Reading and talking about personal finance is the easy part but making financial decisions in your daily life can be quite overwhelming. But the good news is that with the right knowledge and guidance you can take small and effective steps towards making smart financial decisions.
In this chapter, we will explore the different ways of making decisions and the various steps that you can take to make well informed financial decisions.
How to Make Better Financial Decisions
According to the Nobel laureate and economist, Daniel Kahneman, people often follow one of the two ways of decision making: either they make fast, instinctive and emotional decisions or slow, deliberate and logical decisions. Based on your need, you might choose different approaches for different financial and life decisions. But experts often advise to be rational and exercise caution while making important financial decisions that may have a significant impact on your life.
So what can you do to make better financial decisions?
1. Never Make a Hasty Decision
Quick impulsive purchases or irrational expenses can wreak havoc on your personal finances. So the first step towards making sound financial decisions is to take your time and never rush. Understand your needs and wants and evaluate whether you should be spending or saving at any given moment. Being mindful of your finances can help you form healthy financial habits that will yield much greater results in the long run.
2. Create a List of Outcomes
It is always a good idea to list down the pros and cons before deciding to either spend or save your money. This doesn’t mean that you can never spend your money. There will be times when the pros of making a spend today will outweigh the cons and that will indicate that your decision is the right one. You will be surprised how your thinking will change once you list down the possible outcomes of your decision.
3. Get Data
You can be confident about your financial decisions if you base them on solid data. For example, if you are planning to invest in real estate in 2020 in a metro city in India, then do a thorough research on what are the current real estate prices, what were the prices for the last five years, what will be the estimated return on your investment after ten years, what factors can help maximize the return on your investment, is this right time to invest in real estate etc. Questioning and researching before major financial decisions will help you become more confident and take well-informed financial decisions.
4. Think Long Term
Financial decisions can be either short term or long term. A short term financial decision can help you plan for your wedding or purchase an automobile or go on an international trip. And a long term plan will help you think and plan about your investments, building assets and wealth that will help you sustain financially in your retirement. While you need money to sustain your short term goals, it is equally important to plan for your long term goals parallelly. Remember that every rupee you save and invest today will give you compounded returns in the long run.
5. Discuss the Decision
You can always discuss your financial decisions with your family, friends, peers or someone whose opinions you trust. This will help you get different perspectives and views. You can also take the help of financial apps like Wizely to help you take the right financial decisions and guide you through it.
Remember, every financial action contributes to your overall financial health and wellness so it is important you make the right decisions at the right time. Source: https://wizely.in/wizeup/making-personal-finance-decisions.
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