Throughout your life, you’ll make plenty of choices about money. Some daily decisions won’t be significant — like whether or not to opt for that new fall sweater you’ve been debating. But others will carry a much heavier price tag — and the weight of a lot of responsibility. Unfortunately, the greater the risk, the more difficult it can be for us to make a financial decision. Some of the biggest purchases most people make in their lifetimes include purchasing a home, taking out student loans, starting a business, going through a divorce, or having children. All of these not only tug on our heartstrings, they tend to be expensive, too.
So, with all these emotional + complex decisions swirling, it’s essential that we have a solid strategy for approaching them. So, roll up your sleeves, pour yourself a glass of wine, cue up your accounts, and dig in with us.
Step Back And Assess Your Options
Whenever there are important choices to be made, chances are, you have a few options. In some cases, you’ll have way too many choices to sort through, which can add to your feelings of overwhelm. But before you get anxious, take a step back and make some lists, suggests Brian Walsh, a certified financial planner at SoFi. For each alternative you’ve got, make a data-supported pro and con list.
“Sometimes putting numbers behind each alternative allows you to assess a clear winner and loser objectively,” he says. “As an example, if you’re struggling to decide between aggressively paying off debt, and investing your extra money, you could start by comparing the interest rate on your debt with expected returns of the market over the long-term.”
Establish A Goals-Driven Plan
Tough decisions are easier to weigh when you know your financial goals and have an understanding of just how you’re tracking against them, says Amy Richardson, CFP with Schwab Intelligent Portfolios Premium. She recommends thinking of the plan you devise as your roadmap for navigating both the expected and unexpected events life will (inevitably) throw your way. “When building a financial plan, be realistic about your goals, review your plan at least annually, and make changes as your life circumstances change,” Richardson says. “Committing to a plan is the first and most important step on the path to building wealth. Investors who make an effort to plan for the future are more likely to take the steps necessary to achieve their financial goals.”
Get A Second Option (A Trusted One!)
You may love your sister’s dating advice and your best friend’s margarita recipe — but who do you really trust with your money? Do you have someone? If not, it may be time to think about getting a financial planner. “Experience is one of the best teachers when it comes to personal finances, so exploring the options with someone who faced a similar situation can be beneficial,” Walsh says.
Yes, being spontaneous is one of the things that makes life exciting, but making split-second decisions on major purchases is something you should always shy away from. As you get older, it’s important to think more about the long-term than the short-term. For example, it might seem like a great idea to buy a house so you stop paying rent, but do you have plans to move to a new city in a couple of years? Do you have enough money for a down payment + other expenses, or will your purchase leave you “house poor”? “Always look ahead to foreshadow any issues that could cause you problems when making a big financial decision,” says Jeanniey Walden, chief innovation officer at DailyPay.
Take It Personally
You may hear the advice to be less “emotional” about your financial decisions, but it’s much more important to be aware of your feelings, and honor them — just don’t let them rule you, says Lorna Kapusta, head of women investors and customer engagement at Fidelity Investments. She recommends checking in with your emotions before making any critical financial decisions.
“Labeling your emotions will help you understand how they may influence your financial decisions in ways that you may not intend,” she says. “You may be able to take this a step further to curate your emotions to foster a more productive mindset actively. If you’re feeling anxious or uncertain, that’s a time to take a break until you feel more rational and can seek out guidance to make sure you’re making an informed decision you feel good about.”
MORE FROM HERMONEY: