5 Questions for Making Better Financial Decisions
By: Derick Van Ness
Tags: Money Mindset, Business Intelligence, Wealth, Investing, Finances

5 Questions for Making Better Financial Decisions

Have you ever wondered how some people make such great financial decisions while others seem to stumble at every opportunity?

Do you actually know how to tell the difference between a good financial decision and a not-so-good one?

Can you imagine how useful it would be to have a framework for making better financial decisions in your life?

Ironically, in most cases people like you and I aren’t actually making financial decisions at all. Instead they are simply following the “path of least resistance” and doing what the “herd” has told them is best.

The road we’re being led down is so well paved that we don’t even know we have a different choice. Instead we see it as automatic response or “given” rather than a decision.

This “easy road” often looks like contributing to a company sponsored IRA, 401(k), or other stock market vehicle without much thought about how it will impact their future liquidity, mindset, or taxes.

In other cases, running on financial autopilot means trying to pay off a mortgage or student loan debt as quickly as possible without understanding the “pros” or “cons” of that decision.

Even worse, the path of least resistance can look like giving money to a friend or relative to “invest” or start a business simply because they asked.

It wasn’t YOUR idea, it was someone else’s, but for you it was easier to say “Yes” than “No” without any deeper investigation… so you did.

I’ve seen enough of these type of easier-to-say-yes investments fail to know that they shouldn’t be taken so lightly.

What if there was a better way?

A way to think about money so that you can consistently move toward your goals, and protect yourself from bad decisions that may erase years of hard work and savings?

A way around the automatic downhill slide into unconscious, accidental investing.

The answer is a resounding “Yes”, but it may not be what you think.

The key to making good decisions has less to do with the tools or products you choose, and more to do with WHY you are making the choices you make.

Tools are only as good as the person utilizing them, so making good decisions is about YOU picking the right tools and strategies FOR YOU!

The moment you realize that you can create your own options and you don’t need to just take what the world offers you is a major shift. You’re no longer a slave to other people’s offerings so you can forge your own path!

That knowledge is empowering and will ultimately allow you to be the captain of your own ship no matter which way the wind blows!

Here are a few questions to ask before you get into any investment or savings vehicle. If you take the time to be honest with yourself, you’ll likely see that most options in the world are NOT ideal for you.

This is actually GOOD news…

Because you’ll be able to focus on what IS best without being distracted by all of the other options other people are pushing. Once you experience the freedom of being blown from one idea or opportunity to another, you’ll never go back.

5 Key Questions for Making Better Financial Decisions:

1) IS THIS FINANCIAL VEHICLE SOMETHING THAT WILL INCREASE MY CONFIDENCE AND EMPOWER MY MINDSET? OR WILL IT PUSH ME TOWARD FEAR, DOUBT, OR SCARCITY?

Your confidence and mindset is your most important attribute. With a abundant, optimistic mindset you’re going to be better in everything you do! That includes your business & career decisions, relationships, health, and your finances. So making decisions that keep your mindset tip-top is of the utmost importance.

Even further, if something made you money but you felt worse or more fearful during the process, would it be worth it? Absolutely not!

In my opinion, the whole point of money is to increase your quality of life. So if an investment decreases the quality of my life, I consider it a bad one… even if it makes more dollars in the process.

Photo by Clark Tibbs on Unsplash

2) HOW MUCH DO I UNDERSTAND THE OPPORTUNITY OR THE FINANCIAL VEHICLE?

If you don’t understand where you are putting your money, your chances of success are much lower. I see too many people putting their money into investments, products, or businesses they don’t understand AT ALL.

To me this seems crazy!

Why would you put your life’s savings in a place that you don’t understand? You work so hard to earn the money so it’s essential that you protect it as much as possible. So understanding how a financial tool or opportunity works is a pre-requist before investing.

On a final note, if you don’t understand something but want to invest in it, then your first “investment” should be in getting educated on that strategy, product, or business.

3) HOW MUCH CONTROL DO I HAVE OVER THE VEHICLE?

If you don’t have control over where you’ve put your money, then what do you do if the investment/vehicle isn’t working? Can you get your money out? Will you be able to help improve the outcome of the investment or vehicle?

Once again, if you have no control over your money, then your chances of success are lower than when you have knowledge and control. (It goes without saying that if you don’t understand an investment, then you can’t truly control its outcome either)

Photo by Nick Gardner on Unsplash

4) HOW FLEXIBLE IS THIS FINANCIAL VEHICLE FOR ME?

We all know that markets go up & down and the economy is changing at a break neck pace, so the ability to move and adjust to new changes is vital. Not even the smartest people in the world know what’s going to be happening 5 or 10 years from now, so how could you?

Being liquid or flexible with your money allows you the maximum opportunity to keep risk low and maximize profitability no matter what happens in the economy AND in personal situations like injury, illness, or personal problems.

For example, many people were “investing” in paying off their home mortgage quickly in the early 2000’s. Unfortunately, when the 2008 mortgage crisis struck these people were caught with a lot of home equity but very little cash. For those who lost their jobs and couldn’t pay their bills the equity didn’t help. Many of them lost their house AND all the extra money they “invested” into the accelerated payoff because they couldn’t get their equity out.

In the end they lost both their house AND their “investment” because they had no flexibility.

5) IS MY MONEY BEING OPTIMIZED FOR TAX EFFICIENCY?

Taxes are likely to be the largest expense in your life, so anything you can do to legally minimize paying taxes is of the utmost importance. Every dollar you don’t pay in taxes is the same as earning a new dollar, and the more you make the more important tax strategy becomes.

Considering the tax advantages (or pitfalls) involved with your money decisions is a game changer. For example, growing money inside of tax free vehicles can make a massive difference in the amount of money you get to keep in life. Many investment vehicles appear to help with taxes by allowing you to pay them later, but if taxes are higher or your income is greater when you end up paying the taxes, those “advantages” may actually work against you rather than in your favor.

Nobody knows for sure what’s going to happen with taxes, but making conscious decisions is much better than just “going with the flow” in the long term.

What Most People Are Doing (That Isn’t Working)…

Most people I meet aren’t taking these 5 questions into account and it’s crushing their results. But that’s not the worst part…

What’s even worse is they don’t realize how much they are paying in “unseen” costs. Unseen costs are when you make a decision that is costing you profits, but you don’t know it. For example, if someone is earning 6% in an investment but could have been earning 10%, the unseen cost is 4% (we call this opportunity cost).

There are many types of unseen costs that can chip away at your money, including: over paying in taxes, missed earnings on savings, the short (and long) term costs of volatility, losses or missed opportunities due to lack of liquidity, bad business or personal decisions due to financial uncertainty, and more…

The next time you begin looking at how to save, protect, or grow your money be sure to consider these 5 questions. If you are honest with yourself, they will likely help you make better financial decisions.

Financial decision are important because they impact nearly every area of your life. So these aren’t just financial decisions, these are lifestyle decisions and should be treated as such!