How To Make Great Financial Decisions
Probably my biggest mistake was the purchase of an inexpensive, used car that I never really liked from the start. At the time, my husband and I had young kids and many other financial priorities. We didn’t want to go into debt even though we both needed reliable cars for work. As it turned out, the repair bills to keep the car running, time spent and inconvenience more than tripled the price of the car. Within a few short years, we replaced this vehicle with a newer, more expensive, and better quality set of wheels. In hindsight, we would have been further ahead financially to buy this second vehicle first. I learned that quality often comes at a price and an unreliable car can make your life miserable!
Most people can also think of purchases they made that seemed important at the time but were never used. I should have known that I was not disciplined or interested enough to use my expensive gym membership when my kids were little and I worked long hours.
As you navigate life, you will always have financial regrets. Let’s hope they are small and insignificant rather than large and life changing. Next time you are about to make a substantial (or even any) purchase, stop, think and ask yourself a few of these questions:
1) Does the purchase fit with your plan or goals? – You’d love to rent the downtown condo close to your friends but if you can’t save enough for a downpayment on a house that you really want, it’s a poor choice.
2) How important is the purchase to you? Sometimes we spend money purely out of habit. Like your daily visits to Starbucks on the way to/from work. Stop spending money on things that don’t matter to you. Or, cut back on the frequency- you may not even miss it.
3) How expensive is the purchase? Obviously, the greater the cost, the more important it is to get it right the first time! And, to use it and take care of it for a long time. You don’t want to buy just any house but the one you’ll be happy with (and can afford) for many years.
4) Does the cost make sense given the benefits you will receive? Or, could you be satisfied with a lower cost alternative? If you have no idea what to study or what career you want, maybe deferring your university acceptance makes more sense? Or, if you really want to be a chef, a college degree gets you the right skills much faster and cheaper.
5) Is the timing right? Usually, buying brand new technology as soon as it comes to market is a very expensive proposition. But waiting even 6 months or a year can mean greater savings.
6) If you make this purchase now, what must you give up? – If the new boat means you need to forego family vacations for the next 3 years, your wife and kids might kill you!
7) Do you have the confidence and experience to make the right decision? If not, do your homework or get knowledgable advice. Most families need life insurance but how much is really enough and what type makes most sense? Or, are you choosing the right mix of investments with the right level of risk to meet your retirement goals?
8) Are you behaving rationally or are your emotions taking over? Perhaps, you want the new dress to cheer yourself up after a fight with your boyfriend? Maybe, a smaller purchase like your favourite ice cream would do the trick just as well.
These questions are common sense but not always common practice. I’m sure you can think of many more. Paying attention to the decisions you make with your money can improve your life. Who knows, you might be able to take that dream vacation sooner than you think.