When it comes to managing money or doing the right thing financially, it’s easy to think you need more information, more facts, or that the end goal is to arrive at the objectively “right” answer .
However, knowledge or information alone can prevent us from achieving our desired success or goals. And often there is not one “correct” way to achieve a goal, but several ways.
So how can you make sound financial decisions when knowledge isn’t enough? How can you decide on the right path if there isn’t always a best answer?
Here are some strategies we’ve seen work well for the wealth management clients we coach and guide toward the financial success they want.
Don’t Get Stuck In Analysis Paralysis
If all information were sufficient to make good decisions, everyone would have everything they need. This is because of the internet.
The fact that we have free access to the vast amount of information and human knowledge available through the Internet is incredible and unprecedented in history. Learning something has never been easier for almost anyone with an internet connection.
This is correct. When you’re starting out, you need information. We need facts and data to help us move forward.
However, freely available information has drawbacks and problems. For example, not all information on the Internet is true. Finding the signal in the noise requires developing filters, which can be difficult when you’re just starting out.
(By the way, that’s part of the value of having experts on your side: They have fine-tuned filters to help you sort out what’s true and what’s false.)
Another mistake? Even if we can sort out what’s true and what’s false, there’s still a lot of good data. The more information you have to interpret in the context of your life, the more likely you are to suffer from analysis paralysis.
To Improve Your Ability To Make Good Money Decisions, You Need These 2 Things
Here are the first steps in creating a decision-making strategy. Without this step, you won’t be able to make good choices with your money.
- Clarity on your values and priorities, and
- Acknowledgement of your financial reality
Good solutions come from understanding where these two meet. When you know what’s really important to you, it’s easier to choose how to spend your money.
What are your core values? What really matters? Why are you trying to earn more money or invest wisely?
Good solutions come from understanding where these two meet. When you know what’s really important to you, it’s easier to choose how to spend your money.
When you align your spending with what matters most, budgeting suddenly becomes a lot easier. Once you know why you want to save, you’ll suddenly find more intrinsic motivation to contribute more to your savings and investments.
Don’t ignore what the numbers say. This is your financial reality. If your cash flow shows you’re spending more than you’re making, that’s a problem, regardless of your metrics. And you don’t have to feel obligated to always do what’s numerically “best” in the spreadsheet.
This can leave you feeling unfulfilled and unsatisfied because you haven’t thought about what you want to do with your life.
“Right” And “Wrong” Aren’t Useful Labels, So Use These Instead
If you’re having trouble making good financial decisions, thinking things are “right” or “wrong” doesn’t help.
Using these signs taints the situation with something objectively wrong. Who said traveling for a year is “wrong” and investing everything in your 401(k) is “good”?
For example, if you’ve been following your retirement plan for the past 10 years, have saved enough to cover travel expenses, and plan to continue working and earning money, this may be ideal for your situation. Returns Income.
On the other hand, if you have little retirement savings and no savings to pay for your trip, quitting your job and traveling to Europe might not be the smartest thing to do, but I would say this. . This will help you not to be mistaken about your desires and choices. Instead of right or wrong, ask “Will this work for me?” Think about this. or “Not working for me?” Learn what works and what doesn’t for your financial realities and goals.
Going back to our example, traveling for a year while working on that goal and saving for the future for the past 10 years can pay off big. But neglecting retirement savings doesn’t work. Because one day you may no longer want to work for a paycheck, you may not work, and you may have to rely on your savings.
Consider Both Today And Tomorrow
This presents another important strategy for improving the quality of financial decisions. This means finding a balance between what serves you now and what you will need in the future.
Too often people think too much. They can be too focused on the present (#YOLO) or too obsessed with the future (and miss what’s happening in their life right now).
It’s not easy to balance your needs and wants with the needs and wants of your prospect. That’s why I like Mark Manson’s suggestion to create two separate pros and cons lists when there are many to choose from. One of your lists should include the pros and cons of potential short-term solutions. Another list of pros and cons of that choice, but in the long run. Manson also suggests thinking about the potential regrets of doing (or not doing) something and the opportunity costs or trade-offs of choosing one option over another.
