Sound financial decision making is a core requirement in achieving investing success. It’s amazing how people downplay how important this skill is when it comes to financial success.
Knowledge or information alone is rarely what stops us from enjoying the success we want or achieving our goals. And there are often many ways to get to a goal, not just a single “correct” path.
Some financial decisions are easy while others are really challenging.
Deciding how much to spend on lunch is much simpler than deciding how much to save for retirement and where to invest it. Every day we must decide between spending money for immediate reward, or deferring gratification to a later date.
So how do you make a good financial decision if knowledge alone isn’t enough? And how do you decide on the right path for you if there is no one, single, always-the-best-thing-to-do answer?
Below are ways you can improve your decision making process.
1. Sleep on it
Take time before committing and paying for something. Our brains cannot resist a “good deal” and marketers know that. They also know that if you stop and think about it, you might change your mind, so they try and convince you that it is urgent.
“Flash Sale!” “LIMITED TIME ONLY!” “Do not miss out!” “Valid while Stocks Last!”
You see this and you must have it, NOW! But here’s my advice: sleep on it. If you still want it as much in the morning, then go and buy it. I can almost guarantee that you won’t.
2. Decrease negative financial habits
Decide to stop (or at least reduce) costly actions that are counterproductive to building financial security. Everyone has their own culprits. Key criteria for consideration are potential cost savings, health impacts, and personal enjoyment.
3. Continuing Your Financial Literacy
The more you learn about your finances earlier on, the better you’ll most likely be with your money. Naturally, that should be a no-brainer.
But as you get older and priorities shift, you should be continuing to improve your financial literacy. Whether that’s knowledge about retirement, building wealth further, investing, or general money management.
The easiest ways to do that is read these personal finance books and others, listen to podcasts, and consult with a financial planner or advisor if you need further help.
- Have a rainy day fund
An emergency fund will help you cover those unexpected expenses without forcing you to rob a bank or acquire crippling debt. It is recommended that a rainy day fund be the equivalent of at least three months’ income. Try it, you’ll thank me later.
5. Make a budget
You’ve been told many times to do it. In fact, you are tired of hearing it. Yet it cannot be stated enough! Budgets keep you accountable. They help you discover your spending patterns and literally force you to prioritize your expenses.
It’s much harder to go on a mindless shopping spree when you plan what you will buy in advance. The great news about budgeting in the 21st century is that there are apps for that. It’s quite simple, really.
6. Don’t Get Stuck In Analysis Paralysis
If just having all the information was enough for us to make great decisions at every time, everyone would have all they need.
Don’t over analyse.