Eight Steps to Making Great Financial Decisions

Freezing up and doing nothinga decision by default. And for most personal financial situations, it's not a very good one. So how do we break the logjam and get back to good decision making about our finances?
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"In any moment of decision, the best thing you can do is the right thing, the next best thing is the wrong thing, and the worst thing you can do is nothing." - Theodore Roosevelt

Are you making good decisions about your finances? Are you making any decisions at all right now?

Since the recent recession, it seems that people are less and less inclined to make any moves financially. Professor Richard Thaler, New York Times columnist and behavioral economist at the University of Chicago Booth School of Business, thinks that anxiety and fear are keeping people from doing enough with their money these days, which can be disastrous for their long -term goals. "Along with making people irritable, uncertainty can create paralysis. Some animals freeze when they are frightened. Acting like a deer in the headlights can get you run over."

It has been a time of uncertainty and many people have seen what seemed to be good decisions -- for example, investing in the stock market and real estate to build up a retirement fund -- turn out poorly. Afraid of making even worse mistakes, they freeze.

But it's not just our personal experience that has caused us to be fearful. Professor Dan Ariely of Duke University also studies behavioral economics. He blames the media for stirring up our anxiety. According to Dr. Ariely, the media knows that we gravitate toward emotional stories rather than informative ones. "It's a kind of interplay between our psychology of overemphasizing emotion and the media's understanding of that, and building on this weakness. As a consequence, we understand very little about what's going on but we feel a lot about it. If all the news is focusing on these terrible pieces of information about how frightening this is, and this is, and gloom here, and gloom there, we're going to be much more fearful."

But freezing up and doing nothing is a decision by default. And for most personal financial situations, it's not a very good one. So how do we break the logjam and get back to good decision making about our finances? Follow this eight-step plan:

1. Put yourself in a calm state. Decisions made from fear or worry are rarely sound. Do whatever works for you (deep breathing, taking a run, meditation) to put yourself in a good frame of mind where you feel mentally clear and emotionally neutral.

2. Gather all your information. Many people avoid taking a full look at all of their assets and liabilities. But without it, you don't have the foundation to make good decisions. Lay that information out in a way that is clear and concise.

3. Clearly state your goals. If you don't know where you want to go, how can you possibly determine the best vehicle for getting there? Make sure these goals are yours, not your neighbors' or the goals you think you're supposed to have.

4. Research your options. Obviously, many "traditional" investment strategies have proven disastrous for many people. You may not spend the years of research and analysis I chose to spend over the past two decades, during which time I investigated more than 450 different financial products and vehicles. But you should definitely take the time to see what other options are out there that enable you to grow wealth safely and predictably. (To see the results of my research, visit www.BankOnYourself.com )

5. Weigh the potential outcomes. Often when a financial vehicle is presented to you, you are only given the "best case scenario." In your analysis, be sure to evaluate the most likely and worst case scenarios as well.

6. Sleep on it. The old "sleep on it" advice has merit. In doing so, you give time for your gut instinct to kick in. You also give your mind time to come up with different questions to ask and possibilities to consider.

7. Make a decision and act on it! As motivational speaker Tony Robbins says, "Remember, a real decision is measured by the fact you've taken action. If there's no action, you haven't truly decided." Implement your decision fully and wholeheartedly.

8. Evaluate your results. When you make your decision, also set up a reasonable timeframe to evaluate how that strategy is working for you. Set up realistic expectations for that timeframe and, if your decision is not panning out as you'd expected, be prepared to change course. (And if you are so inclined, you can compare how your chosen strategy is doing compared to other possibilities.)

Though we've gone through some frightening times in this economy, it's important that we retain the lessons and drop the fear. In any economic climate, we can make positive, proactive decisions about our money that will benefit our financial futures. As some anonymous person wisely said, "Do something today that your future self will thank you for!"

Financial security expert Pamela Yellen investigated more than 450 savings and retirement planning strategies seeking an alternative to the risk and volatility of stocks and other investments. Her research led her to a time-tested, predictable method of growing and protecting savings now used by more than 500,000 Americans. Pamela's book, Bank On Yourself: The Life-Changing Secret to Growing and Protecting Your Financial Future, is a New York Times bestseller. Learn more at www.BankOnYourself.com

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