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
2. Consider Your Means
3. Create a List of Outcomes
4. Think About Your Future
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.