Making Smart Financial Decisions - ABLE National Resource Center (2024)

FAQs

What is the trick to making smart financial decisions? ›

Setting specific, measurable, attainable, relevant, and time-bound (SMART) goals provides a roadmap for your financial decisions and helps you stay focused on what truly matters. Create a Budget and Track Expenses: A budget is a powerful tool that allows you to take control of your finances.

Strong financial knowledge and decision-making skills help people weigh options and make informed choices for their financial situations, such as deciding how and when to save and spend, comparing costs before a big purchase, and planning for retirement or other long-term savings.

Those will become part of your budget. The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals. Let's take a closer look at each category.

Needs include food, housing, healthcare, and transportation—in other words, anything you really can't do without and maintain your health and security. Wants include items like entertainment, travel, designer clothing, and so on. If you can trim it from your budget, it's probably a want vs. a need.

A monthly auto loan payment typically falls into the “needs” category.

Ans. An excellent example of a financial decision is when a firm selects a funding method. This selection takes place after the firm assesses its financial status and sources. So, this firm may decide whether to issue equity shares or debentures based on its assessment.

What are the six steps for making good financial decisions? ›

Get started on path to financial success with these three steps: determining budgets, tracking spending, and creating realistic savings goals.

Identifying the Financial Objective: Before any decisions can be made, it is vital to clearly define what financial goals the organization aims to achieve. This step aligns all subsequent actions with these objectives, ensuring that every financial move is strategic and purposeful.

Locking in a cheap mortgage, when rates were low, was one of my best decisions. We must all take the rough with the smooth, it is said, which is something I thought of when reflecting on my financial journey over the years.

Before making a decision, gather relevant information from credible sources. Analyze financial data, market trends, and potential risks to make well-informed choices. Evaluate Options. Consider multiple alternatives and evaluate their potential outcomes.

Create a Budget: Based on your tracked expenses and financial goals, create a budget that outlines your income and expenses. Ensure that your budget is realistic and sustainable over time. Differentiate Between Needs and Wants: Distinguish between essential expenses (needs) and discretionary spending (wants).