5 Steps to Making Good Financial Decisions
The secrets to making better money decisions include deliberating your choices and examining all possible outcomes before acting.
You want to renovate your home, but you are still determining if it will provide the return on investment you desire. You want to consolidate your debt but feel overwhelmed by all the possibilities available. Making big decisions like these can feel challenging. But by approaching them methodically, using our five steps to financial decision-making, you can reduce your risk and improve your outcomes.
- Take your time.
Smart choices require time. Going too quickly can lead to rash decision-making driven by what you want now vs. what is best in the long run. You should deliberate over a decision for as long as you can. After thinking about it for a day, you realize you do not need those expensive boots. Or you may find a solution to a problem that will not rack up debt, such as tapping into your emergency fund to pay for an unexpected car repair instead of putting it on your credit card.
- Gather as much data as you can.
Being informed is a crucial part of making financial decisions. Get all the information you can to facilitate your decision. Say you want to make a significant home improvement. Seek multiple bids for the project and compare them. The lowest bid may be better if, for instance, it does not include hauling away old materials.
- Think about all the possible outcomes.
Examine every good, bad or neutral consequence of your decision. Ask yourself a few questions:
- Will this decision help you meet your financial goals?
- Can you stay within your monthly budget if you make this purchase or investment?
- How much money, if any, could you lose or gain from your decision?
- Consider the alternatives.
You may want to go on an expensive vacation, but you are also saving for a wedding. Will you still be able to afford the DJ or caterer you want if you take the trip? Maybe not. Examine your alternatives. For instance, if you are going to spend time with your spouse-to-be, perhaps you could try a new hobby instead of going away.
- Get another perspective on your decision.
Two heads are always better than one. Talk about your decision with someone you trust, like a family member or close friend. Discuss your financial priorities for the year and invite them to ask questions. They may raise concerns you still need to consider.
Still have questions about how to make good financial decisions? Getting a professional's perspective helps. Use MyConcierge™ to discuss your personal finance decisions with one of our associates. Open an account with us to gain access to this member service and more.