Making Better Money Decisions

Every day we make myriad decisions that affect how we spend our time and our money. It may be a small decision about what to make or order for dinner. It may be a significant decision about where to buy a home and live for the next decade. And there’s everything in-between, including next summer’s vacation. It is all downright overwhelming. That’s partly because, as complex human beings, we often make the whole process of decision-making much messier than it needs to be. 

It’s no wonder we get so mixed up. Modern society has taught us to believe that everything is in our control. At one level, that can be empowering. It’s nice to think that making the ‘right’ decision will help us live a better, happier life. On the flip side, however, that means that the opposite is true: that making the ‘wrong’ decision will make us less happy. The result: we stress out in the face of all sorts of decisions—especially those that involve money. Here are just a few real-world examples 

  • Jo called me because she needs to buy a new mattress. I thought it was a simple decision… until she started telling me about all the options she was considering—from a high-end Posturepedic at about $1,200, to a Duxiana mattress that costs more than $10,000. (If you’re as naïve about the luxury mattress market as I was before my conversation with Jo, check out The Most Expensive Mattresses in the Entire World.) Who knew picking a mattress could be so complicated?
  • Margaret is excited about remodeling her kitchen, but she doesn’t know where to begin with her budget. Should she opt for a full-blown remodel, including a new layout, new high-end appliances, and marble countertops? Or should she choose what she calls an ‘IKEA makeover,’ using the same footprint (no plumbing or electrical changes needed), but adding beautiful new glass cabinets, stock countertops, and a price tag that is thousands of dollars lower? Which will make her happier?
  • Stella and Joe have been stashing away cash during the pandemic, and now they want to be smarter about where to bank their hefty emergency fund. They sent me a detailed breakdown comparing interest rates for a dozen different online savings accounts to help them choose the best option. Which is the best choice?

If you, too, are struggling with a financial decision of any size, one place to begin is by asking yourself three simple questions to home in on the big picture:

  1. If money were no object, what would be the right decision for you?
     Sometimes this question alone will help make your decision clear. Jo was intrigued by the idea of a luxury mattress, but when we looked at the basic pros and cons (firm or less firm, best for side sleepers, etc.), the wildly expensive option wasn’t the best choice for her. While your answer to the question may not steer you toward thrift, it can help you choose anything from clothes to cars to houses with greater clarity.
  2. How much will your decision impact your happiness—really?
     It’s easy to overestimate the impact of our decisions and to underestimate the context. Margaret likes the idea of a new kitchen. Still, when we started talking about why she wanted it, she realized it had more to do with pictures on Houzz and less to do with how much she would enjoy spending time in an expensive kitchen. She rarely cooks or entertains, so the bells and whistles that would come with the entire remodel didn’t really matter to her. She decided that a minor change would be less disruptive, less expensive, and probably make her just as happy in the end. (And yes, I do know all about ‘enhancing resale value,’ but that was not a relevant concern in Margaret’s case).
  3. Is it a $30—or a $3,000—decision?
     Here’s a simple rule of thumb: don’t spend more time and energy on a financial decision than it’s worth! I get so irked by articles in the media on how to reduce small expenses to build your fortune. Yes, skipping a latté at Starbucks or choosing an online savings account that offers an interest rate of 0.6% instead of 0.3% will put a few extra dollars in your wallet, but decisions like these are not the key to building your financial strength! Focus on the big decisions (think investing for retirement, buying a right-sized home, and minding your budget) and spend less time agonizing over decisions that will only save you a few bucks in the long run.

Want to get even simpler? I recently shared this article on ‘the Golden Question’ that suggests approaching decisions by asking yourself: “How will I feel about this in a day? a week? a month? a year? 5 years?” If you want to cut to the chase, it’s a great question that can help rise above emotions in the moment and, ultimately, make a decision that is right for you. 

Still not sure how to choose your next move? Read my blog post on The Mostly Fine Decision here. If you’re still feeling stuck, let’s schedule a time to chat. I’m always happy to walk you through the financial decision-making process to help ensure you’re making choices that keep you on track toward your long-term goals.

Related: Can Your Finances Pass the Marshmallow Test?