Making good decisions begins and ends in one place. You.
While you are constantly bombarded with making a ton of decisions a day, you’ve probably underestimated how many you actually make–and their quality!
Research indicates that the number is approximately 10,000! Due to the sheer number of decisions we make daily, how can we be sure we are making good decisions?
In the initial stages of working with your finances, your choices will be centered around allocating where you want your money to work.
It’s all about learning budgeting and cashflow.
Later those immediate financial decisions will naturally evolve into longer-term goals. You’ll begin planning ahead for your future, which includes making good decisions around finances so that you can fulfill lifetime dreams and retirement plans.
You can make the best decisions using meta-thinking (when you think about thinking). It also allows you to decide how you’ll ultimately make decisions.
Let’s dive into making good decisions and see if we can sharpen your skills!
What staple exercise do you use when making good decisions?
- Pros/cons list
You might run into a problem with this one. There is a bias based on size. You’ll notice that one side might be longer than the other. However, that may not matter.
It depends on how you weighted each item.
How do you weight an item?
You can assign a numeric weight on a scale of one to 10. You’ll want them to be weighted according to the importance of the entry.
Another popular method is the decision tree.
This method is typically used to predict how you feel about each eventuality. Then you can choose a course of action that you predict will feel the best.
When using this method answer will be subjective!
Tackle Debt or Invest
Here’s a topic that begs for a flow-chart!
I believe everyone’s personal finances are just that–personal! However, I do believe in having guidelines, so that making good decisions is less complicated.
The flowchart enables us to see how making good decisions can happen to us.
When you’re considering paying off debt versus investing, there are so many potential repercussions of each decision.
That’s why a flow-chart works so well in this instance. You can see how each choice will eventually play out. You’ll also get a preview of how each choice will affect you and how you’ll feel about it!
We could use an example to illustrate our meaning.
Our hypothetical person is:
- 35 years old
- No children
- $300,000 in student loan debt
- $300,000 on a mortgage
- Salary is $250,000 / $12k per month
There are a couple of important factors that we want to consider.
- Financial repercussions
- Emotional & psychological repercussions
Let’s look at both of these separately.
Making good decisions involving looking at opportunity cost.
Our hypothetical person has $300,000 in student loan debt with an estimated 7% interest rate. We decided this person will have another $300,000 for a mortgage with a 4% interest rate.
Ouch…that higher interest rate!
However, let’s hold the thought of investing for the moment and move on to the next criteria.
Emotional & Psychological
There are some people who derive an overwhelming sense of relief knowing they own the title to their home, and their home can’t be taken away.
On the other hand, student loan debt is unsecured, will never go away (until you’ve paid it off).
The difference is the impact of an unsecured loan versus a secured loan.
You’ll never lose the student loan debt. However, if you default on your mortgage, you would lose your home.
The bottom line isn’t about interest rates.
It’s actually about your peace of mind.
There’s an emotional pull to certain situations.
Many times it’s around whether a client should choose Public Service Loan Forgiveness (PSLF) when dealing with their student debt. I recently ran into a situation where the mortgage debt and student debt had the same interest rates.
The difference was student debt had been taken out by their parents, so they felt a huge emotional obligation to them.
My clients really wanted to pay off this debt as quickly as possible.
Now that we’ve had a look at the emotional side of things, what about the spiritual side of making good decisions?
Are they the same thing?
There’s a difference!
Making good decisions is a great deal more personal.
It’s your inner compass that leads how you feel about the morality and ethics of taking out and carrying loans.
It’s the way you judge how the debts impact the relationship you have with yourself and others.
It’s asking ourselves how do we interpret the world around us.
Deep down what do we actually believe in?
Finding Your Process
What is a good framework for making good decisions?
How would you look at any given topic, such as FIRE, and decide if you should make it a part of your financial future?
We can break FIRE into two concepts, they are financial independence and retire early.
If you’re a regular reader, then you know I like the financial independence (FI) part of FIRE. That might be through your career as a physician, investments or side gigs. I like that it gives you the freedom to make choices.
However, I’m not really keen on the retire early (RE) aspect.
You’ve spent a lot of time, energy and money developing your medical career over the years. That being said retire early doesn’t mean you have to stop practicing medicine.
It also depends on what your definition of “retirement” is and what other plans and interests you want to pursue.
The good part is that FIRE can be a side effect of managing your money effectively over the years and making good investment choices.
If you are chasing FIRE because you don’t like your profession, find another occupation! Don’t waste your life hating Monday through Friday, only to be excited for the weekend!
That’s a waste of your one and only life!
Are you interested in a side gig or entrepreneurship?
A lot of physicians are going into their careers wondering if they should have a traditional career or create an additional source of income.
Many people wonder why would a physician strive for more income? Why would you do that? Why would you want to escape from the career you’ve worked hard to create?
This thinking comes down to having a traditional career versus entrepreneurship.
What is a good framework for making those decisions?
Let’s start with your values and motivations.
You may not recognize how you feel. When you take a closer look at your actions you may learn a lot about where your emotions are coming from!
There may be something underneath the surface that you have yet to admit to yourself. Look at what you are gravitating towards in order to get a clearer picture of what you really want (or don’t want).
Are you engaging in self-sabotage?
Then it’s time to take a closer look and see if you need to change directions. It’s true that you’re more likely to succeed when you are interested in something.
Have you heard anyone say: follow your curiosity?
Pay attention to what emerges when you follow what calls out to you!
You can certainly generate the extra income if you want to increase your lifestyle options. An important tip is not to focus on results, instead focus on the process and eventually, you’ll make gains on those goals.
Flexibility and freedom are wonderful lifestyle options to have during a family crisis.
Let’s say you had to take an unexpected leave of absence from work, being financially independent would allow you to take the time off without too much consternation.
Paving the Way
Do you know where you want to focus?
Remember to notice where your attention is going.
Then decide on some action steps that will help you make adjustments.
I’ve written about this before: You can afford anything but not everything. I also say you can assign a dollar to only one job, so are you spending (assigning) that dollar in a way that makes you happiest?
You can’t do this in isolation. Zoom out and look at the bigger picture. How will it impact other areas of your life?
Examine and prioritize your values
What rises to the top of your list?
Thinking ahead is the difference between making a good or bad decision. We have to look ahead at the possible consequences.
Making good decisions will mean looking at the cost difference between the two options. Then looking at the alternate ways you can use that money.
What if there were a cost difference of $10,000 a year? What would you do with the extra money? Would you take a trip or pay down debt?
If you weigh the consequences and look farther down the road, that’s when a conscious decision emerges.
How do you feel about the decisions you’re making?
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