People often make significant financial decisions on a whim due to excitement or are frozen by fear of making the wrong decision. If you have a significant financial decision to make, there are steps you can take to ensure you are making the right decision.
Ask yourself, “How does this fit with my financial goals?” This question can give you a lot of information and quickly tell you if this decision is not suitable for you. If you don’t have financial goals, you will want to do this first. If your goal is to save for retirement or build a real estate portfolio, buying a car may not fit with either goal. However, if you are looking at a rental property that matches your goals, there are more questions to ask yourself.
If this decision fits with your goals, you are not done. You need to ensure you can financially afford this thing. If a rental property has opened up, you need to do your research. How much of a down payment do you need? What is the monthly payment? Do you have a savings if the location isn’t occupied by a tenant? Are any repairs needed, and what is that cost? If any of these things start to feel like a lot of money is needed, the decision may not be right at this point in time.
If you can afford the financial decision, the last thing is to understand all risks and rewards with it. You need to understand both the good and bad to know if you can handle this when something bad happens.
Once you decide, return to it in a few days. This is a good gut check to see if you’re still interested in the thing you are making a decision on.
Going through this process can help you avoid making poor financial decisions. If something doesn’t fit your financial goals or is too expensive, it may be something you have to pass on. If that thing does fit your goals and you can afford it, you have to do more research to understand how your decision impacts yourself fully.