In my experience, financial success is gained through two key actions that we all have the ability to leverage. The two keys to financial success is hard work and sound decision making. Over time if we consistently make unwise decisions, we will find ourselves in a situation that is difficult to recover from.
Just like other things in life, achieving financial success is more about hard work and making the right choices rather than circumstances outside of our control. Making savvy financial decisions starts with understanding why we make bad financial decisions in the first place and making a conscious effort to change the way handle our money.
None of us are perfect as we are all human and are guided through life by a mix of ideals, morals, instincts and emotions. These factors can have a large influence on the financial decisions we make everyday. Some help us make good decisions and others not so much.
Savvy financial decision making begins with understanding that emotions and other elements of the human experience can impair your ability to make good financial decisions. The following list of savvy financial decision examples can help you improve your financial situation and avoid making poor financial decisions in the first place.
Making Better Financial Decisions
Create a Financial Plan - You know my first piece of advice will always be to create a financial plan. A plan will automatically help you increase your financial decision making savvy by showing you the impacts of the decisions you make on a daily basis.
Difference Between Needs and Wants - Far too often we buy the things we do not need. When we spend money to buy frivolous items or overpay for things we do need, we are throwing away the opportunity let our savings and investments grow at a faster rate. Take the time to explore the concept of needs and wants, let your conclusions guide your future financial decisions.
Don’t Max Out Your Mortgage - In the past, many of us have bought as much house as the bank would let us. We let the lenders and mortgage companies tell us what we could afford. This decision put many of us in a rough financial situation that we are still working through. So if you are exploring the opportunity to buy a house, don’t max out your mortgage.
Automate Your Budget - Taking the emotion out of budgeting and spending less is as easy as opening a bank account. When separating your discretionary and nondiscretionary expenses into two banks you will make it easier to save money by removing the temptation to buy the things you don’t really need.
Invest a Little Each Paycheck - Consistent investing is the best long-term strategy for making your money work for you. If your company offers a 401k or other defined contribution retirement plan, take advantage of it. Investing 5-10% of every paycheck is a great way to build a solid nest egg and easily increase your net-worth.
Don’t Ignore Insurance - One large bill, from a car accident for example, can wreak havoc on your financial plan and severely limit your chances of ever being financially independent. Ensure that your insurance covers you from any large unavoidable bills in the future. I know paying for insurance is not on the top of your to do list, however you will thank me if anything ever goes wrong.
More than just logic plays a role in the financial decision making process. Sometimes emotion reduces our ability to make the best decision concerning our financial situation. Regardless of your circumstances, the above mentioned savvy financial decisions will help you improve your finances and way of life.