223 W Wall St #215 Midland, TX 79701 – (Get Directions?)

Mindfully Making Better Financial Decisions

Share This

Mindfully Making Better Financial Decisions
October 24, 2019

One of my favorite books is Daniel Kahneman’s Thinking, Fast and Slow. He explains that we have two systems of thinking. “System 1” is fast and comes from an emotional response. “System 2” is slow, it is more deliberate and logical.

When it comes to making financial decisions, we as humans, typically respond with a very emotional response. “I want that, I need that, this was made for me!” I don’t know how many times I’ve said this or have heard someone else say this. It’s just what we do and it’s hard to fight against that emotional response. I mean … nature is a pretty powerful force!

So how do we overcome the quick-to-act, almost instinctual response we have when facing major financial decisions that can impact the rest of our lives?

1. Slow Down

Don’t be too quick in making a decision. While you may think you’re acting logically, give yourself a few days at the very least to let everything sink in. Especially when it comes to sales tactics, I’m pretty sure salespeople take advantage of our System 1 thinking and encourage us to act on emotion. If you ever hear somebody say “this offer is only good for today,” well, that’s my queue to walk away.

2. Consider Your Means

Making a major decision out of thin air is obviously not a very good idea. You have to look at the decision from all angles. Build it into your budget; not just the cost of the purchase but the ongoing costs. For example, a vehicle purchase has ongoing fuel, insurance, and maintenance costs. A $600 monthly payment can quickly turn into a $1,000 monthly payment if you’re not careful. So ask yourself whether a major financial change is really within your means, or is it just instant gratification?

3. Create a List of Outcomes

Here is where you should be looking at the “what-if” scenarios. If you made this big financial decision and everything goes great, then hooray … you made a great decision. What happens when things don’t go as planned? Say you move across the country for a new job opportunity and get laid off in six months. Or, you chose to remodel your kitchen yourself only to realize all the work you’ve done needs to be redone by a professional. If you think that there isn’t anything that could possibly go wrong, this should be a sign that your System 2 thinking isn’t working!

4. Think About Your Future

Every financial decision is a tradeoff. Either you sacrifice savings for an item or experience, or you keep your money and forego the purchase. Either way, it comes down to priorities and what is important for you and your family. If you have a goal in place to buy a vacation home in 15 years, then it may not make sense to buy a new car every 4 years. Buying a latte every day isn’t going to affect you, however, making a major financial decision can have a bigger impact on your future and potentially jeopardize your family’s goals.

5. Discuss the Decision

Talk your decision over with someone you trust and respect, but also someone who doesn’t always agree with you. This has a couple of benefits. First, it forces you to actually understand the “why” behind your decision from a logical perspective because you have to explain it to someone else. Secondly, it gives you the advice you need from an uninterested third-party. By getting this honest feedback, it may help you see your true motivations and help you determine whether you’re moving towards the life you’ve always dreamed for yourself.

Need some help with your decision? Having an objective third-party to walk you through the decision process can be a big help! As a fee-only financial planner, part of my job is to give impartial advice. Want to learn more? Let’s talk about how working with a financial planner can empower you to make those major financial decisions.

The information on this site is provided “AS IS” and without warranties of any kind either express or implied. To the fullest extent permissible pursuant to applicable laws, Beyond Balanced Financial Planning LLC (referred to as “BBFP”) disclaims all warranties, express or implied, including, but not limited to, implied warranties of merchantability, non-infringement, and suitability for a particular purpose. BBFP does not warrant that the information will be free from error. None of the information provided on this website is intended as investment, tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or nonsecurities offering. The information should not be relied upon for purposes of transacting securities or other investments. Your use of the information is at your sole risk. Under no circumstances shall BBFP be liable for any direct, indirect, special or consequential damages that result from the use of, or the inability to use, the materials in this site, even if BBFP or a BBFP authorized representative has been advised of the possibility of such damages. In no event shall Beyond Balanced Financial Planning LLC have any liability to you for damages, losses, and causes of action for accessing this site. Information on this website should not be considered a solicitation to buy, an offer to sell, or a recommendation of any security in any jurisdiction where such offer, solicitation, or recommendation would be unlawful or unauthorized.

Free Guide – Discover the 10 Must-Ask Questions for Financial Advisors

Search Site

Table of Contents

Sign Up For Our Newsletter And Make Smarter Money Decisions

Stay informed with our newsletter and empower your financial choices. Get smarter money decisions delivered to your inbox.

Related Posts

Achieve Financial Freedom With Our Comprehensive Planning Services

Take the first step towards financial freedom with our holistic planning services, tailored to your unique goals and aspirations.

Schedule An Intro Call Now