5 Steps to Making Better Financial Decisions

Introduction

Making better financial decision is a challenge to many people. Sometimes you may wonder why it is important to plan for the at hand finances. In most cases we fail to plan since we find ourselves having spent our income even before we receive it. Spending future income on today expenses. If you are struggling with making better financial decision then you are not alone. I can recall a number of times I have made poor financial decision that led me to a financial crash. When I tried the strategies below, I experienced a financial turnaround. If then you want to make better financial decision, then you need to follow the following steps to the end.

Step 1- Be responsible for your financial situation

The first step to financial turnaround is taking full responsibility of your financial situation. Knowing that you are the only person who can change your financial status. Nobody else is going to do it for you. Look at the mistake you did earlier and figure out what you would have done to avoid such mistakes. Use those strategies to enhance your financial performance.

 If for example you found yourself in a financial crash due to emergencies, figure out what you could have done then, for better financial decision. If emergency fund kit is a thing to start, then plan and start saving for emergencies.

Face your past financial situation courageously and work to mend it. Do not run away from it. Take responsibility of your current financial situation.

My husband and I found ourselves buried in some huge debts. We had exhausted all our SACCO opportunity of getting a loan. From what the SACCO refer to normal loan, front office kind of loan, emergency loan and salary advance. It was tough on us until we decided enough is enough with these financial struggles. It is at this point we gathered the knowledge on how to start a side hustle. 

 We used our active income to accumulate our wealth through passive income. It worked well.

Step 2- Set Motivating Financial Goals

At this point, you already know where you lost the track on your finances. It is a move forward time, full of positivity. Set financial goals that motivate you to work smartly.

For us our goal was to get out of the debts. At this point, we committed all income from our side hustle in paying the SACCO loans. Slowly, we managed to clear the SACCO loan one by one. Our goals led us to financial freedom.

Define clearly what you want to achieve, that will act as a marker towards your financial journey. Your goals should be achievable, have time frame and challenging.

Step 3- Prepare a Financial Budget

A budget is a financial plan that gives the overview of your expenses every month.

Having set your goals, now its time to define the route to follow. A budget will help you figure out what you are supposed to do, in order to achieve your financial success. It will always keep you on track. A budget will help you account for every dollar you make.

Step 4- Clear all Financial Debts

Debts is a hinderance to financial success. Meaning, if you want financial success ensure you pay all your debts. It may take sometimes but its worth the sacrifice. We pay interest for any debts we have. Interest is an additional expense to our budget. Better financial decision will make you earn interest from investments rather than paying interest on loan.  To state it plainly, rich people invest their money which earn them some interest while broke people borrow the same money and pay interest for it. A debt free life is a happy life.

Step 5- Know your net worth

Your net worth is the difference between your assets and liabilities. It is at this point when you calculate your net worth. Knowing your net worth is the final step to making a better financial decision.

Where do you start?

Calculate the value of all your assets. An asset is anything of monetary value that you own. For example, your personal car, money in the bank, money at hand as well as the value of any investment.

Calculate your liabilities. For example, any money you owe to other people, student loans, car loans and credit cards.

Subtract your liabilities from your total assets.

If you get a negative figure, then turn all your attention to increasing your net worth.

 Say no to anything that reduce your net worth and maximize the decisions that increase your assets. Start by paying off your debts. Then, increase your assets by saving and investing your money.

Final Thoughts on Financial Decisions

Achieving financial goals may not be easy but require some planning and commitment. the above steps have worked for me and I believe they will work for you also. All the best!