Getting in the Ideal Mindset for Major Financial Decisions
How do you feel when you make major financial decisions? Frightened or confident? Knowing and understanding the reason behind your answer to this question is important because, as Forbes explains, the mindset with which you approach money determines the financial decisions you make. Here's how to adopt the ideal mindset for making financial decisions, so you can take control of your path to a better financial future.
Take Account of Your Financial Wellness
Making better financial decisions starts with you. If you already have a tricky relationship with money, live above your means, or don't follow a budget, your economic decision-making skills may need some adjusting. Moreover, if your credit is low or if you're already steeped in debt, making any big purchases or investments will probably just add more obstacles to your path toward success.
Before making any major financial decisions, get your checking account, credit score, savings, and monthly budgets in order. Use tools and calculators to assess your current expenses and your overall financial wellness. Your goal should be to get a clear idea of your current financial health and how to improve it before making any big decisions.
As soon as you start to consider making any major financial decisions, try saving. Many Americans live beyond their means in hopes of increasing their future income. Instead, live as if your income were lower than it is. While it might sound challenging, this will benefit your financial health in the long run.
Do Your Homework
Before making a major financial decision, carefully weigh the pros and cons. Evaluate and carefully consider your potential purchase or investment from all sides, considering both its short- and long-term effects.
For example, if you're interested in purchasing real estate, it's vital that you conduct in-depth research to determine whether it will be a valuable long-term investment. However, if you're considering taking out a student loan, look into offerings from competing banks as well as your long-term earning potential before signing any papers. And, as an alternative or additional source of tuition support, try applying for scholarships.
In all cases, be flexible and willing to change your plans if your research suggests that you should take a different path.
Strike a Balance Between Bold and Careful
While spontaneity can be tempting, try to refrain from making impulsive purchases — even if you think you can afford them. Instead, try to adopt a balanced mindset. Don't be afraid to dream big but start small. Do more research along the way.
The Consumer Psychology Review suggests that people who make small, weekly financial "sub-goals" and stick to them have a greater chance of retaining and boosting their long-term savings across time. In other words, if you persevere, eventually you'll be ready when it's finally time to take that leap.
Try not to get bogged down in tiny details or anxiety about the future. If you let your nerves take hold of you, you could risk missing opportunities to invest, buy, or profit. And if you buy the first thing that comes along because of a scarcity mindset, you run the risk of making a choice you'll later regret.
Make Room For the Unexpected
Keep in mind that not all major purchases are in your control. While the car and home you buy is up to you, other major costs — such as medical bills, car and home repairs, or the costs of caring for a sick loved one — are necessities. Make room in your budget and your decision-making process for the unexpected.
Before making a big purchase, make sure you're prepared for financial surprises by building up a buffer of emergency savings. This will prevent you from going into debt if a crisis does occur. Most Americans aren't saving for emergencies funds at all and couldn't cover a $2,000 emergency if they had to.
Ultimately, the ideal mindset for financial decision-making is a balanced one. If you're overly cautious, you might miss out on a great opportunity to buy the perfect piece of real estate or start your dream business. On the other hand, if you jump into things without thinking them through you could make choices that you later on regret later. Approaching your financial decisions with confidence, flexibility, and careful discernment will allow you to make sound decisions that will benefit you in the years to come.