Probably one of the most difficult aspects of decision making is the financial concept. Financial management involves smart decision making. When you receive your monthly paycheck, there is the issue about how to spend the money or how to save it. Needless spending sometimes happens because there is poor decision making on one’s money.
For example, when going to the supermarket for grocery, you might go beyond your budget because you spotted items that are not on your grocery list. The decision at that moment becomes instant and hasty without careful evaluation of whether the money is worth spending or not for those items. Yet, that is just a simple situation. Decision on financial issues may range from simple to complex ones. Complex issues may probably revolve around the business setting or larger personal financial issues.
You might wonder how to make a good decision maker out of yourself in terms of finances. You simply need to understand certain principles based on financial decision making and the pitfalls that you may be unconsciously committing with financial decisions.
Simple Financial Decision Making Principles
a. Know yourself
When it comes to finances, you have to know your level of motivation for your interest in spending money over something. Are you aiming at achieving financial goals? Also, evaluate your capability in managing finances. Have you been a reckless spender? Do you take on impulses when purchasing?
b. Know your consultants and advisors
Sometimes you are better off consulting a financial expert. The person can be a professional or can just be a close friend who has good financial management. Make sure that the person can be entrusted in terms of confidentiality of information. Financial advisors are useful for larger and more crucial financial decisions.
c. Know your investment
As you mature, you need to think ahead for the future. Having assets is a sign of financial responsibility. A little savings can double up in the near future. Always find ways to invest your money before you splurge it all on wrong financial decisions.
If the financial terms may seem more like a jargon to you, financial advisors are always there to explain them in simple ways. Investment does not necessarily mean large amounts of money. Your bank savings is already an investment. Good financial investment equates to good financial decision making.
Financial Decision Making Pitfalls
You would be very smart if you do not have mistakes in making financial decisions. Probably everyone makes mistakes. Understanding these pitfalls is the first step to ironing them out and becoming better financial decision makers.
1. Failing to explore all possible options
Some people tend to panic in the wake of problems and tendency is they end up making hasty decisions in order to find solutions to the situation and move on. This can lead to faulty decisions- those choices made that are regrettable in the end. Following the financial decision making process is a sure way to make sound financial decision.
2. Failure to properly evaluate the possible alternatives
Options are good, but too many of them may lead to confusion. Deal with choices by assessing them correctly until the list is narrowed down to only the most feasible options. There are various decision making tools and techniques that you can use and apply in evaluating your options.
3. Following impulses
Giving in to impulses is not bad at all, but too much of it is harmful to your financial decisions. You might get used to just buying based on impulses and you will find it hard to control yourself next time.
4. Not learning from previous decision mistakes
There is no sense doing again the same mistake that has been done in the past especially with financial decisions. Once a mistake happens, correct it, learn from it and move on, but never commit the same thing.
Be Mindful of Your Emotions
When making decisions, be aware of your emotions as these may either help or damage your financial decision making. Sometimes, money becomes the tool for the outlet of your frustration. When in a very strong negative emotional state, you tend to recklessly spend money on anything your mind can think of because you feel that it pacifies you somehow. Be in touch with your emotions when financial decisions are made but do so as objectively as possible.