Financial Decisions and Self-Discipline

Financial decisions based on a solid sense of personal responsibility predictably lead to financial prosperity. But to become responsible with money we must first learn how to avoid feeling guilty about unproductive decisions so we can move on to positively exercise self-discipline with all our money decisions.

Responsibility in Financial Decisions

While writing this article I saw on the news an interview that related exactly to this topic: identifying individual responsibility in the financial decision making process. In truth I should have felt discouraged, or just felt flabbergasted, or something other than feeling like laughing. It was truly pathetic. But I couldn’t keep from laughing because it was so preposterous.

A person who was represented to be a financial expert was asked about the housing problem our country faces. The particular issue under consideration was the fact that so many people are looking at escalating payments they cannot meet.

The interviewer asked this “expert” to tell us who was at fault for so many people getting in over their heads with these loans. The so called expert declared that our national mortgage collapse was the fault of the banks as if that were the whole story with no reference to people’s need to accept any responsibility for their own money decisions.

Now the banks do play a role, but it was the reason for this blame that jumped out at me. “The banks are a service industry,” the audience was told. “It is their job to make sure the borrower makes the right decision about any loan they make.”

News flash! A bank is a business that makes its profit by loaning people money for as much profit as the market will bear. Even more, to judge by what they practice not by what they profess, many of them must stay up nights figuring out ways to enhance that profit with as many related fees as possible.

Banks are not there to tell you whether or not you should be making a loan. When lending institutions “qualify” you for a loan they are just making a risk analysis as to whether or not they can expect you to repay the loan.

They are evaluating whether or not they should make the loan, not whether or not you should be making it. It is your job, your responsibility, to understand your own financial decisions including whether or not you should make any particular loan—mortgage, auto loan or otherwise.

Now before I dig myself in too deep, let me say that I like banks. Over the years I have had a very positive relationship with several banks and bankers. My primary hometown bank has earned my loyalty and has always treated me with dignity, fairness and respect.

But I know that they have to make their decisions based on their primary responsibility to make a profit. The same is true for any other business, in the financial field or otherwise.

And after all, when I make a deposit I have the same self interest. I want the type of account that will give me the highest rate of return with the least expense. We have a mutual understanding that is profitable for both of us. But for this to work I must understand their self interest just as they understand mine.

Accept Responsibility, Not Blame

It is my responsibility to know and ask the kind of questions I need to ask to get the information I need to make good financial decisions. And I must accept responsibility for the consequences. Indeed, I would say that this is true even if I get taken in by a fraud.

Responsibility is not the same as blame. We do not need to feel guilty for making a less than satisfactory decision.

We do need to accept responsibility so we will be able to feel in control of our destiny. After all, if we think someone else controls our lives rather than ourselves we can never take action to move ourselves toward any of our goals in life, including our financial goals.

When we do accept responsibility for ourselves and for our financial decisions, we will be able to learn from our mistakes and determine not to repeat unproductive choices. When we know we are in control we understand that we have the capacity to make better decisions when faced with a similar situation in the future.

In fact—and this is even more important—even when we make good decisions the fact that our achievements are recognized as being a result of our choices means that we can learn from them equally. Consequently we can make even more productive decisions the next time.

Think Responsibly About Money

Becoming successful with money requires us to understand the law of self-discipline. This law says:

Prosperous people do honest work for their money, expect fair compensation for their work, and understand how money works in the real world.

The reason this is called the law of self-discipline is that it recognizes the fact that successful people accept the fact that they are personally responsible for the course of their own lives. They do not have time for the blame game.

If something doesn’t work out right they don’t accuse others of causing their failure. They think like Thomas Edison who didn’t consider any of his nonworking light bulbs to be failures. Instead he said he just eliminated 10,000 things that wouldn’t work before he found one that did.

The first two parts of this law are important but they are more obvious than the last part. That doesn’t mean they do not require effort to implement, especially the second about expecting a fair wage <-- (read my article, The Road to Unlimited Income for some help on this). If you do not expect to make an excellent income, appropriate for the work you do, you will not take steps to earn and receive one.

Nevertheless, I will leave them for you to give some thought to these two on your own, at least for this article. Instead, because it is so critical I want to focus on the third part of this crucial principle, the importance of understanding the realities of the financial world in which we live.

The point we made about the purpose of a bank introduces us to this concept. Without question it is one of the most vital truths we can learn, one that must be completely incorporated into our everyday thinking if we are to make good financial decisions.

Always consider the motivation, the goals, and the purpose of the person or organization from which you are getting your information about any proposition. This is especially so when it has to do with money.

Consider the Source of Information

When I was a child I can remember on occasions telling my parents some juicy bit of information. They would ask, “Who told you that?” After I answered they would often reply, “Well, just consider the source.”

They didn’t tell me whether the information was right or wrong, but they made their point. I learned a great lesson from their practice.

There are many common situations in which we might look to others to help us make financial decisions. Here are a few.

Financial Decision One: Insurance Agency

The best way to grasp how this concept works out in the financial world is to look at a few examples. Think about insurance. Independent agents often advertise that you should buy from them because they can pick from many companies to find the one that is best for you.

