Golden Rule that always needs to be followed “Spend time
thinking, before you spend the money”
Financial planning is a must as it helps us to identify how
to make sure you could take informed financial decisions to ensure better
financial health. As defined here the health of your bank account depends upon
how good of a decision maker you are based upon your finances. Expenses are
fixed but how you manage those expenses and make savings make you a great decision
maker. Choices in decisions are often the make or break factor in determining
how you could manage the whole cycle without getting bankrupt. Smart decision
makers spend every bit of their money on their needs rather than want so as to
maintain a balance in expenditures.
Good Financial decisions are not an art nor it’s a science.
All you need to do is to follow a few guidelines that could help achieve your
Weigh the Pros & Cons first
This is a good advice for anyone making a significant life decision,
whether the money is involved or not. All you should do is to list down in two
columns namely Pros and Cons. Pros would include the positive aspects involved
in making that particular financial decision which could be further classified
into needs and wants. Needs are those which no matter what has to be catered
upon and fulfilled accordingly. Wants can be tricky but some wants are needed
for a better lifestyle which you can incorporate and take decisions
accordingly. In the same way note out all the cons involved in that particular
financial decision and then weigh out the averages and this could help you in
channelizing the needs and the wants and delete those unwanted expenses which
are not needed.
For Eg: Mr Smith works for a service center as a delivery
supervisor and here is what he says
“The left would be positives, the right would
be negatives. Then [he would] have me list as many as I could think of. He made
me do this for financial decisions such as car-buying, enlisting in the Army
and college choices,” Smith says. “It is something I still do today.
Recognizing the negatives of a choice and the potential positives has always
forced me to weigh the good and bad and make a decision fully knowing the
negatives that may happen.”
Ask yourself why you are making these purchases
Question your senses on why you are making this
purchase. Self questioning helps you to introspect on why you would need to
make that purchase. Once that is done you with the unison of your mind and
brain self analyze whether it is a rational or an irrational purchase. Weigh out the pros and cons again and this
will make your mind clear whether to purchase or not. This step can also be
determined as a Self Rationalizing.
For eg: According to Brian
Massie, a communications consultant who lives in Waynesboro, Virginia, and who
spent nine years at a startup, seven as the chief financial officer.
“I like to think I have a decent perspective on
the topic of making good financial decisions,” he says.
Massie believes that too many people make purchases
without thinking things through. For starters, he says, you should ask
yourself: “Is it a want or a need? People confuse these two all the
Massie suggests that everyone listen to the old
song, “Don’t Let the Joneses Get You Down” by The Temptations.
“The song … should be the anthem for making
good financial decisions,” he says.
Banish Emotions from Decision Making equation
Emotions are the biggest enemy to a sound financial
decision making capability. Sometimes certain purchases are emotion driven and
let me spell it straight “DON’T EVER DO IT” as this can have an adverse effect
in the maintenance of finances and thereby drown your finances. When it comes
to finance just follow the rule “BE RATIONAL DON’T BE EMOTIONAL”. Also emotions
can sometimes be due to peer pressure as well. Emotions be of any kind has no
business in a financial decision making
Finally follow your gut as the famous saying goes
“Higher the Risk, Higher is the Returns”. But too much of a risk can jeopardize
your finances and incur heavy losses. So optimum risk taking is what is
expected out of you