5 Best Practices for Making Better Financial Decisions (Even if You Aren’t Financially Savvy)
Determine if a financial decision is right for you by following these best practices.
We all strive for making the right financial decisions. But how do we determine if the decision is right or wrong?
Well, there is much more than just getting the necessary information. There is no single way of doing things right. Every decision depends on the number of factors and may vary at different times of your life.
Here are 5 best strategies and principles for making better financial decisions for those who would like to change their life for the better.
Clarify Your Core Financial Values
Set up your financial goals and priorities. Define your needs and wants. Consider completing one financial goal at a time.
One of the top financial struggles people often face is defining their core values. You need to determine what your current priorities and goals are. The majority of people aren’t sure how they need to allocate their personal funds for achieving numerous goals.
Which strategy is better – to finance each financial target at a time or save your money for multiple targets at once?
This question comes to mind because there are two traditional ways of reaching financial aims: sequentially and concurrently. A sequential strategy means a person defines their financial goal and sets money aside on a monthly basis until they can finance this goal. A concurrent strategy means a person defines several financial targets and sets money aside for all of them at the same time. The main disadvantage of concurrent way is you will need to create several accounts and allocate a certain sum of money regularly on each of the accounts separately. As a result, it will most likely take a longer time to reach these goals.
If you consider completing one financial goal at a time, you will need just one account. Thus, you’ll be able to allocate more means and funds to concentrate on one target that is the most significant at the moment. Once you reach this target, you will start focusing on the next aim.
In general, single-tasking is easier to perform, and it’s faster to save the necessary funds for just one certain goal. Being able to achieve this goal will also give you more motivation and determination to go on towards reaching the next aim, as you will see your own progress.
Determine What Strategies Work for YOUR Financial Reality
There are no clear cut right or wrong financial decisions. Make your money-related choices depending on your unique situation.
You shouldn’t define your financial decisions as “right” or “wrong.” In fact, any decision may be right for one person and absolutely wrong for another one simply because we are all different.
If you’ve worked really hard for several years and saved maximum for both your retirement plan as well as for the upcoming travel, it may be a smart decision to take this break and enjoy your time.
However, if you haven’t allocated enough money for traveling and are hardly ready to give up your steady job, it would be better to avoid traveling the world because it could impact your financial stability in the future.
You need to find what works best for your financial reality and make your decisions based on that.
Keep the Balance Between Present and Future
Don’t be too focused on your present needs and wants or too concerned about your financial future. Try to strike a balance.
People tend to go from one extreme to another when it comes to their finances. Some of them are too concentrated on their current needs, while others feel overly worried about their future. Typically, people are eager to find some perfect formula that will help them make important life decisions. If you are one of such people, a famous writer and life enthusiast, Mark Manson, suggests the following technique that is quite simple, but it is aimed at helping you sort out your thoughts and viewpoints and find the necessary balance:
All you need to do is write down the benefits and drawbacks of a financial decision for the short-term on one sheet of paper, and a list of benefits and drawbacks in the long-term on another. This will give you a better understanding of what you actually consider more significant in this particular situation.
This easy technique works great for any important life decisions, including financial ones. In addition, you may also consider prospective consequences and even regrets connected with making this decision (or not making it).
Avoid Being Paralyzed with Uncertainty
There’s a huge amount of information available on the web that raises doubts. Filter what’s true and what’s false. Rely on trustful information resources and expert viewpoints.
We can acquire much information from the web, books, TV, just asking people or turning for professional advice. However, if it was enough, we all would be happy millionaires.
Of course, it is really great to have a connection with such a huge database of information about any topic. With this at our fingertips, it’s even more important to learn how to use this data and how to differentiate good information from bad data. Useful data is essential when you are starting your financial journey and need to educate yourself on various means and facts.
Not every piece of information or advice online is trustworthy. Think of all the people who use beauty filters to make them look better on social media. Do you have special filters to sort out the information available on the Internet? Do you have any doubts? Are you feeling paralyzed with uncertainty because of so much information you can’t filter?
This is when professionals and financial coaches may be really helpful. Working with specialists at the beginning of your journey can bring lots of benefits and allow you to filter what is true and what is false, to count on expert opinions and reliable data resources.
Test the Waters
Brainstorm how to try out your potential decision. Examine the issue thoroughly to consider all the pros and cons.
You would definitely test drive a new vehicle before you buy it, and the same should be done before you make any significant decision that can impact your future.
Financial experts recommend avoiding making quick choices. Take your time to review all the pros and cons and think logically instead of rushing towards the unknown.
All in all, there are no right or wrong decisions when it comes to finance. What is good for one person may be harmful to another one. So, it’s up to you to choose what makes you feel satisfied and secure today and create your financial plans for the future. Think of who you are and what kind of person you would like to become. This will help you make better financial decisions.