Series 3 Episode 8 – 5 Ways to Make Better Financial Decisions
I’ve just come back from an amazing week long break with my family in Rhodes, Greece. Something that I was thinking about while I was on holiday is how often I have conversations about our inability to make decisions around money and in turn make better financial decisions.
From conversations that I’ve had most recently, what comes up as a really common barrier and challenge that gets in the way of us making better financial decisions is the thought that we’re going to make bad decisions, or that decisions that we have to make are just too big. Where do I invest my money? How do I know that I’m getting the best return? How do I manage my money most effectively? What happens is we put ourselves under an immense amount of pressure about making one massive decision which is just too much for us. So we don’t make the decision at all.
I’m going to talk through some of the steps that I recommend for you to make better financial decisions.
5 Top Tips to Make Better Financial Decisions;
Make it so that decisions that you have to make around money are not big single decisions in isolation. Don’t make that one decision that is going to have a massive impact on the rest of your life. There are obviously going to be some important decisions that you need to make around money at different life stages, but the key is to break them down. If you’re just coming up to retirement and the decision you need to make is do I retire now or do I retire next year, then of course that’s an important decision to make. But if we break those kind of decisions down, you’ll often find that there’s more than just one decision to be made. When you’re trying to make decisions about money, think about breaking those down to get a series of decisions.
Just like with physical exercise, it’s like a muscle that you’re going to train, and you’re going to build up that muscle. The more decisions that you make, the more you’re going to strengthen that decision muscle and the easier it will become to make any decisions at all.
Break that decision down into smaller easier to answer decisions. Maybe if that question is do I retire this year, break it down into smaller questions. One of those questions might be what kind of things do I desire to be doing when I retire? What does my financial situation look like at the moment? What’s causing me stress in my life right now and do I want to eradicate that this year? Can I deal with it for another few months? Breaking the decision down into some smaller questions can really help you to make better financial decisions.
If you’re the type of person who procrastinates over making decisions because you find them too difficult, often this is because of an underlying emotion behind that decision. Often the emotion could be guilt, fear, shame, or anxiety, but by getting yourself an accountability partner to sense check those decisions, you can really help yourself to stop staying stuck in the decision making process, and help you to consider the pros and cons. An accountability buddy can also help you to look at the advantages and disadvantages of a decision, or your partner can maybe give you another option that you’ve not considered yet.
So get yourself an accountability partner to sense check; this is something that’s worked really well in The Money Circle membership that we launched recently, and this week we are opening the doors to the membership again for an exclusive period of time. If you’re looking for an accountability buddy to help you make better financial decisions, think about whether you need that to be somebody close to you, or whether you want that to be somebody more removed but in a similar situation or maybe a few steps ahead of you. Getting yourself an accountability partner is really amazingly valuable, just to give you that sense check.
This has worked so well for me. I’ve had a lot of big decisions to make this year within my business, and I’m sure if you’re an entrepreneur yourself you will entirely understand that we have to make decisions every single day in our businesses, so that we don’t just stay stuck. One of the actions that I put into place is to set a decision date. If you’ve got a particularly important decision to make, or one that’s creating overwhelm; you’ve left it on your to-do list and it’s sat there for a week, you’ve done all the other tasks on your to-do list because they’re easy to do and ignored this one great big decision that you have to make, then set yourself a decision date. Give yourself a time frame around when that decision has to be made and stick to it.
Forget perfectionism for better financial decisions.
We’ve all read articles about how perfectionism is our worst enemy; it’s just the inner critic coming out and setting really high standards and expectations for yourself. Actually I believe that perfectionism has some really positive merits and strengths, and I would definitely describe myself as a perfectionist. Whilst I know that it may hold me back in some ways, it also enables me in many ways. We talk about the fact that when we have pain in our lives, difficulties, struggles or life challenges, things that have happened in the past that – those can have a big impact on our self-worth and self belief. But we could also turn that fear and that pain into inspiring us to be better, to do better, and to help more people.
That can manifest itself in throwing ourselves into ideal expectations, or believing that we have to make every major decision, and this can make us feel stressed. But I do think that perfectionism in itself isn’t necessarily a negative. It’s about letting go of perfectionism but also looking at how it helps you to move forward. If being a perfectionist drives you then that’s a great strength to have, but how does it also prevent you from taking action? How does it prevent you from making decisions?
Whenever you feel in a position of overwhelm or feel that your perfectionism is holding you back, think about the decision you’re trying to make. Does it help you move forward? Will it give you results? Will it bring you return on investment? Will it bring you happiness? Will it do good to help others? Will it serve your long term goals and the achievements you want to reach?
Reduce your choices
Often when we get into decision making mode, overwhelm takes over. If we feel that the decision is too big or too scary, we simply bury our heads in the sand and end up not making any decisions at all.
All decisions have four potential outcomes. We either say yes to the decision, say no, say actually we could do either (come up with an alternative solution) or neither. So reducing your choices is key.
When I get into situations where I’m feeling overwhelmed, one of the things that I always try to bring to mind is that whether it’s money related or not, there are only four potential outcomes; either you say yes to that decision, you say no to that decision, either, or neither. No one decision is the right one, there is just a decision. Knowing there are only four possible outcomes makes it much easier to make a decision; yes I’m gonna do it, no I’m not going to do it, I could maybe do one of those options, or neither of those options. Thinking of it from that perspective makes it far easier to make a decision.
Reduce your choices. If you’re trying to make a decision about who to move your mortgage to, then there’s never a right answer. Seek help from a mortgage broker, ask the question with your accountability partner. If you’re trying to make decisions about where to invest, listen to series 2 of the podcast. Then once you understand how to invest, you move onto the next decision which could be who do I invest with. Narrow your choices down and it will be easier to make better financial decisions quicker.
Make Better Financial Decisions
Following these 5 steps will help you to improve how you make decisions, and will help you to make better financial decisions. Take baby steps; it’s not about one decision in isolation. Get an accountability partner and sense check. Set yourself a decision date and stick to it. Let go of perfectionism, reduce your choices and think about your emotions. Think about whether you’re stuck in fear of present judgement of your past, or anxiety over the future.
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