But think. Ask yourself whether the agent’s primary purpose is to give you the least expensive policy with the best coverage or to sell you the policy on which he or she will make the highest commission.

The single company agent may be just as good or better. But don’t trust his selling line, either. Compare policies for yourself and make a choice based on your real needs.

Financial Decision Two: Contractor

Not long ago I had to have some electrical work done on a home addition so I called for some estimates. One contractor was a new division of a company I had already done business with for some heating work.

It would have been easy to assume that I would get a reasonable bid and good work from this division, too. But knowing a thing or two, I got several bids. All were very close except the one mentioned. It was double the others!

I could easily have been out several thousand dollars simply by being unaware of how these things work. Why the big difference?

Several factors could have entered the picture. The likely one is simply that the contractor had more work than he could do already and as is a common practice with many building trades, he entered a very high bid figuring that if I was dumb enough to take it, he was perfectly willing to cash in on the easy money.

Financial Decision Three: Retail Store

Some years ago my sister worked for a department store that lacked a little in business ethics. When items of clothing showed flaws they re-wrapped them so the problem was hidden.

When she complained to the boss, he pointed out that they were guaranteed so people could just bring them back. He also acknowledged that less than half would do so. My sister decided to find a different job. Not surprisingly, the store is no longer in business.

This is not to suggest that all stores follow such dishonest practices. Nevertheless, we need to be alert to all kinds of potential pitfalls.

Exercise Discipline in All Financial Decisions

Every day we are confronted with opportunities to spend or invest our money. Some are good ideas. Many are not. Some will serve someone else’s purpose at our expense. Some will do us good, but at too high a price.

This is especially true with investments. Some offer great benefit to us and to those with whom we do business. Some sound great but really give us nothing that is of value to us even if it might help someone else. We just don’t need it. The trick is to be able to see through the gloss and understand the real deal beneath.

Who To Trust in Our Money Decisions?

There is no need to feel cynical or negative toward others who are simply doing business. There are many bankers, insurance representatives, and financial planners who are genuinely concerned for the welfare of their clients.

Even then, though, their training and bias can shape their advice. Just follow Ronald Regan’s famous advice which he directed toward foreign policy, “trust, but verify.” Don’t blindly accept anyone’s proposition. Check out the facts on which you will base any financial decision with reliable sources unless you are already adequately informed with up to date information.

But even if we make a commitment to learn, where do we go for the information we need? How do we know who to trust? Well, it isn’t always easy to know but there are a couple of guidelines.

First, never be too lazy to check out the facts thoroughly. One of the greatest aids to fact finding is the internet. But again, beware! Many of these so called consumer rating sites are thinly disguised fronts for product advertisement.

Air filters are a good example. Products highly praised by some of these fake consumer testing sites are identified as practically useless by real government or unbiased consumer testing sites.

One good recommendation is to search domains like .edu and .gov instead of .com’s for independent information. In many cases (not all) you are more likely to get correct financial information in general when you look to more neutral, consumer or educational sources like these.

Insurance people, investment companies, legal representatives and the like all have their biases. That doesn’t mean you can’t learn from them. You may learn a lot by attending a “free” seminar, but consider the source.

Fortunately, there are many good sources for financial information that are more neutral. For example, look at Dave Ramsey. Is he out to make money. Of course, and rightfully so. But how? By educating people about money. Just what we want to know about.

If he doesn’t give people unbiased, useful information he hurts his business. That makes his resources more dependable to us and we can factor in the idea that he is out to sell his books and other material. That is his “bias,” if you will.

There are many other financial counselors and authors who are focused on helping people make good financial decisions, not selling insurance, investments or legal advice of any kind. This program is one of them.

Not All Learning About Responsibility With Money is in the School Room

The most valuable opportunity for learning about how money works in the real world is by simple observation. Keep your eyes and ears open.

Watch people dicker over price at a garage sale. Listen carefully when people tell you about some great, or some terrible, business decision. When you hear a news story about some fraud think about how it was pulled off and how you would avoid it.

Examine those protection offers from the credit card companies. See how they appeal to people to buy something that really does them no good whatsoever.

When they invite you to pay them $10-15.00 each month to “protect” your account, consider the fact that if you report problems—say a lost card—as soon as you discover them you will only be responsible for the first $50.00 (many have terms that exempt you from that) and ask yourself who the monthly charge is protecting, you or them.

Listen carefully when someone tells you how they sold their house for so much more than they expected. Why did they expect less? How did they end up with more?

Read between the lines to figure out how things really happen—don’t just take what people say at face value..

Pay attention when you hear little bits of information such as how the real estate salesman by law must look out for the interests of the seller, not the buyer. Remember it and keep it in mind when you go to buy a house.

Become Responsible With Money

The more you understand about how money works in the real world, the more successful you will become in making good money decisions. Never quit learning—accept personal responsibility for your financial decisions. Keep your eyes and ears open, stay alert, and become responsible with money. Discipline with money will change the course of your life.