In making every decision, there should be things that you should take note of before making them. Bad financial decisions can spell doom for you. The following steps will guide you on how to make sound financial decisions.
Take Your Time
When you’re making a large financial decision, don’t rush into anything. It’s easy to get caught up in the process of buying a house, car, or other pricey item and agree to a deal that may come back to haunt you.Do plenty of research. Take the time to sleep on any financial decision before you commit to anything substantial. Also, the bigger the financial commitment, the more time you should take and the more research you should do. This gives you a sort of financial “time out” to counter the emotional excitement that sometimes comes with making a big financial decision.
There are a lot of decisions that seem sound and exciting the moment we get to hear of them but they become unwise after they are thought through.
Check Yourself
Check your motivation for making a financial decision. Are you caught up in the emotion of getting a new car? Are you desperate and feel like you’re backed into a financial corner? Are you grocery shopping while you’re hungry? Better be careful. Don’t make any financial decision while you’re in the wrong state of mind.Your emotional state is very important in the decision making process. Take a step back and evaluate the situation from a more clinical standpoint so you can eliminate making emotional decisions. Making an important financial decision primarily out of emotion will come back to bite you every time.
Seek Wise Counsel
The Bible is full of passages about seeking wise counsel. You should always seek someone wiser than you for advice any time you’re making an important financial decision. Preferably it should be with someone who has had to make a similar decision in their own life and was successful with it.You should also be careful about seeking advice from someone who stands to gain from your decision. Even if they are honest, it’s very difficult for anyone not to show some bias when they stand to benefit from the outcome.
Most importantly, never take money advice from someone who’s broke.
“Without counsel plans fail, but with many advisors they succeed.”
Proverbs 15:22
Learn From Past Financial Decisions
You’ve probably made a few bad financial decisions in the past. We all have at one time or another. Look back at some of those decisions and pick them apart. What did you do wrong? What did you do right? What could you have done better?It’s extremely important to learn from your mistakes so you never make the same mistake twice.
The great thing about making a bad financial decision is that you can learn from it. Just like anything else in life, if you screw it up once you can do it much better the second time around.
Get Educated
Learn everything you can about money and how it works. One of the biggest problems I see is that people don’t know what they don’t know. When you’re just winging it financially, hoping everything falls into place, you’re headed for disaster.Getting financial knowledge comes in handy on a daily basis. From large purchases to investments to everyday spending, the more knowledge you can apply to your situation the better. More knowledge results in better decisions. Here are a few of my favorite books for getting a basic understanding of money:
Personal Finance For Dummies by Eric Tyson
Financial Peace by Dave Ramsey
Rich Dad, Poor Dad by Robert Kiyosaki
The Cashflow Quadrant by Rober Kiyosaki
Ask The Right Questions
When it comes to any financial decisions, be sure to ask the right questions. If you’re making a large financial commitment you should ask yourself:- What’s the worst that can happen?
- What will happen if this works out well?
- Am I prepared for the worst case scenario if it does happen?
Too many of us like to think about the upside of a big financial decision, but don’t give enough consideration to the risks. It’s much more likely that things will go wrong instead of everything working out perfectly. So it’s up to you to know the risks and be prepared to deal with them if necessary.
Sweat the Small Stuff
It’s usually the small stuff that gets most of us in trouble. Making a bad decision on a mortgage or a car purchase can cost you thousands. However, it’s those everyday habits that will cost you bigtime.A lot of people buy things they usually don't need at the moment. Others buy anything that seems appealing to them without any particular consideration. They usually end up broke and don’t always seem to know how they got into such bad financial straits.
The problem is usually that they didn’t sweat the small stuff. They never did a detailed budget. They never kept close track of how much they were spending and later realized that they were spending more than they made.
Sweating the small stuff means paying attention to your daily spending habits, doing a budget, eliminating credit, and using cash to fund your life. When you sweat the small stuff you will never spend more than you make and you will always know where your money is going.
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