How to Make Smarter Money Choices
Do you ever find it hard to know what the right thing to do is when it comes to money? I don’t know about you, but I really don’t want to look back in ten or twenty years time and think I’ve made a foolish decision. But there’s no way to predict the future, so how can we be wise with what we have now, not knowing what’s to come?
In this episode, we’re going to look at one simple technique that has helped me to make smarter decisions with my money, and I hope can do the same for you.
This is a technique I’ve picked up from listening to financial guru Dave Ramsey. The idea is simply that you take whatever situation it is, and flip it round to give you a fresh perspective. When you do this, the path ahead often becomes clear. Let me give you some examples.
Let’s say you’re moving 200 miles away across the country and you’re wondering whether or not you should keep your old house as a rental property. Well, let’s flip it round. Let’s say you’d completed your move already and you had the cash available to buy a rental property. Would you choose to buy one 200 miles away, knowing that you’d either need to travel that distance to do maintenance or employ someone to do the work for you, or would you buy one closer to where you live? Maybe if you had the cash, you wouldn’t choose to buy any rental property, but do something else with it instead.
What about when it comes to the decision to sell or keep something you own? A few years ago, I decided I would learn bass guitar, so I bought a cheap bass for about £100 and it has pretty much sat in the cupboard ever since. Now if I sell it, I might get £60 for it so I’m going to be losing money, and maybe one day I’ll want to play bass again, so maybe I should keep it. Well flipping it round, if I had £60 today, would I go out and buy this bass guitar so that it could sit in a cupboard unused? No, I definitely wouldn’t, I can think of much better things to do with the money. So flipping the situation round has helped me to release that I should sell it.
One more example — the question of whether you should pay extra into your mortgage or invest the money. We know that, on average, the returns from the stock market are higher than mortgage interest rates, so doesn’t it make sense to invest the money rather than pay down your debt? Well, let’s flip it round. If you had a paid off house, would you remortgage it and go back into debt in order to invest in the stock market? If the answer’s ‘no’, then why not? And doesn’t that apply to the decision of whether to pay down the mortgage or invest now?
I really like this idea of flipping the situation round to get a fresh perspective that can help to make smarter financial decisions. I hope you find it useful too.
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