen. Ignore it at your own peril.
Ignoring luck as a factor can also cause us to underestimate risk.
6. Ideally, we wouldn’t compare ourselves with others or get a good feeling when the comparison favors us.
The ultimate quote both for decision-making and for good financial decisions. The point here is that people are wired to judge themselves in comparison to others.
This means that even if you’re underperforming, but are performing better than those around you, you will feel fine. Even good. And if you’re doing quite well, but not as well as your friends you won’t feel satisfied.
The obvious correlation here is to avoid the material comparisons. Don’t try the infamous keeping up with the Joneses. If you can avoid that comparison, you’ll resist lifestyle creep and your expenses will remain low.
More importantly though, I’d use this quote to suggest that you build a group of friends that keeps you challenged. Not on the spending front, but in personal development. A strong group of brilliant friends can help you advance professionally and make better financial decisions.
But, be careful with group think…
7. Being in a group can improve our decision quality by exploring alternatives and recognizing where our thinking might be biased, but a group can also exacerbate our tendency to confirm what we already believe.
A group of peers can push your thinking, keep you accountable, and accelerate your progress.
In order for that to happen it’s important that they’re able to challenge you and hold alternate perspectives. Be wary of creating a personal echo chamber or building a group of true believers.
If everyone you know is going all-in on an investment or spending choice, you need to step back and test that choice carefully. You could all be about to make a killing. Or, you could be pulling yourselves into a big loss.
A good group of friends doesn’t just reinforce your thinking. They challenge it.
8. We don’t process information independent of the way we wish the world to be.
“We don’t win bets by being in love with our own ideas. We win bets by relentlessly striving to calibrate our beliefs and predictions about the future to more accurately represent the world.“
Optimism is good. But temper it with a healthy dose of constant analysis and reality.
You can build a model on a stock market return of 12% because you believe that to be the historical average. Yet, that isn’t really the case.
There were many who believed that Bitcoin was going to rise forever and end fiat currency. Some bet their money on it. Hopefully, they didn’t remain in love with their ideas and got out before the last collapse. Or, maybe their analysis told them to stay in and they’re still hoping to ride it upward.
Either way – don’t stay in love with your ideas and don’t make decisions based on how you want the world to be. Instead, be optimistic but analytical.
Be willing to change your thinking in the face of evidence – not on a whim.
9. In most of our decisions, we are not betting against another person. Rather, we are betting against all the future versions of ourselves that we are not choosing.
Another perfect quote for those pursuing financial independence. It’s easy to read about others who are already successful and feel discouraged. Perhaps you’re still paying off debt and they’ve just retired early.
You aren’t competing with others. Instead, you’re building towards a future version of yourself. Which, it turns out is the most effective way to make decisions.
10. When it comes to advanced thinking, standing at the end and looking backward is much more effective than looking forward from the beginning.
“… our decision-making improves when we can more vividly imagine the future, free of the distortions of the present. By working backward from the goal, we plan our decision tree in more depth, because we start at the end.“
Imagine your future self. Why do you want to be early retired? What does your ideal future look like? How did you get there?
Spend your time and energy building that vision. Then plan backward from there. As you ride the ups and downs (that we’ve already talked about will come from both effort and luck) adjust your plans, but keep that future vision in mind.
By envisioning the future and working towards it, you give yourself both motivation and an ability to adapt your plans. You don’t need to be limited by the present. Treat it as information that’s informing the path to your future self.
11. We are willing to take an irrationally large discount to get a reward now instead of waiting for a bigger reward later.
Another important reason to keep your future in mind and plan backwards. We are simply not good at understanding long term costs of short term decisions. It’s been proven time and again that most people will take a smaller reward now rather than a bigger reward in the future.
If you are building a path to financial independence you are doing exactly the opposite. You understand that by giving up spending now, you will have more to spend later. Keeping expenses low both reduces the amount of money you need AND frees up money to invest. Then time takes over, your money compounds, and you have more options.
12. When we make in-the-moment decisions (and don’t ponder the past or future), we are more likely to be irrational and impulsive.
A great quote to remind you that if you are investing, you should have an investment policy statement. When an investment is falling, it is easy to react in that irrational or impulsive way. An investment policy statement can help you resist that quick reaction. You’ll likely make a better decision and save yourself a lot of pain.
It’s a good idea to systematize most aspects of your finances. Adjust your systems in moments of calm, rather than making irrational in-the-moment decisions on a regular basis. This supports better decision-making and will ultimately improve your path to FI.
13. If we are winning or losing to a particular decision, the consequences may take time to reveal themselves.
Track your finances to help you see those long range consequences! If you haven’t spent some time tracking your spending, do it now. Even a short period of tracking will reveal surprises in your spending and help you adjust.
Most important, there are two numbers I track regularly: savings rate and net worth.
Savings rate will help you see how much of your current income you are putting towards that future self. This is the one I use for my goal planning and as a way to push myself financially.
Net worth provides you with a long term measure and goal. It will let you know when you’re getting close to financial independence. I use both a spreadsheet and personal capital, a free tracking tool (affiliate link.)
Track financial metrics to see the consequences of your decision-making over time.
14. Figure out the possibilities, then take a stab at the probabilities.
This could apply to all aspects of financial planning. But, I selected it specifically to address the role of “safe withdrawal rates” in financial independence planning.
Most use the 4% rule based on the Trinity study. Which basically says you can withdraw 4% of your assets, adjusted for inflation, and likely be safe for a 30-year period. (Too many people forget that 30 year period part…)
In many cases, you actually end the 30 year period with far more money than you started with. In others, you run out of money early.
If you strive for financial independence, and want to retire you need to know the possibilities. And, you need to decide what probability you are comfortable with. Learn, understand, and make a rational choice.
Recommended content for safe withdrawal rates:
15. Being able to respond to the changing future is a good thing; being surprised by the changing future is not.
An apt choice for the final quote because it so perfectly captures the benefit of pursuing financial independence. As we’ve discussed before the world is a very uncertain place. We know this, even when we try to pretend it isn’t so.
Financial independence allows you to respond to a changing future from a position of strength. You can ride out a lot of things if you simply have an emergency fund. Even more if you have FU money.
Once you reach FI, you can design your life despite future uncertainty, not because of it.
Thinking in Bets by Annie Duke is worth the time. If you haven’t read it yet, I highly suggest ordering it or borrowing it from your local library. These 15 quotes (okay, it ended up actually being 23) gave you just a flavor of the book.
For a more in-depth and traditional read about the book than just some isolated quotes, I recommended Done By Forty’s Thinking in Bets About Fire.
Also, check out my first entry in the 15 quotes series: 15 FI Quotes from Atomic Habits by James Clear. To date, it’s the most popular post on my site and worth a quick read.