I’m writing about “good” and “bad” financial decisions today because we’re all going through very emotional times. Balanced decision–making will help you keep your emotions in check so you don’t get caught up in making critical selections based on negative emotions like fear, worry, and doubt. Emotions can help you achieve good financial results, but fear, worry and doubt are not the place from which you want to make life changing decisions.

Over the past few years, I’ve spent a lot of time examining what drives people when making choices about their finances.  I’ve spent time observing my clients, small business owners, entrepreneurs, and family members.  I’ve even studied what people say and do on TV. In this post, I want to discuss with you what people almost always base their financial decisions on and how they defend their choices.

In the following personal example you will see:

• How good and bad financial decisions are in the eye of the beholder.  I’ll let you judge my story below.
• How your financial selections may change from good to bad as time goes on.
• Growing older makes a huge difference in the financial decisions you make.  Aging often brings newfound wisdom which plays a bigger role in our financial choices.
• How other people like your family and friends consciously and unconsciously assess your financial decisions although they often don’t share in the consequences of your results. Their comments or unspoken opinions affect us emotionally!

I could use the story which I’m about to share with you to explain almost any financial arrangement you could make. We could be talking about stocks, bonds, real estate, or purchasing insurance. It doesn’t matter. It’s all the same.

A Good Decision

First, what is a good financial decision? A good financial selection maximizes your desired outcomes, including: security, peace of mind, growing investments, and paying fewer taxes.

A Bad Decision

Now let’s look at why a decision might be considered bad. Well, bad financial choices cause more stress, drive investments to shrink, keep you up at night, and cause the IRS to send you scary letters.

Men Will Be Men!

This unusual story involves one of my own financial decisions. When I was 25 years old, I bought a fancy car. Even though I couldn’t drive, I needed wheels. Not just any old wheels. I bought a brand new 1985 baby blue Cadillac Seville, equipped with a Bose stereo, white leather interior, white convertible top, a Rolls-Royse grill, with wire wheels and Vogue tires. I loved that car!

My Seville drove and felt like a dream. It was! It even had my name engraved on the dashboard! I probably would never buy another car like that for myself. But, it made sense for me at the time. No one else my age had a car like that and it was very easy for me to get someone to drive me around town or go on trips.

I have to admit it was a bit stressful sometimes making a huge car payment and letting some friends drive me who weren’t very good drivers. My stress was compounded because I also owned real estate investments I needed to maintain and support. I kept this car for 20 years. The last few years I had it, I really didn’t drive it much. So I thought, “why should I keep paying insurance, registration, and maintaining it?” It was becoming more of a hassle than it was fun. And as I got older, I felt it was a risk to my financial security having people driving me around. I had to use my big sister as the primary driver to get my car insured because insurance companies wouldn’t insure a blind person. So I didn’t want to affect her too.

When I was ready to sell it, I advertised on Craigslist and told my friends. When my nephew Gregory found out I was selling my car, he wanted it.

I said, “Greg do you realize this car is getting older now, even though it only has 42 thousand miles on it. It will need some major maintenance soon and I can’t promise you how long it’ll last.” Gregory wanted my Caddie no matter what.

Gregory said, “let’s go for a drive and check it out.” After our drive Gregory was even more convinced that he wanted my car. And I fell in love with it all over again too.

A long story short, Gregory bought my car that very same day. To be honest with you, I experienced some separation anxiety. This Caddie was my “baby blue” that I had taken very good care of for 20 years! I only sold it to Greg because I knew I would still be able to use it when I wanted.

It was a holiday and the Department of Motor Vehicle was closed. So Gregory had a breakthrough idea. He wasn’t going to let anything stand in the way of him getting that car that day. I could tell he wasn’t going to risk me changing my mind because he knew how much I loved my baby blue Seville.

Gregory said, let’s go to AAA. You can transfer the car over to me and get insurance at the same time. I bet they’re open today.

I said okay, and we were off to AAA. Once we got there, we transferred the registration and title over to Gregory. Gregory was getting more and more excited. He knew he was getting a steal! Then we walked over to the insurance agent.

The agent gave Gregory his options and asked him what type of coverage he wanted and how much did he want his deductable to be. Gregory said full coverage. Well, I thought to myself, “full coverage?”

Before they would let us get insurance, we had to get the car smogged. We left AAA going to get the car smogged.

I said to Greg as we left AAA’s parking lot, “why do you want full coverage? You know that your insurance will only pay you blue book value if you total the car. It is a waste of your money to have full coverage.”

I could sense Gregory really mulling over my question in his mind. Then Gregory said 30 seconds later, “I feel better with full coverage.” I said to Greg, “even though your annual premium plus your deductable is around the blue book value of the car? And, you’re going to pay an extra $75 to $100 per month?” He said, “Yes. I feel better knowing I’m fully insured.” I felt his answer in my gut! I was a bit taken aback.

Greg taught me a lesson. I had just passed the Certified Financial Planner examination and thought I really already knew how to help people to make good financial decisions by maximizing their outcomes. Gregory taught me a lesson in how people make financial decisions. Greg was willing to give AAA an extra thousand dollars or so per year so he would feel good! Rational thinking is not the only criteria people use to make decisions.

The Gregory Effect

I bet you can see similarities in how you make your financial selections and how my nephew Gregory makes his financial decisions. What happens emotionally for you when you decide to make a financial selection? As I describe Gregory’s rationale for coming to his financial conclusion, tell me if it is a good or bad financial result? You can type your responses in the comment section below.

I was so bent on maximizing monetary outcomes to produce a tangible result for people. Greg taught me that it also has to feel good. I call this the “Gregory Effect.”

My friends like Donnie Moore from Levi Strauss always assessed my financial wherewithal when they saw me in my Seville. No matter how many times they saw me in my Caddie, they would always remind me that, “you can’t drive. You’re blind. Why do you need a car?” As if I didn’t already know.  Now I know what to tell Don, “Because it felt good!” That’s why I needed a fancy car. It felt really good to me to own a fancy car and I had fantastic social experiences once I bought it.

Business Decisions

People make financial decisions based on emotions and justify their decisions with logic. Well, I want you to understand our emotions also play a big role in the financial selections we make in business. The same buying patterns we use in our personal life to buy things like clothes or cars come into effect when we make our financial choices in business. We need to recognize this phenomenon if we want to increase our “good” financial decisions. Intuition may keep you from making bad choices. You must learn to trust your feelings and not allow an aggressive advisor, supplier, or other’s criticism to force you into something you don’t “feel” is good for you.

Remember, your decision not only has to produce a good outcome, it also has to feel good! If it doesn’t feel good, you’ll always second guess yourself, and you’ll have lingering anxiety about your selection. A good financial planner will recognize not all of your financial decisions will be based on rational thinking. Your human side needs to be included into your financial plan along with your risk assessments, tax consequences, investment strategies, and financial calculations.

This is how I help you at Donald Hunter™ Financial. I personally want to know about your whole life and expectations. The “Gregory Effect” taught me to work with your personal convictions and your financial goals. I help you uncover the true emotions driving your financial decisions. Financial planning is not about numbers. It’s about people.

Sign-up today for your complimentary financial planning consultation to meet with me to see how The Donald can help you succeed financially. You can see from my story that my personal philosophy is to have fun early in life while you have good health. Health care expenses will be your biggest outflow as you age. I can’t wait to hear about your personal financial philosophy!

You should sign-up for my free business survival report to the right of this post. It’s packed with powerful information to help you understand your commercial finance options.

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