We get literally hundreds of questions on how to make a financial decision.
“O great and mighty Bitches, should I pay off my debt or add to my savings?”
“Our Bitches, who art in Bitch Nation, should I take a gap year or try to finish my college degree as quickly as possible?”
“Wise and benevolent Bitches, should I buy a house or keep renting?”
“Most beloved and humble of Bitches, how should I allocate my investments?”
“Bitches, I beseech thee: how much of my income should I budget for necessities vs. entertainment?”
It’s not entirely altruistic, though. We get off on being human Pez dispensers of advice tablets. And when we get multiple questions on the same topic, we often just write a whole ass article on said topic. BOOM! Question answered in perpetuity!
Despite the pleasure we take in our methodology, I’m about to shift it from a BGR-exclusive service to something even amateurs can do at home. With this article, I’ll wipe out about 70% of the questions people ask us in one fell swoop.
The Smokey the Bear School of Decision-Making
Most of the questions we get boil down to “How do I make this financial decision for myself?” Or even just “Please make this financial decision for me.”
And while I would love to enable our readers to let this cup pass from them… I can’t!
For I am definitely not a professionally trained and credentialed financial advisor, educator, or fiduciary. I’m self-taught! On the internet. Which probably means you should do the opposite of what I say at any given time??? It definitely means I can’t legally make financial decisions for anyone else.
To misquote illustrious American icon Smokey the Bear: Only you can make financial decisions for yourself.
Researching, asking questions, and gathering resources to help you make those decisions is wise. Necessary, even! But if you’re looking for someone to just do your homework for you… you’re going to have to pay a nice fat fee for the service. You can’t bully them into doing it by threatening to dunk them in the trash can during fourth period.
And even if you pay a professional to do your money thinking for you, there’s no guarantee they’ll get it right. Because they aren’t you. They don’t know your hopes and dreams for the future. They don’t know your weird hang-ups and insecurities. And they certainly don’t know what you’re comfortable with. All the financial education in the world can’t bestow telepathy on a fiduciary.
For the most part, you’ve got to Smokey the Bear that shit.
Step 1: Determine your priorities
I’m aware that “It depends” is a deeply unsatisfying answer. Especially to a question about making a complex and important financial decision. But for so many decisions about money, there really is no right answer, just different means to the same end. So it really does depend on a lot of factors, one of which is your life priorities.
This is because personal finance is (try to contain your shock) personal.
You can read advice all day about how renting is a waste of money and you’re much better off buying property. And that advice is right for some… but it might not be right for you.
If your priority is to travel often and live a minimalist lifestyle, and you couldn’t give two shits about things like feng shui and marble countertops… then maybe renting is for you, and damn the math!
What’s a priority?
A priority is something you consider important in your life. It can also be called a “value,” though that word is sometimes used as a conservative dog whistle to signal adherence to a particular religious doctrine. And we like our exclusionary language spoken real plain around here!
Your priorities are the principles, people, activities, and lifestyles you hold most dear.
For example, environmentalism is a priority for me. It drives a lot of my decisions, even when that means I might spend more time or money on something in an effort to be more environmentally friendly. Sometimes, the more environmentalist choice is the more frugal choice. And sometimes, environmentalism saves me money but costs me time. I have to weigh my environmentalist priority when making consumer decisions.
I line dry my clothes, try to avoid buying single-use plastic, water my garden from rain barrels, keep the heat in my home at 60 degrees, and avoid driving because those choices align with my environmentalist values. I choose to buy used items instead of brand new—even though I can easily afford it!—because that’s more environmentally friendly.
Likewise, your priority might be to travel the world, spend as much time as possible with your loved ones, or dedicate your life to winning the Leadville 100. It’s something that matters to you that everyone else might not give a fuck about.
Let your priorities guide you
Once you determine your priorities, they should be at the forefront of every major financial decision you make.
If your priority is to spend time with your family, you might turn down an extremely lucrative job offer in another state. Doesn’t make mathematical sense! But it’s your priority, and you know you’d be miserable were you to ignore it to blindly follow career advancement.
Others might not understand your dedication to your priorities. They might find your priorities ludicrous and your decisions batshit. That’s ok! Your financial decisions don’t have anything to do with anyone else. If their priorities are different from yours, how could they possibly understand your choices while prioritizing something else?
My dad is one of those people who prioritizes keeping his taxes and blood pressure both as low as possible. My brother, meanwhile, prioritizes being near a strong yet small community of friends who support each other emotionally. When my bro started talking about moving in with his best friend—to a high cost of living area where his taxes would go up—our old man just about fainted away.
