How to Make Good Financial Decisions
Choices. Decisions. We’re faced with them every day, especially when it comes to money. Most people struggle with how to make good financial decisions, and while some of us may begin with more advantages than others, our financial journey depends on what kind of decisions we make.
Stop and think. That’s some of the best free advice you’ll ever get. You might be mulling over purchasing a new home, or just throwing something into your grocery cart, but you should always be thinking. Do I really need that? What are the pros and cons here? What’s the upside? What’s the worst thing that can happen as a result of my decision? There are many psychological elements that affect the way we make financial decisions, and they include aspirations, social status, and confusing wants with needs.
Live in the Past
If you feel like you can never get ahead, maybe it’s because as your income increases, you simply spend more, so it never feels any different. Try living like you used to a few years ago. Don’t trade up to a new car just because you want to. If you get a raise, funnel the increase directly into savings or an investment account. If you want to splurge, stop and think about whether you could have afforded it last year and if you think you could afford it next year. Do you need it, or do you just want it? It just comes down to something you probably already know: if you spend everything you make, it doesn’t matter how much you make!
Practice Impulse Control
It’s really hard to do, but the more you can remove emotions - especially fear - from your decision-making process, the better off you’ll be. Fear creates a fight or flight reaction, and that’s why you see a lot of people selling off when the stock market goes down, which causes them to lose a lot of money. If you take the emotion out of the equation and look at history and statistics, you’ll realize that the stock market is cyclical. If you hold, you’re bound to earn your money back and then some.
You don’t want to make impulsive, snap decisions, but you don’t want analysis paralysis either. So, take a deep breath, evaluate, and then decide. Don’t second guess yourself, either. It’s better to make the decision and adjust for mistakes later if necessary then to completely put off important tasks like life insurance, wills and trusts, or applying for college loans.