Don McMinn

For the last 14 months of its life, the check engine light in my old Subaru Forester (230,000 miles) was constantly on. I would fix one issue that triggered the alarm and then another would flare up. I became so weary of the issue that I didn’t even want to have it checked out. I just ignored the light and would have disconnected it had I known how to. 

Years ago (before Mary and I vowed to live debt-free) when our credit card bill would get out of hand, I avoided checking the balance because I knew it was high and out of control.

In both cases, I was exhibiting the ostrich effect (OE).

According to a persistent myth, ostriches bury their heads in the sand when they’re scared or feel threatened. They think they are safe if they can’t see the danger. (They don’t really do that.) 

The ostrich effect is a cognitive bias that causes people to avoid information that they perceive as potentially unpleasant. From a psychological standpoint, OE is the result of the conflict between what our rational mind knows to be important and what our emotional mind anticipates will be painful. Instead of helping, it drains us of time, energy, and resources and offers nothing of value in return. 

Here are some examples of the ostrich effect

• You may avoid getting a professional medical diagnosis because you’re afraid of hearing bad news (although, ironically, health information is crucial for health maintenance).
• You regularly check your retirement fund when the market is going up but not when it’s going down (although, to manage your money wisely, you need consistent data).
• Parents may hesitate to have a child who is having trouble in school tested.
• A business executive may postpone delving into what may be problems in the organization.

As is often the case with cognitive biases, the first step towards clarity is self-awareness. We must realize and admit that we’re falling prey to unhealthy thinking. I think the ostrich effect is one of the easiest biases to recognize: Just identify areas in your life in which you’re procrastinating or reluctant to get information because you think it might be bad news. 

The antidote to the ostrich effect is also simple and straightforward: Immediately pursue areas that you’re avoiding and pursue them aggressively. Put them at the top of your to-do-list; pledge that you’ll not eat again until you address the issues.  

The ostrich effect offers no value—there’s no upside—but overcoming it is very beneficial. As the Bible says, “The truth will set you free,” even if the truth is unpalatable.

Your mood affects your judgment. When making a decision, if you’re happy at that moment, you may decide differently than if you’re upset. For instance, a judge may issue a severe judgment on a criminal defendant because his roof leaked the night before and ruined his favorite desk. The same judge may issue a lenient judgment because he’s happy about leaving on vacation the next day. (Clever people learn how to use this truth to their advantage: when needing a decision from someone, they’ll wait until the person is in a good mood before asking.)

Generally speaking, a positive mood and disposition leads to a better life and sense of well-being than a negative mood or disposition. And relative to interpersonal relationships, we prefer to spend time with people who are happy and positive rather than those who are grouchy and pessimistic. 

But there’s at least one instance in which pessimism can be an asset. Being in a good mood (or by nature positive and optimistic) can make us naive and we can be easily misled. When we view life through rose-tinted glasses, our optimism can lead us to make bad decisions.

So, while it’s better to have a positive outlook on life than a negative one, be aware that positivity has a downside; it can distort our judgment. Be positive but don’t be gullible. Don’t believe everything you’re told. Don’t be swayed by charming people. Don’t be overly influenced by first impressions. Don’t be duped by misleading information.

When it comes to interpreting information and making decisions, skepticism is better than credulity. Unbridled optimism can render you naive and lead to bad decisions.

“Never doubt that a small group of thoughtful, committed, citizens can change the world. Indeed, it is the only thing that ever has.” Margaret Mead

Prior to War World 2, the US military produced fewer than 3,000 planes annually. Then came war. In the next five years Americans built 300,000 planes. That’s 6.8 planes an hour, 24 hours a day. Our industrial complex also built five ships per day for four years.

Several years ago I wrote a post highlighting the fact that in 2016, the Queen Mary 2 (which at 148,528 tons and 1,132 feet long, is one of the largest passenger ships in the world) was totally remastered in 26 days. It was totally rebuilt—engines overhauled, cabins redesigned, painted inside and out, technology updated—in less than a month. Try to imagine the complexity of that project. But it got done by a focused, motivated group of people, no doubt led by a determined leader.  

Leaders, your greatest opportunity and greatest challenge is to harness human potential. Begin by creating a vivid, viable vision that will activate and focus dormant human resources and motivate people to achieve things they could never imagine doing on their own. 

Before Mary and I got married, we developed a simple, handwritten budget—two columns (income, expenses)—and every month we updated it and talked about any variances. When computer software became available we used Quicken. We’ve had an annual budget for 46 years. It’s worked well for us.

Every organization and family needs a viable budget. I’m amazed at how many people deal with budgets at work but don’t use one for their personal finances. Budgets are necessary and beneficial in both venues. [Do you have a personal budget?]

A budget is a financial plan.

The budgeting process forces you to think realistically about income and expenses. A budget produces transparency about expenses and helps you prioritize income. When my daughter first considered buying a car she was surprised to discover the actual costs of ownership (payment and interest, insurance, gas, repairs, toll tag, registration). A budget makes that transparent.

A budget is a plan, and plans often change, so mid-year adjustments are sometimes necessary, but they should be minor and infrequent.   

A budget allows you to manage your finances.

You can’t manage what you don’t measure. If you go on a diet, you can’t manage it unless you regularly measure your weight. If you want to learn a new skill, find ways to measure your progress. 

A budget allows you to measure and therefore manage your finances. You’ll realize how your money is actually being spent (for instance, spending $4.50 every morning at the coffee shop will cost you $1,642 annually), and most importantly, you’ll discover if you’re spending more than you’re making. 

A good budget eliminates surprises.

One sign of a good budgeting process is that there are few financial surprises – large, unexpected expenses. Anticipate your financial needs—particularly large purchases—and put money aside to make sure you’ll have funds when needed.  

For instance, both our cars are paid off, but we continue to make a monthly $500 car payment into a savings account. (Long term, it costs us about $250 a month to drive a decent car, so $250 x 2 cars is $500.) When our current cars need replacing we’ll have enough money to pay cash for new ones. Our refrigerator is 26 years old so it could die any day. We’ve already set aside $2k for a new one, so we won’t be surprised or dismayed when the current one expires.

An annual budget should prepare you for retirement.  

When you’re in your 20s and 30s, it’s hard to imagine that one day you’ll be old, and that you need to start now to financially prepare for those later years. But old age inevitably arrives.

My personal advice: Starting with your very first paycheck, invest at least 5% of all earned income in a low-expense index fund that represents the broad stock market. Don’t try to outguess the market because long-term that doesn’t work. Just put your money in an index fund and don’t touch it until you get old. Do that for 45 years and you’ll be in good shape financially. (When I was 30 years old I withdrew $10,000 from my retirement account to pay for…[I can’t even remember]. If I had left the money in the stock market it would be worth $210,000 today.)  

An annual budget is not just about the next 12 months, it should also prepare you for old age.

When is the best time to plant a tree? Twenty years ago. When is the second-best time to plant a tree? Now. The same applies to budgeting.