You’re confronted with financial decisions every day:
- New iPhone?
- Dinner out or leftovers at home?
- Charge the weekend cruise and pay it off when I can?
- Pay cash, lease or finance the new car?
- Toyota or Jaguar?
- Public or private school for the children?
Sometimes, you are faced with one-off financial decisions that are more complex in nature:
- Should I refinance my mortgage?
- What do I do with all these student loans?
- Do I take the lump sum or annuity payout on my pension?
- Do I buy a long-term care insurance policy or self-insure potential future care costs?
- Should I retire now?
- Should I take out a reverse mortgage?
Still other financial decisions can be thrust upon you…unexpectedly and often contrary to your wishes. These decisions typically arise at times of life transition (e.g., divorce, death of spouse, job loss/career change):
- I’m in the process of being divorced. Should I keep the marital residence after my divorce?
- I’ve just been widowed, can barely make it through the day, and know nothing about my financial situation. What do I do with life insurance proceeds, and retirement plans, and health insurance, and money requests from family members, and all the bills that are piling up?
- I’ve just lost my job. Should I look for a new job or should I start my own business?
The financial decisions you make…big or small…on a daily basis or one-off…willingly or unwillingly…are invariably interconnected. Each decision you make in one aspect of your financial life has the potential to affect…positively or negatively…other areas of your financial life, and your personal life as well. Therefore, how you make financial decisions, and the consistency with which you make them, can mean the difference between a life of constant financial stress and worry…and a life of financial freedom and well-being.
Informed financial decisions are not made in isolation. They take into account the interconnectivity of the various aspects of your financial life, as well as other important financial and personal factors. Informed financial decisions consider: your overall current financial situation; important financial fundamentals relating to the decision at hand; the tradeoffs that are involved in a particular course of action; the level of control you have over an outcome; your personal relationship with money; the likelihood that a course of action can and will be successfully implemented; and, most importantly, the degree to which a particular decision will move you closer to achieving your stated short and long-term financial and personal goals.
Informed financial decision-making increases the likelihood that:
- You will avoid costly mistakes which could adversely affect your financial well-being, now and in the future.
- You will be better prepared for emergencies and life’s surprises…and more resilient in their aftermath.
- You will steer clear of financial issues that can negatively impact personal and professional relationships.
- You will enjoy the freedom, independence and security that come with having sufficient financial resources to live the kind of life you want to live, given the possibilities within your reach.
Making informed financial decisions on a consistent basis…in the context of a well-thought-out financial plan with clearly articulated, measurable, and attainable financial goals…can lead to a better life for you and the ones you love.
Debra B. Freedman Personal Financial Planning, LLC is committed to helping people make informed financial decisions for a better life!