Financial Decision Making

Financial Decision Making
Financial Decision Making (Image: RogueSun Media, Flickr)

Every decision that you make can be understood in terms of finance. The decision to eat cereal instead of eggs for breakfast can be seen in terms of finance. Exercising for 30 minutes a day can be evaluated in terms of the financial effects it has on the household. Getting accustomed to viewing every choice through the lens of finance is a method for solving money problems and creating an intellectual foundation for long-term wealth accumulation.

Strategy and Tactics

A financial strategy underlies any process of intelligent decision making. Most families seeking to reform their financial habits focus on tactics rather than strategy. These are two different terms that are often confused. Strategy refers to a long-term plan with set criteria for success. Tactics are shorter term plans that are used to push forward to the goals laid out by the strategy. A tactic might be something like deciding to cut down on energy usage to reduce electricity bills.

Changing Habits

Improving financial decision making can be the accumulation of small choices made over a longer period of time combined with some major decisions, such as a career change or returning to school. In some cases, a decision to save money may result in higher risk incurred to the household. For example, anyone can save money by dropping their health insurance plan, but it exposes them to more financial risk from illness or injury.

Getting Help

Learning how to make better financial decisions can be made easier by getting assistance from others. Professional financial advisers can assist households in constructing sensible budgets, coming up with debt repayment plans and allocating resources for retirement. Self-education in matters of investment, better spending practices and reforming deleterious habits are also quite useful.

Big Choices

Adopting more frugal habits such as eating at home, paying down credit card debt and negotiating down cell phone bills are all beneficial financial decisions, but their benefits pale in comparison to the potential benefits of making major life changes. Moving into a smaller house, taking time to get additional education to qualify for better jobs or perhaps starting a new business are all examples of major--and risky--financial decisions with life-changing effects.

The Long Run

Developing sound financial strategy is important for individuals and families in every economic bracket. It's about attempting to use the resources that you have--both financial and otherwise--to create a better, more satisfying life. Falling into the trap of thinking that financial decision making is just about counting dollars and cents is a mistake. Value can't always be measured in currency. Treat your resources with care, and the conditions of your life will improve.

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