WISE Decisions
Do you ever feel stuck? Ever feel like you have a choice to make but you just can’t or don’t want to deal with it? Do you ever find yourself swirling in a tornado of thoughts and worry and lack of confidence about a decision looming in front of you? Well, me too; “been there done that”. In fact, I find myself tip toeing there at times even today and let’s be real, it is an awful spot to be in. If you’re in this boat, you may find yourself losing sleep, feeling a deep sense of stress and anxiety or worse yet, you may self-medicate by making other poor choices as a means of avoidance. These situations usually arise when there are at least a few choices and when there is significant impact associated with the decision. That impact can be either real or perceived but the fear of making the wrong decision can overpower us regardless of the reality or perception of the impact. Many times, these decisions are matters of the heart but often they relate to our money. I have developed an approach that I believe will help you calm the decision-making storm and walk confidently out of the clouds into the light of confident decision making in your personal finances. I’ve used this approach over and over and fully believe in its power, so much so that it has become a habit for me. I call it WISE decision making and here is how it works.
1. Write out your decision question. Don’t just say it to yourself over and over, actually write it down in the form of what is called an “if/then statement”. The idea is “if I decide on Choice A, then this happens…” Be careful of the words you choose when crafting this statement as they will color the risk or importance for you. Here is an example: “I WANT to decide if I should refinance my mortgage. If I do, I could lower my monthly payment, allowing me to apply the savings to my outstanding student loan.” Notice the if/then components of this decision? Also, do you see how “want” was used to frame up the decision? If I had said, I NEED or I MUST, I put a sense of requirement on the decision and that in and of itself can make us feel overwhelmed or vulnerable. By using the term “want”, I have now implied this is a choice I am making and it is in my power to move forward or not. The process of choosing the best words for the situation will mentally establish the criteria and desire for moving forward. I recommend using this approach for the mandatory decisions too simply because words are so important that even when you are forced to make a decision, stating it in terms of your desire to decide will encourage you to move ahead. Faced with a decision about renewing your apartment lease? Still tell yourself you are in control by choosing to make the decision.
2. Inform Yourself. Take action to learn anything you do not know on the topic at hand. You can do so by doing your own research or by reaching out to an expert in the subject and asking questions. For instance, in the same refinance example, you might call a mortgage broker you trust, or perhaps rely on your Financial Coach, to identify all the costs associated with a refinance and what kind of savings you could reasonably achieve. Investigate not only the “if” part of the problem as just described, but also learn about the “then” portion of the decision. In this case, that might look like laying out a projection for how much time you’ll need to pay off that student loan with your savings. Both sides of the problem statement now have been more clearly defined and because you are informed you can be more confident of your decision.
3. Study your options. Here you should be comparing the information you’ve just become informed about to your “if/then” statement and making sure they agree. This is almost like defending a hypothesis in the academic world. That might sound hard, but it is not. It just means you determine if the outcome you anticipated initially will happen. If considering more than one option in the decision process, outline the specifics of each option and you’ll see which one provides the greatest benefit. In the example given, you have learned from your mortgage expert what mortgage rate you’d qualify for, what your costs are, what your payment reduction would be and how much you’ll save. Then, if you’ve discussed this option with your financial coach, you’ve learned how that will impact your budget and hopefully estimated how quickly you can pay off your student loan. Compare that result to your current situation to determine if it is a better to go forward with the refinance or keep things as they are. For some this means putting the numbers down on paper or in a spreadsheet format. For others, it might just look like a revision to your budget, but whatever form it takes, study it to provide the clarity you are looking for.
4. Execute! You’ve done all the work. Now its time to make it happen. Once a decision is clear move on and take action with gusto. The longer we vacillate on taking the steps we’ve already defined as positive, the more we can find ourselves stuck in limbo and maybe even lost in “analysis paralysis”. Analysis Paralysis is when we run scenarios over and over, getting lost in details and unable to remember what we’re working to achieve. Fear takes over and you might just find yourself missing out on an opportunity you thought you had. I made that mistake myself. I missed out a trading in a new car for a perfect used car years ago because I was stuck between the choice of giving up my way too expensive, nearly new car for a lesser, but so much more affordable used car. I did not follow this path and let emotions get the better of me. I made it all the way to this final step and then stopped. Because I did not execute on a clearly WISE decision and because I got stuck in the grip of over analyzing my choice, I missed that used car deal and paid for it dearly as I continued to kill my budget with the over priced, over optioned new car I had foolishly purchased months before. Don’t let that happen to you. Move! Make the right thing happen.
Granted, WISE feels a bit regimented but that is the beauty of the process! By going through a defined series of activities, you’ll emerge from the process with clarity and confidence. This approach may not work as well in all areas of your life, specifically matters of the heart. Yet when it comes to our finances, WISE allows you to frame the question at hand in a logical manner, get educated, compare and contrast and then move on. It works so well in financial decisions because of the ability to clearly outline the options. There may be an element of emotions in them, say for that person wondering if they should buy a new or used car, but still, even in that scenario, the numbers should rule. Using a system to rely on facts only takes the emotion and subsequent fear out of the decision. And, here’s an added bonus. After you have practiced this a few times, WISE will become one of your financially healthy habits. You will find yourself looking at each financial decision through the lens of WISE. Try it. See if this process doesn’t give you more clarity and confidence as you make these important decisions.
