Strategies For Making The Right Financial Decisions Especially When The Stakes Are High.
How do you know if you’re making the right financial decisions? There are strategies for managing your money in alignment with who you are.
A friend of mine recently lost $75,000 to a crypto scam. It was her savings for the downpayment on a home! This was not the first time she had lost hard-earned cash. What causes us to make decisions against our better judgment?
What was your latest financial regret?
- Falling for a get-rich-quick scam?
- Buying the tenth pair of shoes on credit?
- Never taking a trip because you’re terrified to use money even though you have a large amount of it in your bank account?
- Withdrawing your retirement savings to buy new appliances?
- Buying two scoops of ice cream even though you’re trying to lose weight?
- Not getting a home inspection for the place you just bought?
- Going without life insurance because you believed you were both too young for it?
More than just buyer’s remorse.
We have all experienced buyer’s remorse at some point in our lives — a sense of regret after making a purchase. Buyers’ remorse happens more frequently if it is a large ticket item. But what causes this sense of shame? It’s caused by what psychologists refer to as cognitive dissonance.
We all perceive ourselves as supported by our beliefs and values. And cognitive dissonance happens when our actions are at odds with this perception. In the case of buyers’ remorse, it feels that what you bought went against your perception of yourself, your values, or your beliefs.
Causes of cognitive-dissonance.
It goes against your values.
If you used credit to make the purchase, you might have felt uneasy about getting into debt, especially if you are averse to debt. If you are usually frugal, buyers’ remorse may set in if you splurged on something you have never thought you would.
It could be as simple as buying the most expensive coffee on the menu at Starbucks after years of buying a regular coffee. Or it could be buying a BMW after years of driving an economical compact car.
You feel like you don’t deserve better.
Or, you may have also felt that you did not deserve what you purchased even if you had saved up the item. An idea you adopted while growing up.
You may feel dissonance if what you bought is perceived as extravagant by your family, friends, and even yourself, but many of us still care about what others think about us. And this impacts our decisions or how we feel about our choices.
You feel like you’ve been victimized.
Buyers’ remorse can also creep in if you feel the salesperson was dishonest. We all like to believe we are not quickly taken in by smooth-talking salesmen.
Self-sabotage.
My friend, who handed her hard-earned savings of $75,000 meant for the downpayment on her home, has a deep-rooted sense of not deserving a better life — that would come from owning a home. The $75,000 sitting in her bank account made her feel uneasy. It’s money she is not used to having.
How can you make better financial decisions?
So, how can we make better financial decisions that we can live with?
1. Become informed.
We can become as informed as possible about what we want to purchase. Research online, talk to experts, or compare shops.
2. Discuss it with others.
We can discuss our intentions with a partner. It’s always good to get a few different opinions. Buyers’ remorse is not always about making poor financial decisions. We can experience buyers’ remorse even after making a sound decision.
3. Live in alignment.
Making financial decisions, we can live with goes beyond just eliminating buyers’ remorse. It is about consistently managing your money in alignment with your values. First, you need to be clear about your core values.
Can you name your top five core values? We all share similar values, such as integrity, family, fairness, and respect. But the values I consider most important to me may be different from what you consider most important to you. If you have not done so, it’s time to discover your top 5 core values.
Once you know those, the next step would be to look at your last three to six months of credit card or bank statements. Does the bulk of your expenses go towards what you value?
I recall a friend being alarmed after doing this exercise at the portion of her income towards fine dining. It was not where she would have wanted her money spent. She soon changed her habits, inviting friends over for dinner more often instead of going out to eat.
4. Know thyself.
Think about the last few times you made a financial decision. You may believe you were making a rational decision. Chances are, there were emotional underpinnings to your choices. It could be as simple as buying a pair of new shoes or as complex as selecting an investment for the long term.
The cost may have been one consideration. But, other thoughts and feelings may have been lying just beneath the surface. Many factors influence how we approach money. Understanding these could help us make better financial decisions.
5. Your money blueprint.
Our personalities, priorities, and subconscious beliefs around money influence our decision-making process. All these factors encompass your money blueprint. The price of something was just one part of the entire equation.
- Are you decisive, or do you do a lot of research before purchasing?
- Do you look out for deals or buy things when you need them without considering the price tag?
- Are you risk-averse?
- Do you have a philosophy about money?
- Do you track where it’s going?
- Is money an ‘emotional currency for you? Do you shop when you feel sad?
- Are your financial decisions aligned with what you value?
- Do you stick to a budget?
A process to help you make conscious decisions you can live with.
Before making significant financial decisions, ask yourself:
- Do I need it?
- What does this financial decision mean for me? More freedom or more security?
- Is it aligned with my values, or have my values and priorities changed?
- Will this decision bring me closer to my goals?
- What are the consequences of making the decision?
- Has anything changed?
- Have you lost focus?
- Are you looking too far ahead at the expense of the present?
- Or are you too afraid to look at your future and live only for today?
Answer these questions often enough, and you will get a clearer understanding of your existing relationship with money. You will also align how you manage your money with what you value most in life.
Bringing it all together
Decision-making is a process, and you are never dealing with complete information. But if you align with what your heart values, it makes things a lot clearer. It may not be easy, but it is much clearer.
I recommend two highly relevant books Lynne Twist’s “The Soul Of Money: Transforming Your Relationship With Money And Life” and Jen Sinceros’s “The Soul Of Money: Transforming Your Relationship With Money And Life” and Jen Sinceros “You Are a Badass At Making Money, Master The Mindset of Wealth.”
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Jennifer has written numerous books on money: Women and Money: 7 Principles Every Woman Needs to Know to Be Financially Prepared in Any Economy and Growing Up With Money: Raising Financially Resilient Kids in an Age of Uncertainty. [email protected].