Decision Making and Financial Choices

The Decision Making Process

• Identify the problem
• Brainstorm possible solutions
• Explore and evaluate those possible solutions
• Make a decision and act on it
• Evaluate and accept responsibility for the results

A lot of things affect our financial decisions...lets look at a few.

Have you ever wanted something trendy?

Sometimes trendy items are hard to find, which forces the price to go up.

As the price goes up, consumers are forced to weigh the want with their needs.

Is this want worth giving up my needs?

Want = something that simply increases the quality of living.

Need = a basic of life. Food, water, and shelter.

Scarcity is an economic principle stating that because of limited resources, an economic system cannot possibly produce all the goods and services that people want; therefore, choices must be made about how the limited resources will be used.

OPPORTUNITY COST
What a person gives up when a decision is made. Also know as a trade-off.

For example...you purchase something with money you have been saving, so that money is no longer earning you interest in your savings account.

Have you noticed that parents of small children have to stand waiting surrounded by candy in the check out lane? This is a marketing strategy to influence financial decisions.

Marketing, Advertising, and Sales Strategies

• People who sell products and services are fishing for customers. They lure them in with sales, coupons, and other enticements.
• Examples include...Clearance Sales, Coupons, Rebates, Sweepstakes, Contests, Items purchased most often are in back of store (bread/milk)

Sometimes we even make financial decisions based on social pressure and the need to fit in.

Forms of social pressure

• Friends
• Newspapers
• Magazines
• Radio Ads
• Commercials

Don't forget that your emotions, attitudes and behavior affect you when making financial decisions.

You are responsible for your own financial decisions and the consequences that follow, so to help you out, we will learn about Financial Planning.

Financial Planning

• More than budgeting
• More than investing
• A thinking process that helps achieve goals
• A blueprint or plan for managing all components of a person’s money
• Arranging to spend, save, and invest money to live comfortably, have financial security, and achieve goals

Benefits of a financial plan

• You have more money and financial security.
• You know where to use money to achieve your goals.
• You have less chance of going into debt you cannot handle.

Steps to a Financial Plan

• Determine Your Current Financial Situation
• Develop Financial Goals
• Identify your options
• Evaluate your alternatives
• Create/Use your financial plan
• Review/Revise your plan