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Every day you make choices, some big and others small. As a whole these choices determine the direction of your life. When you choose one thing, you’re simultaneously rejecting something else.
So, how do you create a framework for making good money choices?
HOW TO MAKE A GOOD DECISION
1. PRIORITIZE
Just like when you go to the grocery store, it starts with having a list of your priorities so that you can keep your emotional impulses in check.
Without priorities, your money choices tend to be made haphazardly and often won’t align with your long-term aspirations. Lots of financial products “sound good,” but this alone doesn’t mean they are a fit for your specific money priorities.
2. NARROW YOUR SELECTION
Unfortunately, many investors have a strong craving for unproven and ill-advised investment products.
The number of investment choices can be staggering at times. This can create a “choice paradox” where the sheer volume of choices actually make it more difficult to choose.
You initially learn to make choices as a young child. These first experiences with choices and their consequences are garnered mostly by doing. Children can also experience the “choice paradox” when confronted with too many choices.
Choices and the autonomy these choices can create are at the very core of becoming financially independent.
3. LOOK AT IT OBJECTIVELY
To make good money choices, you should start by considering both the probabilities as well as other possible outcomes. All of your financial decisions may not work out as planned, but a reasoned understanding of the most likely outcomes builds your “decision-making muscles.”
While you surely will make mistakes along the way, it’s important to avoid the big lifestyle altering mistakes.
Your financial life journey is propelled by your choices, things you choose to do along with things you choose not to do. Some choices involve needs, while others center on wants. Understanding the distinction is key.
STILL STUCK? WE CAN HELP
When you boil it all down, how you save, invest, and spend are the most important money choices you make. These choices are dynamic since you re-affirm and make adjustments regularly.
Of course, helping investors make good money choices is a large part of what we do. When you hire an experienced financial planner you’re essentially outsourcing some of the heavy lifting involved in decision-making to someone else. Someone who isn’t you.
We can help you remove unhelpful emotions and biases from important money choices. The financial planning process creates guardrails for your ongoing financial decisions. When choices need to be made, these guardrails steer you in the right direction.
When you make money choices, you’re probably thinking about the immediate or short-term. Instead, shift your focus toward the ultimate or long-term outcome. Patience is your friend when it comes to good money choices.
Making good money choices means recognizing that emotions are the largest component within these choices. That’s why navigating the choppy waters of investing is so difficult without outside help. Find a financial planner worthy of your trust to lean on. Start there.
Related: It’s All in Your Head ... Behavioral Biases in Financial Decision Making