Better Money Decision Making

Better Money Decision Making

As part of my goals for 2024 I am dedicating some time to develop better money decision making in the family. I think its a shame that our public school system that is supposed to educate young people and give them tools to live in our society as adults does very little to teach how to actually manage your life. Instead of focusing on Algebra 2 or Calculus, perhaps we need to dedicate more time on concepts like living within a budget, investing for the future, upkeeping your home and car, providing healthy food, etc. This page will be dedicated to developing skills needed to manage one’s money. I will share bits of information that I have collected from the web and distill those ideas into major topics supporting making better money decisions.

  1. Spending Money – I am putting this topic first because in my opinion this is the leading factor to most peoples money problems. It is far too easy to spend money. Its encouraged on a daily basis. We are bombarded with information telling us how good it is to buy some product or how impressed your friends will be when you have some product. There is no doubt some psychology going on here. Use this link to read Spend Less Than You Make.
    • How to train your brain to make better money decisions is an article from Linda Lombarti of LearnVest. What I like about this article is that idea that the thought of buying something usually is more satisfying than the actual purchase. We have a tendency to ideate positively about a future purchase. Its exciting to think about owning something new. But when the purchase is actually made that glow wears off very quickly. Some people actually have post purchase remorse. There are some tools to helping reduce the power of that impulse.
      • Linda recommends writing it down before buying it. By writing it down you are tracking your decision. Her data suggests this mere fact of tracking becomes a barrier to impulse spending. I also found that true for other things too, like calorie or carb tracking. I eat way better when logging my food daily. I think the more time between writing it down and actually buying the item is also very effective. Usually the shine wears off over a couple of days or weeks.
      • If your in a physical store its hard to follow the writing it down advice. I believe you get the same effect by carrying the item through out the store while shopping. Not in the buggy per se, but physically holding the item. After about 15 to 20 minutes of shopping I find that my impulse has subsided and in most cases I put the item back on the shelf.
  2. Saving Money – the antithesis of spending money. Most people think of it that way. Whatever we don’t spend, we’ll save. That idea isn’t going to get you where you need to be. Instead you need to think about saving money the same way you think about spending money. Its a conscious choice. In fact, it needs to be a line item in your budget. I recommend striving for a savings rate of 20% over your life time. Start with what you can and steady grow that number.
    • America Saves is a website that contains some tools to help get started. There is a lot of content in the resource center. They even offer a digital service to help you commit to a savings goal and keep with it. Its free to use.
  3. Credit – makes the world go around. Without credit commerce would surely suffer. Credit is an agreement between a lender and a borrower to pay for good or services now with the promise to pay back the lender later, usually with interest. Use credit for the convenience it provides and for the rewards it pays back. If you pay down your balance at the end of every period you won’t pay any interest. Why not get something in return for the spending your going to do anyway. Avoid credit if you can’t afford something. This is where people get in trouble. They buy something on credit because they can’t afford it now rather than waiting until they can afford it. This causes people to start accruing interest. See the category about compounding interest but understand its increasing your debt. Sometimes you can get a promotional interest rate, like 0%. Its easy to buy something when its 0% interest. You need to understand that if you don’t pay off that debt within the promotional period you will be responsible for ALL of the interest accrued in arrears. Its very important to make sure that amount is paid in time.
    • Annual Report – US law dictates that everyone is entitled to 1 credit report annually from the 3 different bureaus. The report can be pulled from a variety of places but this is the official national website.
    • Fico score – a 3 digit number expressing your credit worthiness. Ranges from 300 to 850. This is not the same as other credit scores. There are several others that have differences in the algorithm but the FICO is the standard and used for mortgage applications.
  4. Financial Literacy – Everyone needs to be financially literate. This includes terms and concepts dealing with money and finance that will affect your life.
    • Getting educated – there are resources online that will help develop your depth of knowledge.
    • Compounding Interest – the idea that money today is worth more tomorrow because it earns interest. Take a look at the scenario in the article Save Early and Regularly to see an illustration of how this concept works.