Q: My wife just got a new job with a substantially better salary, and I received a significant promotion. We’re empty-nesters and want to handle our increased income responsibly (we haven’t always been the best financial decision makers in the past). What should we keep in mind?
A: This isn’t really a question about the best way to use your money. That’s a highly subjective issue that we can’t possibly resolve for you. What you really want is a broader set of principles. Financial expert Ron Blue suggests the following criteria-based model for making fiscal decisions:
- Define your decision. What’s the question? Many times your decision statement will include such words as “choose,” “select,” and “best.”
- Clarify your objectives. What are you trying to achieve? What are the decision criteria?
- Prioritize your objectives. What are the non-negotiables? What are the trade-offs?
- Identify your alternatives.
- Evaluate your alternatives. What are the facts?
- Make a preliminary decision.
- Assess the risk. What could go wrong here?
- Make the final decision.
- Test the decision.
This multi-step matrix has a number of benefits. Perhaps the most important is its capacity for maximising objectivity, minimizing bias, and thus defusing emotion-based disagreements. If you discuss and apply it carefully, you separate the relevant data from the trivial, provide direction for your thinking, and set the stage for consensus as a household.
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