Financial decision making is a critical skill. You are probably faced with some kind of choice that involves money every day. But when you need to make a financial decision how do you go about it?
Financial Decision Making Methods
Most of the time we just make our financial decisions off the cuff, so to speak. But often we would be better off being a little more careful about the way we make decisions that affect us financially. Often using a tool of some kind, even if it is just a piece of paper to figure on, a calculator, or a simple structured form will help you to make a better decision.
There are many published tools available for helping us make decisions about money or any other issue. I have used many of them over the years. As you have an opportunity to discover them it doesn't hurt to save some notes on them and try out a few.
Some decision making tools are simple and some are complex. No one of them is good for every decision about money or anything else. Neither will any of them fit all people. You need to pick financial decision making methods that fit your personality and the type of decision you are making, but it is important for each of us to learn effective decision making methods of some sort.
When I was in my twenties I had a good friend, not a lot older than I, who became quite successful financially. One day he shared with me a simple technique he used when facing any important decision, especially those which involved money. In this article I want to share his technique for you to use if you like.
Tool For Making Financial Decisions
It is hard to see how any decision making tool could be simpler than this one but it is useful in many cases. One or two minutes using it may be all you need to clarify whether or not you should proceed on a given course.
1. Across the top of a paper write a description of the decision. Should I buy this? Should I sell that? Should I take this class? Should I make that investment?
2. Draw a line down the middle of the page from top to bottom. At the top of one column write “Advantages.” At the top of the other write “Disadvantages.”
3. write down every positive and negative consideration you can think of. Cost and potential profit are naturally included. But many other factors can be included as well, such as time required and family impacts.
4. Balance the two lists to see which side outweighs the other. Usually the answer as to whether a decision should be yes or no is clear very quickly. Even when it isn't, the issues that need to be explored are often brought to mind for consideration, even when they might not have otherwise been in mind.
Using this simple approach is a skill worth considering in many situations. Responsible management of your money requires making responsible decisions. And making responsible decisions requires effective decision making skills.
Try This on Your Financial Decisions
This particular technique may not be enough for complex issues but often it is all that a person needs, even for some important decisions.
- Is this a good time for you to buy a house?
- Are you considering buying a car?
- Would you be better off choosing a new employer?
- Are you thinking of starting a new business?
- If so, would it be best to immediately start working at it full time or do it part time in addition to your current job until it becomes profitable?
- Should you repair that broken dishwasher or buy a new one?
Better answers to all these questions can be found by thoughtfully using a financial decision making process such as this one.
Begin Making Better Money Decisions
Of course there are many other decision making methods and you can learn more about, some of them elsewhere on this site.
Decision making, along with goal setting and planning skills are among the most vital skills we can learn for success in any area of life but especially in the area of money.
But as simple as it is, this financial decision making method is a good place to begin. Try it on some of your money decisions and see how it works for you.
