{"id":400,"date":"2011-03-01T15:08:58","date_gmt":"2011-03-01T15:08:58","guid":{"rendered":"http:\/\/vhfinancialmanagement.com\/?p=400"},"modified":"2011-03-01T15:08:58","modified_gmt":"2011-03-01T15:08:58","slug":"three-steps-to-a-solid-financial-decision","status":"publish","type":"post","link":"https:\/\/vhfinancialmanagement.com\/2011\/03\/01\/three-steps-to-a-solid-financial-decision","title":{"rendered":"Three Steps to a Solid Financial Decision."},"content":{"rendered":"
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I recently had a client call and ask my opinion about an extended warranty offer for his car.\u00a0 This was an interesting conversation which I thought may be helpful to share with others. Not so much in the sense of the viability of extended warranties for cars, but more so from the standpoint of learning how to make a well informed decision.<\/p>\n

When it comes to decisions, I generally follow three steps to assist and guide clients. While some decisions may require more, these three steps are great starting points in the search for clarity.<\/p>\n

1. Information<\/strong><\/p>\n

Information is golden when it comes to making a decision. The more information you can ascertain the easier the decision. The detail and fine print usually contain key points that often get over-looked but can be big factors in the decisions making process. Ex. Does the extended warranty require a deductible, and, if so, how much?<\/p>\n

The point of gathering information is to ascertain black and white data and remove as much emotion as possible. While the salesman pushing the car warranty delivers the hard sell by emoting fear based on the possible financial liability of expensive repairs, the car owner needs to understand the true cost of the warranty.\u00a0 Sure, auto repairs can be expensive, but does the warranty truly cover those expensive repairs and for how much?<\/p>\n

\u00a02. The Financial Bottom Line<\/strong><\/p>\n

This is the subjective area of the decision process. \u00a0Where do you draw the line when it comes to cost? How much is too much to pay?<\/p>\n

Let\u2019s go back to the warranty example.\u00a0 The cost of the warranty was roughly $2000. The car was a Toyota with 30,000 miles. Using the information we gathered from the details of the proposed plan we learned this warranty would only be a viable option for the next 2-2 \u00bd years (due to mileage restrictions). I simply asked my client how many repairs $2000 would cover.\u00a0 He responded just as I thought, \u201cquit a few!\u201d\u00a0 After looking at what was actually covered and factoring the deductible and other limitations, the cost suddenly seemed pricey. My client drew the line and decided the cost was just too high.<\/p>\n

3. Gut Check<\/strong><\/p>\n

We really need to listen to what our gut tells us when it comes to decisions. We also have to be careful not to rationalize a bad decision.\u00a0 This is why it\u2019s important to follow steps 1 & 2, especially in regards to removing the emotion. If we can remove the emotion from the decision, the answer usually becomes clear.<\/p>\n

While my client\u2019s gut told him the warranty didn\u2019t feel right (prompting his phone call to me), the salesman worked hard to play on emotions and cloud the decision making process. After removing the emotion my client\u2019s gut proved to be right.\u00a0 The risk of possible repairs was a risk my client was willing to bear\u2026and more importantly, one my client\u2019s gut was willing to bear.<\/p>\n

Most decisions get made without too much thought and deliberation, but the occasional difficult financial decision can be painful. Following the three steps above can help to clarify and remove some of the pain. While the simple example I used above may seem small to some, the three steps know no financial limit.<\/p>\n

We have all made a few bad decisions along life\u2019s journey, and, looking back on those decisions, we can usually agree that something was missing in the process. \u00a0Take a look back at those decisions and see if one of the three points above was removed during your time of deliberation.<\/p>\n

Have you experienced a difficult financial decision recently? How did you resolve the issue? What methods do you use to help you conquer a difficult decision?<\/p>\n

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