How To Make Financial Decisions
Resource: Financial Ingredients List – PDF
Making financial decisions is tough for a lot of people because there’s uncertainty about what decision is the correct decision to make, and then it’s easy to second guess yourself once you’ve actually made the decision. But with a basic understanding of a few financial principles, and a priority list, it can be a lot easier to make the right financial decisions at the right time.
Picture yourself making pancakes 100% from scratch for the very first time. You start with an empty bowl, pancake mix has not been invented yet. All the ingredients for the pancakes are in one of three places: your refrigerator, your cupboard, or your pantry. How well do you think you would fare in creating beautiful golden-brown, tender melt in your mouth pancakes on your very first try if you had no recipe? Now picture yourself making those pancakes one more time but this time, there’s just one difference… you have the recipe! Do you think that your chances of success are better now?
Similarly, many people have all the financial ingredients they need but no recipe! In this video you will get a recipe for financial decision making that will help you make better financial decisions because you’ll know what ingredients to add, and when to add them.
The first ingredient in this recipe is Protection. Protection should always come first. Good people protect their families, loved ones, business associates, dependents and creditors. Life insurance is often the first thing to leap to mind when we hear the word protection, but there’s also protection against: Illness or disability and probate as well as asset protection through a limited liability company which are all important. If you’re thinking to yourself but life insurance also provides some asset protection you’re right and you probably deserve some honorary credentials of some kind because not even all life insurance agents know that. Life insurance is a good place to start though because of the way it provides protection for your family, loved ones, business associates, dependents, or creditors while at the same time giving you some asset protection and even a return.
The second ingredient is Savings. This can seem kind of strange at first especially if you’re a “pay cash” type of person, because saving is so important it seems like it should come first. But the reality of the matter is you cannot save money nearly as fast as you can buy it through Life Insurance. Another reason savings should come after protection is because what if you’ve saved up a lot of money but you haven’t done any protection and God forbid through illness, or disability your income disappears. Will your savings last? Now instead let’s say you followed the recipe exactly and you protected against illness and disability first. You may have less money saved because you didn’t save as much, but will your savings stay around longer if you have a disability income? That’s the importance of following this recipe.
The third ingredient is Manage Debt. Managing debt is not necessarily getting out of debt or paying everything off because some debt will allow you to save more money now, and some debt will even give you tax benefits. Your goal should be to payoff bad debts, but keep good debt working for you.
And finally the fourth and last ingredient is Invest. Investing has a lot of risk which is why it should only come after you’ve seen to proper protection you’re steadily saving at a good rate, and you’ve managed your debt. The most important thing you should know about investing is that investing is NOT saving. Confused people invest money and think that they’re saving it. If you invest in lieu of saving it could ruin you financially. Another important thing to know about investing is that you don’t have to venture into an investment you know nothing about to get big returns. Often times the biggest returns you get will be in your area(s) of expertise. Don’t invest in areas of un-ambiguity because hearsay has led you to believe that’s where the money is at. There may be money in it, but that money will go to other people. NOT you.
So to list every ingredient in its proper order, it looks like this:
3. Manage Debt
The world gets the recipe exactly backward because many people believe that by investing they can make enough money to pay off their debt. Then, once their debt is paid off, they’ll be able to save something … and finally they’ll get around to protection when they can “afford it”. Sadly sometimes, it will get too late to ever have good protection.
Trying to do things backwards like that is dangerous because if your investment gets wiped out, you still have the debt… and no savings. If you don’t do well enough to payoff your debts, the interest on your debt is compounding against you, and if you don’t make enough in your investments to make debt payments, you definitely don’t have anything coming from your investments that can be saved.
Instead, use all the same ingredients, but put them together in the right order and boom you have a recipe that works really well. You can download a free “recipe” to these financial ingredients right here: https://s3-us-west-2.amazonaws.com/annamcfie/YouTube/Graphic+For+Financial+decision+making+video.pdf
Having each of financial ingredients listed in order of priority will help you make good financial decisions.
There are other videos on the channel that focus in each area of importance: Life insurance, and asset protection, how to save money, managing and paying off debt, etc. Check out those videos too. And if you need guidance or help, we’re just a phone call away: 702-660-7000