Ever wonder why certain people are more financially successful than others? Does it have something to do with their economic status their born into? IQ? Genetics? Behaviors? Or a combination of certain factors?
Well, as it turns out, research consistently reveals since as early as the last 1800s, that the vast majority of millionaires don’t come from millions. Research also debunks the notion that IQ or genetics is an overriding factor in financial success. What the research does find again and again is that self-control and discipline behaviors are correlated with success.
This is good news! This means that financial success is well-within your control. And the money decisions you make now can have a big and small impact on your overall financial situation. From minor purchases like clothing and household items to major purchases like a car or home, knowing the questions to ask yourself before pulling the trigger can help you make the best financial choices for you and your family.
Join us for this week’s installment of The Money Guy Show as we reveal the 8 behavioral finance questions every individual and couple should ask before making major financial decisions.
The 8 Behavioral Finance Questions To Ask Before Making Major Financial Decisions:
1. Is it a want or a need?
If you need it, make sure it’s the best option. If you want it, what is motivating your purchasing decision? Understand the fundamental natural of your purchase and then strive to factor in the true cost of that purchase – what you have to give up in order to attain it. Making sure you’re not giving up too much or compromising your future needs are important considerations before making a major financial decision. Deferring gratification is a disciplined approach to affording what you want and need without negatively impacting your financial success.
2. What is the lifespan of this decision?
In other words, is this a small, medium, or large purchase? Understanding how a financial decision today will impact you and your financial situation in the short and long-term can’t be ignored.
3. Does this purchase delay or accelerate my financial goals?
Think about whether or not a major financial purchase moves you closer to reaching your financial goals or delays you. Looking at your financial decisions with a big picture perspective can help you prioritize which purchases you make and when you make them. If a purchase does not align with your financial goals and, instead, significantly derails your progress toward achieving it, then is it really the right financial decision?
4. Have I conquered my budget and am I living within my means?
Before you make major financial decisions, do you have fundamental money management practices down? Meaning, have you made a plan for your army of dollar bills so that you effectively fund what is important to you without spending in excess of what you have?
5. Have I educated myself enough on this purchase or investment?
Did you do your homework? Don’t make impulsive financial decisions. Time and research allows you to understand your purchases and their impact on your finances.
6. Who or what is influencing this decision?
Consider what or who is influencing your financial decisions. Making major financial decisions based on the perception of others can be disastrous. Trying to keep up with the Joneses hardly yields financial successful outcomes. But, if you have a financial advisor who is helping to counsel you through a large purchasing decision, you are likely to feel more assured that you’re making a smart financial choice that considers all the factors.
7. If something happened, would my family be OK?
If you make this financial purchase, and something happened, would you still be able to provide for your family? If the answer is, “no” then you should re-evaluate your finances and take steps to ensure that they would be. Having sufficient insurance coverage and estate planning affairs in order protects you and your loved ones.
8. How do I make sure my kids won’t fail financially?
Are you modeling behaviors that lead to financial success? And are you taking advantage of planning opportunities to set your children up for financial success and then able to maintain it on their own?
At the end of the day, if your financial decisions align with your priorities and long-term vision for your life, which provides a good guide for your financial choices that motivates wise financial behaviors.
Resources Mentioned in this Episode & Related Episodes
- Vision Planning In 2018: How to Set (and Keep) Financial Goals
- How to Become the Next Millionaire Next Door with Dr. Sarah Stanley Fallaw, Ph.D.
- The Top Habits of Highly Successful People
- Surviving and Thriving in the Transition to Retirement with Fritz Gilbert
- Are You Letting Fear Drive You Investment Decisions?
- Financial Order of Operations: How to Prioritize Your Financial Goals
- How to Buy a New Car from a Dealer
- Financial Advice You Wish You Knew as a Teenager
- The Importance of a Proper Estate Plan
- The Truth About Keeping Up with the Joneses
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