How to avoid financial regrets

More than one in 10 Britons wish they’d married someone with more money, according to a new survey exploring the nation’s biggest financial regrets. 

Out of 2,000 respondents, 46% regretted not putting money into a savings account every month, 29% wish they’d chosen a better paid job or career, and 24% regretted not saving more for retirement. 

It’s hard to get through life without experiencing regret. Regrets are, unfortunately, an unavoidable consequence of being alive. But are financial regrets healthy? And how can we make better financial decisions while freeing ourselves from rumination?

The statute of limitations on regret

In The Power of Regret, Daniel Pink writes: “Regret, handled correctly, offers three broad benefits. It can sharpen our decision-making skills. It can elevate our performance on a range of tasks. And it can strengthen our sense of meaning and connectedness.”

But constantly berating ourselves for past mistakes won’t do us any favours. Sooner or later, we need to move on. 

Personal finance journalist Donna Freedman calls this ‘the statute of limitations on regret’. She explains: “Short term regret can be useful if it turns a mistake into an object lesson: No more bank fees! I’m going to start tracking my spending. But it doesn’t do you a damn bit of good to moan about how much money you wasted on bank fees all those years.” 

She summarises: “It doesn't matter what you should have done. What matters is what you do next.”

Reverse engineering regret

A big part of my job involves predicting what my clients may regret in future and reverse engineering these regrets to create better outcomes. I have to strike a balance between the client’s current wants and needs versus what I suspect they may regret in future.

Let’s imagine, for example, that I work with a risk-averse couple who wish to retire early. They’ve spent the last 15 years diligently overpaying their mortgage in a bid to become debt-free. They’ve protected themselves from rising interest rates thanks to a series of fixed-rate mortgages. While their friends have seen their mortgage costs skyrocket over the last couple of years, my clients have never had to pay more than 3% interest on their home. As far as they’re concerned, they’ve done everything right. What they don’t realise is that their money will need to work much harder if they want to retire early.  

To help this couple achieve their early retirement dreams, I might look for investments offering a much better return, without discouraging them from paying off their property. 

Financial planning, particularly in terms of avoiding regret, is as much a psychological endeavour as it is a mathematical one. As Morgan Housel writes in The Psychology of Money: "The independent feeling I get from owning our house outright far exceeds the known financial gain I'd get from leveraging our assets with a cheap mortgage. Eliminating the monthly payment feels better than the long-term value of our assets. It makes me feel independent."

By prioritising the psychology of money just as much as the numbers, I can help clients feel good about their financial decisions and help them avoid future financial regrets. 

Focus on the end goal

A client recently confided in me that he treats his pensions as a means to an end. When I replied: “That’s exactly what they are,” he was taken aback. He’d assumed this was a bad thing, as if I’d be disappointed with him for not being more engaged.

I sometimes have to remind people that that’s my job. I’ll take care of the day-to-day minutiae, so that you can spend your time dreaming and living. You don’t need to monitor the stock market daily, track your bank balances in a spreadsheet or spend hours researching the top savings accounts.

There’s nothing wrong with any of the actions above, but there’s no point micromanaging your finances in this way if you’re not working towards a particular goal. 

Think of it this way: you need to know where you’re going on holiday before you book your flights. 

Have you ever found yourself sitting on a beach thinking: “I can’t believe I’m actually on holiday?” You can spend so long stressing about the flight, potential delays, cancellations, etc. that you forget to look forward to the end destination.

By choosing the destination first, whether it’s early retirement, a drastic career change, or a new life in Spain, you’ll find it easier to plan the journey and give yourself something to look forward to — particularly when things get tough.

Regularly reminding yourself of your ‘why’ can help you avoid regrets too. Over time we can come to regret perfectly logical decisions we made in the past. Not because these decisions were wrong for us, but because we’ve been presented with alternatives and we’re wondering if our lives could’ve been different. 

When this happens, having a financial planner at your side can help to break the “If only I…” cycle and remind you exactly why you made the decisions in the first place.

As Morgan Housel says, the emotional benefits of some decisions can outweigh the financial benefits of an alternative. So as long as you’ve been clear on your ‘why’ from the beginning, there’s nothing to regret.