Financial Decision Making

Every choice we make has consequences but financial choices or decisions have more consequences than most others. For that reason it is essential to understand the process inherent in financial decision making.

Results of Financial Decision Making

If we choose to spend more than we make we end up in financial chaos. If we choose to save even a little every month we can eventually end up with a great deal of wealth.

If we make good financial decisions we can be at peace with money and use it productively. If we are careless and sloppy in our financial choices we will be stressed out with unpaid bills and overdrawn check accounts.

If we waste all our money on frivolous things we feel empty. If we spend some of our money on others who are in need we feel positive about ourselves and our contribution to society.

People Are Divided: Two Points of View

There seems to be a great divide between people about the nature of choice. Some, apparently most, suggest that we have little real choice. It is as if our decisions are forced upon us by our upbringing or the forces of our environment. Others suggest that everything that happens to us is a result of our own doing and should be seen as a matter of personal responsibility.

When it comes to understanding our financial world, it is essential for us to gain a basic understanding of reality when it comes to the role choice plays. Our perception of this factor greatly influences the kinds of decisions we make.

One of the most important truths for us to grasp here relates to the nature of our world today. The fact is that our world is dominated by extremists and unfortunately people tend to follow along. It is too often an all or nothing viewpoint that is heard.

Anyone with common sense who takes a reasonable position somewhere between the extremes is dismissed as just uninformed or lacking enough integrity to take sides. This is far from the truth in many areas and critically wrong when it comes to money.

Consider The Mortgage Crisis

As an example, let’s look at the mortgage crisis in America today. Many people have adjustable rate mortgages with rates that can increase dramatically, making it impossible for them to meet their responsibility. At the same time they are finding it hard to refinance to a fixed rate because home values are declining and they may now owe more than the value of their home.

Many people blame the government, the banks, and/or the housing industry for selling people on using these loans and suggest that people taking on the loans are innocent victims who should be bailed out by the government or the banks. Others suggest that the people who took the loans are totally responsible because they should have known what they were doing.

1. Decision Making and the Banks

Take time to think about this with your common sense hat on for a while. Obviously the banks made offers that they suspected, or should have suspected, were tempting for people to make even though there could be potential problems later.

They recommended these loans anyway because they saw the dollar signs in their future more than the potential that some people might not be able to pay and both parties would lose.

2. Decision Making and the Government

The government failed, too. Regulators too often see themselves as enforcing the law without regard for such abstract things as integrity or ethics. They didn’t take adequate steps to discourage or prohibit practices that would leave millions of people in financial trouble.

Few of them probably even remember “usury” laws. Indeed many of them saw and see themselves as doing good by helping less wealthy people own their own home.

3. Decision Making and the Individual

And of course it is true that many people just made bad choices. They bought more house than they could afford. They took a loan at a low adjustable rate when rates were so low the only way the rates could go was up. They financed with interest-only loans for a few years based on undependable future income increases.

These were all choices with predictably disastrous consequences, but people often put on blinders relative to the potential problems when they get a strong desire to buy something, particularly a home.

See the Whole Picture

Now here is an important point. A truly intelligent person can be smart enough to avoid the blame game and think more as a competent decision maker, especially when it comes to financial choices.

It is reasonable to point out that others (the government, the banks, etc.) have input into my financial decisions. But I have all the ability I need to consider other people's knowledge and self-interests and to accept primary responsibility for my own financial choices.

When I act with incomplete information I do so knowing the potential downside of a bad decision. Not every decision will be great. That is OK, at least acceptable as an understandable part of reality.


It is critical that a person have the ability to accept responsibility for who they are and their own financial decisions without feeling the kind of guilt that comes with feeling total blame for anything that hasn’t gone well. Without this a person cannot feel competent to move on and achieve success in life.

A person needs to learn how to accept financial setbacks without letting them lead to depression or discouragement when a financial choice doesn't turn out as expected.

Most choices are to some extent based on limited knowledge and circumstances created by others. We must simply take that into consideration in making financial decisions.

To blame others primarily for our money choices when they go wrong means we have concluded that we are not competent to determine our own financial success. But we can learn more where knowledge proves inadequate.

We can work around other people who are acting in ways that might limit us. And we can make financial decisions which will produce different results in the future.

The blame game is a waste of time and totally non-productive. Worst of all, if we seek to blame others for our poor financial choices we can never learn to be successful with our money.

To accept responsibility without self-condemnation, to demand the right to make personal choices that have consequences even if they sometimes hurt us, is the only way to take charge of our own future and give us a real opportunity for success.

Making the Right Financial Choices

Dennis Waitley, author of The Psychology of Winning, wrote, “There are two primary choices in life: to accept conditions as they exist, or accept the responsibility for changing them.”

Accept responsibility, not blame. Think about your own attitudes toward responsibility for your choices. Then start thinking smarter and making the kind of choices that lead to success with money and with all of life.

Financial decision making is a process that we must participate in on a daily basis. Most of the time our money choices are simple, but when they are not (as in the case of buying a house) we need to accept the challenge to learn how to do it well.