How To Make Better Financial Decisions

Let logic, not emotion, dictate your wealth choices. Understand your emotions first, then temper them with facts, and you will arrive at better financial decisions

- Narayan Krishnamurthy

A typical adult makes numerous decisions every day. Yet, he or she does not realise this as most decisions are minor and are made instinctively. The clothes we need to wear to work, the route we need to take to reach office, the change we need to keep to pay for tea (if you are not a UPI user) at the stall outside the office, they are all predictable. But there are many other decisions we make that are tough and have profound consequences. For instance, the decision to walk up the stairs or reduce the sugar in our diet can have a positive impact on our health, especially if one is overweight.

Similarly, financial decisions aren't always easy to make, especially when it isn't easy to quantify the impact of a poor decision. It is an easy choice to spend money on a takeout dinner or buy a shirt on sale. In contrast, it is difficult to decide how much money to save towards retirement 30 years from now and where to invest it. Every decision is a trade-off because there is a benefit and loss involved.

Often, not taking a timely decision could also impact your finances. For instance, if you have money in the savings bank account that earns 4 percent interest and you let it lie there, you are actually eroding the value of money. This is so because, when the inflation rate is over 4 percent; the money resting in the bank account loses its worth over time as it doesn't even match inflation. Many a time, the cost-benefit appears to be subtle when making financial decisions because it is easy to spend over deciding where to save or invest. Likewise, the psychological role of instant gratification that one feels from spending is far greater than the intangible financial gain in the future.