How We Make Financial Decisions
Erin is going through FPU right now and asked us how we make financial decisions as a team. Making financial decisions with your spouse can be tough. Sometimes it's hard to differenciate between needs and wants, and without careful planning, you can be left in a situation of regret for making the wrong choice. There have been many budget committee meetings lately around one major financial decision: when to buy new bikes.
The question isn't which bikes we want to buy, because we already have done extensive research and have found what we want. Rather, it's when to buy them that has been the hard decision to make.
We have seen our savings grow in the past seven months as we work to save up for 3-6 months worth of expenses. It's easy to see the dollars stacking up and think how easy it would be to pull from savings and replenish that amount later; the consequences of which pushes back our deadline for completing this baby step and delays our financial goals in the future.
This all sounds like one of my favorite Dave Ramsey quotes:
"Children do what feels good. Adults devise a plan and follow it."
Meaning, it would be childish for us to buy bikes now with money that has been saved for a different purpose.
We both have a gut feeling that we shouldn't buy the bikes yet. And we are choosing to do ourselves a favor and not have buyer's remorse, so we are holding off on the purchase at this time. We don't think we deserve them yet (we both have mountain bikes already). After taking Financial Peace University and developing a foundation of beliefs about money, we typically agree when these types of things come up (but not always--remember our $12 negotiation?).
So, we decided to hold off until spring 2012 and re-evaluate our financial situation at that time (it makes seasonal sense now that the summer is already winding down). We hope to save some of our Christmas money to put toward bikes next spring, and we might even start to save a little bit of money on a monthly basis so that when spring comes there won't be as much to save in a short period of time.
We make decisions like this all of the time with our budget, and the key to the whole process is communication. If we don't talk about these types of buying decisions, then we both lose focus of our goals. We need each other for accountability. If you are single, ask a trusted friend to be your accountability partner--someone you can call when you are thinking of making a purchace over $X amount. Just make sure they have the guts to tell you no when you need to hear it.
Here are some questions you can ask when deciding on a financial decision:
- Is this a need or a want? (Be honest!)
- What is the opportunity cost (what am I losing out on) if I spend this money now?
- Have I made a purchase like this in the past and neglected to use that item as much as I thought I would? (I'm guilty of this! Ahem, Nintendo Wii, I'm looking at you!)
- How will I feel after making this purchase?
- How long have I been considering the purchase? (If it is a want, you can still buy the item. But, we know that it's better to have walkaway power and buy the item out of a rational mind rather than an emotional one.)
These are just a handful of questions to get the brain flowing. I am sure if you think hard enough you can come up with more. The trick is to think. If you slow down to think about the purchase at hand, you can often take the emotion out of the situation. Emotions often cause us to make poor financial decisions. For proof, read about the stupid taxes we have paid over the years.
How do you make big financial decisions?