Why I Use Decision Trees
In this issue, I will show you how you can use a “decision tree” to make the most challenging decisions confidently, saving time and money. I have had a “decision tree” integrated into my financial planning practice with clients since reading about it in Harvard Business Review 7 years ago. While inflationary pressures mount and the dollar’s purchasing power rapidly erodes, you should be aware of the long-term financial impact of today’s decisions.
What is a “decision tree?”
It is a graphical tool that helps you visualize the possible outcomes of your decision-making process. Often, we are either overthinking it or winging it when it comes to decisions. Which one are you? I’m a little bit of both sometimes, but I also lean into my “gut instincts,” too, so I might be a “winger!”
Here’s what a decision tree looks like for a business owner deciding if she should expand her business or do nothing:
There are templates you can sign up and use or just to get inspiration to build your own. I use a whiteboard and use different color markers. It keeps me away from electronics, so I’m not distracted.
How do you create a “decision tree?”
A decision tree is very effective if you’re weighing between two business decisions, but for personal finance, it can start with a question or a problem you’re trying to answer. I’ll use myself, for example, “when do I move to Virginia?
Brainstorm possible options or solutions
Do I move in 1 year, 5 years, or 10 years? These are my options. So now I will begin to create my tree:
Move to Virginia > 1 year > 5 years > 10 years
Should we stay or should we go? (Pros & Cons)
Yes, let’s do it (Pros)
Virginia is where the Evans family began 4 generations ago in the foothills of Appalachia. We are part indigenous and Scottish farmers of timber, horses, livestock, tobacco, and mixed crops. A lot of our family are still down there. Virginians are very social and friendly, and the politics of late seem to lean conservative, which favors my family and me.
No, let’s not move (Cons)
My son has important friendships and roots here in New York. To move him away within year 1 could hurt him spiritually and emotionally. By year 5, he will graduate high school and may still need roots here. My wife is a professional organizer, often going into people’s homes and businesses, so she could not be remote. She would have to start all over again in Virginia. She is also a city girl and will need time to adapt to a slower pace and lifestyle. Also, the politics in Virginia could change in 10 years out of our favor, and housing and property prices could increase over time, making a Virginia tentative move.
What we decided (the outcome)
It looks like moving to Virginia in 10 years is the best decision. But if I was worried about rising housing and land prices, I might consider buying land sooner rather than later and get zoning and building permits to start construction over the next 10 years. I would only do this because I know Virginia well, and my wife and son like it there. If we didn’t know Virginia, we would visit a few other places a few times to decide what we prefer based on our decision tree.
And I found my political concerns are mostly at the local county levels, not state, and we’re looking into locations that support rural homesteading lifestyle vs. development. And for what it’s worth…I’ve been living in New York for the last 30 years. And if I can live here…I think I can live anywhere.
So how about you?
What major decisions can you make in peace within minutes today?
I’m honored to be on the journey with you.
Your friend,
Daniel Evans
Whenever you’re ready, here are some ways we can work together…