Making big decisions about money is difficult. It’s something I struggle with. I got a badly needed reminder in my personal life the other day that I need to get better at financial decision making.
The issue is not spending carelessly. I tend to lean to the other extreme. If it involves a large sum of money I have a difficult time pulling the trigger on spending the money at all. For example, my wife and I have a bathroom we would like to remodel. Our house was built in 1979 and still has the original lime green tub and shower. Nice…..
True to the process of good money management, we have saved the money for the remodel job and we can do it at any time. We’ve gotten a quote from one contractor and it was a lot higher than I expected. This has been months ago, maybe even as long as a year ago. I’ve been paralyzed by the fear of paying too much for the work. In this article I’ll lay out the steps I’ll take to get through this decision. I’ll also summarize the lesson in this on how you can improve your financial decision making.
I have other personal examples I can share about my struggles in making big decisions about money, but I’ll refrain from throwing myself under the bus too badly. 🙂
Here are the steps I’ll take for my wife and I to make the final decision on the bathroom remodel:
Step 1: Get two more contractor quotes to compare to the first one. (Evaluate Your Options)
Why? – When I do make the final decision I want to feel good about the decision. Getting additional quotes we’ll enable me to know I am getting competitive pricing and not over paying for the work.
When you are making any type of financial decision you need to evaluate your options. Whether it’s a decision about saving or spending. Make sure you understand your options so you can feel good about your decision.
Step 2: Set a timeline for making the decision. (Timeline)
This is the step in the process where I have room for improvement. That’s an understatement…. As I’ve discovered the hard way, if you don’t set a timeline procrastination sets in and the decision doesn’t get made. This leads to frustration and stress. 🙁 I am setting a goal to have two additional quotes by July 19. The final decision will be made by August 2.
Be sure to be realistic when you are setting your timeline. We are getting ready to go on vacation for a week. So I am giving myself a couple of weeks after we get back to get the quotes and two weeks to make the decision. You need to consider what’s going on in your life also. Give yourself some thinking time.
Step 3: Sit down with my wife and discuss our wants and desires for the remodel job vs. the cost. (Communicate)
It’s possible we may find what we want will cost more than we are willing to spend. Hopefully, of course, during the process of checking out different contractors we’ll find one that will deliver what we want at the price we can afford to pay. 🙂
Always make sure you are having open and honest communication about the decision with your spouse. In the end, you will both feel good about your final decision.
Step 4: Crunch the numbers! (Within Our Budget?)
I know this is the part of the process not everyone enjoys. I’m the nerd in the family instead of the free spirit so I tend to go overboard here. Surprise, surprise…. Seriously, I need to look at how much money I have. What are the other needs I have that may be a higher priority. Ultimately, I need to decide is this affordable and within my budget.
Don’t overspend on your budget if at all possible.
Step 5: Compare Your Dreams…. (Weigh the Opportunity Cost)
This part of the process is not about the numbers. This is about your dreams. Let’s assume I’ve made it through the first 4 steps. I’ve picked a contractor I feel is competitive in pricing and will provide quality work. My wife and I have discussed the cost and agree it’s within our budget and affordable. That’s all the tangible stuff. The numbers. The logic. The bank account! What about the intangible side of things? Our dreams… Are there other dreams we have that are bigger than this one we are willing to give up or delay to make this one happen? This is definitely a balancing act. It’s not easy. I’ll speak for myself and I think it’s true for most of you too, I have a lot of dreams!
Here’s a simple example of this concept. I love good coffee. I am also a bit of a business and financial nut. Let’s assume I stop by Starbucks everyday and get my favorite coffee on the way to work, 5 days a week. I have also found an online training course that will teach me how to market and grow my business, but it will cost me $390. My daily coffee costs me $3. Am I willing to give up my daily coffee fix for the next 26 weeks to cover the cost of the training course? This could be a tough decision…. 🙂
As for the bathroom remodel, it’s pretty high on our “make it happen” list. It’s just a matter of making sure we are getting a good price and a quality contractor.
The 5 Steps To Getting Better At Financial Decision Making
From my own personal example, hopefully you can learn and apply these 5 steps to making your financial decisions.
- Evaluate your options.
- Set a timeline for the decision.
- Communicate with your spouse openly and honestly.
- Is it within you budget and affordable?
- Weigh the opportunity cost. Compare your dreams.
Take Action: What financial decision are you struggling with? Apply these 5 steps to make your decision. Let me know in the comments how it goes. Are there steps in the process you are struggling with? If it’s a bit personal you can contact me here instead.
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Your Household Budget Coach,
photo credit: Zach Klein via flickr.com
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