They have different priorities! And neither of them can (or should) convince the other to make a financial decision that will go against those priorities.
Step 2: Set your goals
Once you’ve determined your priorities, you need to set goals that align with those priorities.
What’s a goal?
Goals and priorities might seem interchangeable, so let’s go over the difference.
A priority is what’s important to you in life—your values, what you care about, what makes you feel happy and fulfilled. A goal is a concrete milestone that measures where you are in relationship to where you want to end up. Often your goals are informed by your priorities.
When I graduated from college, I had student loans and a ten-year pay-off schedule. One of my priorities is to live a life of debt freedom. So I made it a goal to pay off my debt in five years, instead of ten.
Other examples of financial goals: own a home within the next ten years, increase your income by 20% over the next two years, get rid of credit card debt by the end of the year, finally start that pet grooming business where you cut and color poodles so they look like little dragons by 2023.
What every good goal has in common
Eagle-eyed readers will notice something about the examples above: they’re all specific, measurable, and time-based.
“Maybe own a home some day” is not a good goal. It’s too vague! That vagueness gives you permission to put your goal on the back burner and work on other things instead. Your goals need to be solid as a brick wall… but one built with slightly uneven bricks so you can feasibly climb over it given enough time and determination.
Having an achievable, specific goal to work toward should inform your financial decisions. Every big money choice you make should come back to the question, “How does this help me achieve my next goal?”
We talk more about goals and how to reach them here:
- I’ve Succeeded at Every New Year’s Resolution I’ve Ever Made. Here’s How.
- Actually, Fuck Big Goals
- The Dollar Bill Game, Part 2: What Money Goals Say About You
- The Most Impactful Financial Decision I’ve Ever Made… and Why I Don’t Recommend It
- Season 1, Episode 9: “I’ve Given up on My Dream Career. Where Do I Go From Here?”
- Ask the Bitches: Is It Too Late to Get My Financial Shit Together?
Step 3: Do the math
There’s a reason the mathiness comes last. It’s because it’s the easiest and often least important part of the equation.
(That was the sound of a thousand tax-hacking investment bros zipping down to the comments section to explain why I am Very Wrong™. Let them do their thing. They mean well… I think.)
We’re a personal finance blog. And we put a whole lot of emphasis on the “personal.” And while I’m not suggesting the personal should always trump the financial when making money decisions, it definitely should take precedence a lot of the time!
Now that you’ve determined your priorities and set your goals, it’s time to get mathy with it!
Return on investment
The math on a financial decision often comes back to determining which of your options provides you the best return on investment. Which sounds like a much scarier, more sophisticated monetary concept than it actually is.
“Return on investment” (ROI) simply means what you get for the effort you put in. Working for an hour and getting paid $7.25 is a low return on investment compared to working for an hour and getting paid $15. (WHOOPS! There we go inserting our liberal, commie, pro-union agenda into the discussion again! #FightFor15.)
Not every ROI calculation will be as clear as comparing time in and money out. If you’re determining whether to keep renting or buy a home, you’re going to compare the ROI of a lot of factors. A large down payment vs. a comparatively small security deposit. Eventually owning an expensive asset vs. paying periodically increasing rent checks every month forever. Arranging and paying for repairs yourself vs. passing that labor and cost on to your landlord.
If your goal is to pay off multiple debts, you’ll need to figure the ROI on which of your debts to start with. Is it the one with the highest balance? The lowest balance? Or the one with the highest interest rate? The lowest interet rate? The nice thing about this kind of ROI math is that there are clear answers for which option will save you the most money over the long haul, and which option will work fastest.
What if there is no right answer?
Make no mistake: “do the math” does not mean “figure out the thing that will save you the most money and do that thing.” Because again—saving the most money might not align with your priorities and goals!
If your goal is to pay off your debt as soon as possible, then you might choose to rent instead of saving up a down payment to purchase a home. Even if renting is more expensive in the long term! But your goal is to crush that debt beneath your stylish yet affordable heels. So you throw all your available cash at your debts, mathematical ROI be damned.
This is why the math comes last. When I paid off the last $5k I owed on my car in one fell swoop, compound interest evangelists came crawling out of the woodwork to criticize my decision. “But think how much interest you could have earned in the stock market with that money?!?!?!” these fiduciary howler monkeys yowled.
If my goal were to increase my investing portfolio as quickly as possible, then mathematically speaking, yeah—my critics were right. But my goal was to pay off that debt. And my priority was a life of debt freedom.
What do you think?
Do you agree with our three steps for making any financial decision? Do you have a different process? Set us straight with a comment below!
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