Lately, I've been navigating through numerous financial decisions concerning the distant and not so distant future.
Financial decisions are hardly easy, especially when the present is such a dynamic and challenging environment. And the the future seems uncertain and complex.
However, I have learned not to let these factors overwhelm or paralyze me from making any financial decisions at all. Part of the reason being that not every decision needs to be made right away in a dynamic and challenging environment.
Sometimes, it is better to wait and see how the situation evolves before taking action.
Besides that, It also seems that there's no such thing as a perfect decision, every decision we make comes with trade-offs and consequences.
But I think the most important thing is to make informed and rational decisions that are consistent with our values and principles.
Values And Principles as an Anchor
Traditionally, values and principles are the core beliefs and rules that help define who we are and what we stand for. These may vary from individual to individual but the fundamental point is that they can be a criteria which guide our choices and actions in various domains of life, including finance.
For example, a young entrepreneur who values innovation and follows the principle of a high risk-reward ratio when investing, may find little to not reason to venture into low return investments or industries that are lacking behind with innovation.
Where as, a middle aged employee who values stability and follows the principle of compound interest, get rich slow or time value of money, may well find all the reasons to venture into low return investments.
Because these tend to be stable returns and with the power of compound interest, it could grow into a substantial amount in the future.
Both scenarios above illustrate how different values and principles can influence financial decisions in different ways. A notable difference between the two examples is time horizon.
The young entrepreneur, especially being young has a short time horizon, while the middle-aged employee has a long one.
This affects their strategy of investing, as the entrepreneur seeks to generate quick profits and capitalize on market opportunities, while the employee looks to accumulate wealth gradually and benefit from compound interest.
Since there's no such thing as a perfect decision, it's also good for us to remind ourselves that not all decisions are fixed or static, many are dynamic, meaning they're changeable.
Values and principles can simplify financial decisions by providing a clear and consistent framework for evaluating different options and scenarios.
As a framework, we can reduce the 'emotional burden' of making financial decisions, as we can rely more on our core beliefs and rules to guide our choices and actions instead of our emotions.
This can act as an anchor that keeps one grounded and focused on what matters most instead of being overwhelmed by the complexity or uncertainty of the financial environment as it was in my case.
In Closing
I've met a few individuals who are not clear about what their values and principles are. I think it takes a fair amount of introspection to identify, clarify, and prioritize one's own values and principles. And they're a key to simplifying many decisions, not just financial.
However, financial decisions are among the most important and challenging decisions that we face in our lives. Because they can have a significant impact on our well-being, especially in this digital age.
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