Reasons we make wrong decisions
As you were considering your future purchase, did you think of the challenges if you weren’t prepared? Poor preparation is common when it comes to making big financial decisions, especially in personal finance.
Whether thinking about a large purchase or planning for your future , this lesson will provide you with valuable insights and tips on preparation to help you make informed decisions.
Click below for examples of common decision-making mistakes. Can you relate to these?
Made the wrong choice
Making the wrong choices when spending, saving and investing money can lead to serious financial consequences.
One example is buying a car that is too expensive and isn’t needed. It can be a quick decision with long-term impacts of excessive debt as a large portion of income goes towards paying the car loan.
Additionally, if the car doesn’t meet needs, extra money may be needed for repairs or upgrades.
It is important to make informed decisions by carefully considering all options and budgeting in advance to avoid these potential pitfalls.
Didn’t learn from previous decisions
Not learning from previous experiences when managing money can lead to repeating costly and unnecessary purchases, and cause a strain on finances.
For example someone who frequently buys expensive designer clothing with their credit card. Despite realising these purchases have resulted in late payments and financial stress in the past, they continue to make these impulsive purchases without learning from their previous experiences.
As a result, they find themselves in a never-ending cycle of debt and financial struggles.
To avoid this, it’s important to reflect on previous experiences, consider the consequences and adjust our financial behaviour, to make better decisions in the future.
Didn’t need to buy
Buying things we don’t need can lead to financial waste and instability.
An example of this is making an unnecessary and expensive purchase, such as a smartwatch that will only be worn a few times and doesn’t add long-term value .
Not only does this result in the immediate loss of money, but it also prevents from using that money to make meaningful investments or save for the future.
This type of impulsive spending can lead to financial difficulties and hinder long-term financial security. It is important to take time and consider needs, affordability and to prioritize when making purchasing decisions, rather than falling to impulse temptations.
Influenced by family and friends
Friends and family can often have a significant influence on an individual’s financial decisions, but not always in a positive way.
For instance, when an individual takes financial advice from a trusted friend, such as investing in cryptocurrency and ends up losing money because their friend is not a qualified investment advisor and does not have a full understanding of the risks involved or the market.
It’s crucial for individuals to be wary of these influences and to conduct proper research and seek the advice of qualified professionals before making any significant financial decisions including purchases and investments. This will help ensure that they are making informed and well-considered choices that align with their financial goals and priorities.
Didn’t research before making decisions
A lack of research can result in poor financial decisions, as it leads to a lack of understanding of the options available and the potential consequences of each choice.
An example of this is not researching before making a big purchase, such buying a new apartment. Without researching, an individual may not be aware of all their options, including better deals or financing options.
Additionally, they may not fully understand the long-term costs of owning and maintaining the apartment. This can result in overpaying, making the wrong choice or taking on more debt than is necessary. It is also the case for smaller decisions such as booking a hotel on vacation or deciding which supermarket to buy groceries from.
It’s crucial to do proper research and seek advice from experts before making any major financial decisions, to ensure one is making informed choices that align with their financial goals and priorities.
Haven’t reconsidered, too late
Failing to take time before making decisions can lead to poor outcomes, especially when an individual is under pressure from external factors.
An example of this is being pressured by a salesperson to take a new credit card. Although the trained salesperson makes the offer tempting, there may not be time to fully understand whether the card is needed or alternatives. Leading to a rushed and ill-informed decision including credit card fees and temptations to spend money beyond means.
To avoid this, it’s important to take the time to fully understand the options available before making any decisions and whether there is a need to take on a new financial burden, ensuring informed choices that align with financial goals and priorities and reducing the risk of impulsive and costly mistakes.