One of the many lessons for all us during the pandemic is the need to have facts and not opinions when making decisions and that is never more evident than when making decisions about money. Decisions made with partial information or based on your opinion can lead financial issues later.
What can happen when people make decisions without considering all the financial facts?
This is when people can make life altering mistakes that can be difficult to overcome. Some of the more long term issues include: Overextending on credit; starting to spend too much; or buying too much car or house.
What is the critical information to always understand before making financial decisions?
The very first is what amount of your take home pay you are currently spending on non-essential items and the next most important is how long you have remaining to pay off debt. These two items are important because they provide insights on your capacity to add debt or increase your savings.
What are examples of making decisions that are not fact based?
A very good example is trying to keep up with your friends who you might mistakenly think are in the same financial situation as you. Perhaps they are making more money, don’t have has much debt, or someone is helping them financially. If you buy the same cars, houses and take the same vacations because you feel if they can do it, you can too, that often leads to major problems.
Is there a critical fact that too many people fail to consider before it’s too late?
For long term planning, find out how well you are doing on your retirement savings. Too many people either feel they are doing all that they need to be doing or think they have a lot of time to improve but focusing on retirement early ensures that later in life you will have more financial freedom. For most if they are at 10% or more they are in good shape but talking to a professional will confirm this.
What is the most important set of facts to learn about your financial matters?
Probably the most important set of facts to understand is discovering where you are spending your money on a monthly basis. The simple exercise of reviewing the last three months of spending often surprises people and helps them use actual spending patterns to trim what they spend. With this information you will make smarter decisions in all of your financial life.