3 Steps To Help You Make The Right Financial Decisions

I recently had a client call and ask my opinion about an extended warranty offer for his car.  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.

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.

1. Information

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?

[See Troy’s tips on where to invest your cash today]

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.  Sure, auto repairs can be expensive, but does the warranty truly cover those expensive repairs and for how much?

2. The Financial Bottom Line

This is the subjective area of the decision process.  Where do you draw the line when it comes to cost? How much is too much to pay?

Let’s go back to the warranty example.  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 ½ years (due to mileage restrictions). I simply asked my client how many repairs $2000 would cover.  He responded just as I thought, “quit a few!”  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.

3. Gut Check

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.  This is why it’s 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.

While my client’s gut told him the warranty didn’t 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’s gut proved to be right.  The risk of possible repairs was a risk my client was willing to bear…and more importantly, one my client’s gut was willing to bear.

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.

We have all made a few bad decisions along life’s journey, and, looking back on those decisions, we can usually agree that something was missing in the process.  Take a look back at those decisions and see if one of the three points above was removed during your time of deliberation.

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?

About the author

Troy Von Haefen, CFP®


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  • Linda,
    I am sorry to hear about the loss of your husband. I know this is a difficult time for you, so hang in there!

    I wish I had a cut and dry answer for you, but I would like to get a bit more info. I would like to make sure you get the best over-all, big picture answer and it’s hard to know that answer without all the facts. Feel free to contact me directly at troy@vhfinancialmanagement.com and I will try to answer your questions.

    Thank you,

  • Troy,
    My husband passed away very suddenly and without any warning 6 weeks ago. I have lost over half of my income along with his death.

    We bought a used (1997)motor home in 2005 before we retired to live in while we worked away from our home on the lake, with thought of traveling in it after retirement. We retired 3 years ago and both of us were pretty much sick of the motor home after staying in it for 2 years.

    Now I find I cannot continue making payments on it and keep up my other obligations,(house and pick-up). Even if I could drive it and afford the payments I would not want to keep it.

    My concern is that we were oweing more than it is worth now, and it has been sitting for 3 years and starting to deteriorate. I will not be able to sell it for what I owe on it and am worried about what this will do to my credit rating. Also,how will this affect my income taxes next year if I do a voluntary reposseion or as the loan company calls a short sell.

    Thank you,

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