You will be able to run a short quarterly review of your money behaviour.
In January, Hui Min (an invented example) wrote three good money rules. By April she had broken her rules twice, once each for two different rules, and she couldn't recite any of the three word for word. Nothing dramatic happened in between. The rules faded, the same way a gym routine fades when nobody checks whether you're still going.
Personal money rules fade like this unless you set a fixed time to look at them again. The fix is a short, regular appointment with your own records.
A quarterly review is a check every three months of your money behaviour against the rules you set, with your records laid out side by side. Book one every three months and allow 45 minutes to an hour.
Monthly reviews are too frequent. Patterns in your behaviour don't have time to show, and one bad weekend can look like a trend. Yearly reviews are too rare, because a rule may have been broken for months before you notice. A quarter covers enough decisions to show a pattern, and it comes soon enough for you to fix one.
This review looks only at how your money behaviour matched the rules you set. Critical thinking and better decisions, lesson 8.3, "Review your decisions every quarter", uses the same rhythm for decisions in general. Lesson 8.2 of that course, "What goes in a decision journal", explains the journal method behind it.
Bring four things to the review and put them side by side:
your decision log from lesson 1.4 your spending diary from lesson 4.4, if you kept it going or repeated it any trades you've made since the last review your rules from lesson 8.1
Go through your rules one at a time and give each one of three marks: kept, broken or not tested. Not tested is the mark for a rule whose situation never came up during the quarter. A rule about selling investments can't be kept or broken in a quarter when you didn't need to sell anything.
For each broken rule, write down the situation, how you felt and what you told yourself at the time. Why a rule broke matters more than how many rules broke, because the reasons point you to the fix.
Most broken rules fall into one of three types.
In a Type 1 break, the rule is fine but the friction around it was too weak. You meant to keep it, but nothing in your surroundings made breaking it harder. The fix is to change your environment, which lesson 8.2 of this course covers.
In a Type 2 break, the rule is too vague. The situation came up and you didn't recognise it as the one the rule was meant to cover. The fix is to sharpen the "if" part of the rule so it clearly describes the situation.
In a Type 3 break, the rule is wrong. It asks for something you don't actually want, or something you can't keep up. The fix is to change the rule itself.
Hui Min's three rules were these. First, raise cash from investments using the buy-today test. Second, wait seven days before buying anything a group or forum recommends. Third, check her portfolio on the first Saturday of the month.
At her first quarterly review, she marked the buy-today rule as not tested, since she hadn't needed to raise cash. She had kept the seven-day rule once and broken it once. The break came from a colleague's tip over lunch. She hadn't counted a colleague as a "group", so she didn't see the rule applied. That is a Type 2 break, and she rewrote the rule to cover recommendations from "anyone, online or in person".
She broke the first-Saturday rule in one volatile week, when she checked her portfolio every day. When she looked into it, she found the daily checking was set off by market alerts from a news app on her phone, and the broker app had nothing to do with it. She turned off the news app's market alerts. That is a Type 1 fix to her environment.
Once every rule is marked, scan your log for mistakes that repeat and that none of your current rules covers. Each one is a candidate for a new rule, or for a rule that replaces one you no longer need.
When Hui Min scanned her log, she found three purchases of over S$300 each, all made in the week after payday, and none of them made with the cooling-off checklist. No existing rule dealt with spending just after payday, so that pattern became the subject of a new rule.
The hardest discipline in a review is keeping process versus outcome apart: how you decided (the process) and how the decision turned out (the outcome).
A decision can have the right process and a bad outcome. Say you follow your rule and keep investing through a market fall, and the market falls further. Your result for the quarter is worse than if you had stopped. The process was still right, because the rule was built for a long horizon and one quarter tells you very little about it.
A decision can also have the wrong process and a good outcome. Say you break the seven-day rule, buy a stock a forum is excited about, and it rises 20% (a hypothetical figure). The result looks good, but you followed the same process that cost Hui Min S$1,680 in lesson 6.6. If you reward yourself for a lucky result, you train the very habit you were trying to stop.
So for every notable decision in the quarter, ask two separate questions. Did I follow my process? How did it turn out? Only the answer to the first question tells you what to change, so base your changes on that answer alone. Critical thinking and better decisions, lesson 8.1, "Good decisions can have bad outcomes", makes the general case for keeping the two apart.
Put your first quarterly review in your calendar now, three months from today. Then decide on the three questions you'll ask yourself when it comes.
Put your first quarterly review in your calendar now, and write down the three questions you will ask yourself.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).