In this series we are looking at the different ways individuals make their financial decisions. In the last session we asked the question, what would life be like if we could eliminate financial mistakes? What would that mean to you or even someone you love? Could that mean extra trips, a better education, less stress or strain on relationships?
Have you ever torn into a new game or toy without first reading the directions? Most of us have done this only to hear our spouse say, “Honey… have you read the directions?!!” I think it’s suffice to say that we have all engaged in this seemingly senseless routine. Of course, most of the time this is not a big deal because there are little to no consequences for our mistake. However, let’s not make these same mistakes relative to some of the most important decisions we’ll ever make… those regarding where and how we protect, save and invest our hard earned money.
Often decisions are made based on:
- Others opinions
- Limited information
- Predetermined goals
- No model (without proof it will work)
When decisions are made this way it can prove to create an outcome that is both disorganized and limited. We describe this as somewhat of a financial junk drawer. This is really no different than tearing into the game without reading the directions! If you are making decisions with out any verification process, what will you say when your spouse asks the question, “have you read the directions?” What they’re really asking is, “Are you sure we are doing as well as we possibly can? Have we looked at all the options and made sure there isn’t a better alternative?”
The lack of a financial model will lead to errors and mistakes. The financial model that we eluded to in Part 1 is the Protection, Savings and Growth Model. This will serve as the game board or verification tool we desire that can help us with our financial decisions and allow us to have freedom from the worry that can sometimes surround these decisions. It also gives us the ability to say, “YES Honey! I have read the directions!”
In the future we will look at the Macro Economic Financial Model called The Protection, Savings and Growth Model. It’s one of the most powerful tools to use in order to make sound financial decisions.