How To Think Though Hard Financial Choices And Make Better Money Decisions

This post was originally written for and published on Forbes

When you first learn to manage your money, you will likely feel like you are drowning in a sea of strict rules to follow: Pay off your debt, create a budget, live within your means, save more, start investing… the list goes on.

The nice thing about being in this stage, however, is that it’s pretty easy to find objectively correct answers to the questions you likely have at this point.

There’s one specific answer if you ask “what is a Roth IRA and what are the income limits if I want to contribute.” There’s a systematic way to figure out the answers to questions like, “how can I save up X amount of dollars in Y amount of time?”

But eventually, you will find an inflection point. It lies just beyond basic financial stability; it’s everything that comes after you develop sufficient financial resources.

At this point, you’ll face a new challenge: feeling confident about your decisions when you have multiple choices you could make with your money, and none of them are objectively better than another.

The Challenges Of Managing Your Money (Once You Have More To Manage)

Before you reach a certain level of income, you don’t really have a lot of agency over how you use your money; it has to go to bills, expenses, basic needs and savings. You don’t have a lot of options.

But at some point, your personal finances can no longer be managed on a spreadsheet alone. You’ll begin to have more freedom and flexibility, and therefore more choice.

When there are multiple avenues you can afford to take, determining which of your multiple choices is the best option starts getting hard to do.

One way to make a hard decision is to evaluate the objective facts around the options. This is where numbers do matter and can sometimes point us to very clear answers (like if you’re wondering if you should pay off debt faster or invest more; the answer could be easy to determine just by looking at the interest rate of your debt versus your expected investment return).

Financial choices can start feeling hard — or even impossible — once there is no objective measure of which option is better or worse. If the numbers tell you that either option can work for you, you can’t rely solely on that objective measurement to determine the best course of action.

It’s at this point where the conversation has to shift to subjective values.

The Role Of Your Values, Priorities, And Preferences In Financial Planning

In her TED Talk, Philosopher Ruth Chang says this is what truly makes a hard decision: when we have two options, we seek ways to compare them and make a judgement about which is better.

Comparing options is easy to do when you can quantify the options with real numbers, because you have clear outcomes: one option will be greater than, lesser than, or equal to the other.

But not all choices — even when they are financial choices or decisions about what to do with your money — can be quantified.

As Chang says, “the world of value is different from the world of science. The stuff of the one world can be quantified by real numbers. The stuff of the other world can’t.”

It might seem strange to say there are aspects of your finances that can’t be quantified by real numbers — but that’s exactly what happens when you get to a point where your income sufficiently covers your needs, many of your wants, and you still have money left over each month.

You then get to choose what to do with the money you have available.

Chang again explains that this is exactly what makes a decision hard: you have a number of alternatives that are not greater than, lesser than, or equal to each other.

There’s no set answer for the things you “should” do, or “ought” to do. That’s open-ended. The only real answer is what you decide is important to you, and of the highest value.

How You Can Improve The Quality Of Your Financial Decisions

In her TED Talk, Chang provides some advice for making better decisions when we face two options that, objectively, are pretty equal to each other and therefore there is no clear-cut “best” choice:

“When we face hard choices, we shouldn’t beat our head against a wall trying to figure out which alternative is better. There is no best alternative. Instead of looking for reasons out there, we should be looking for reasons in here: Who am I to be?”

Put another way, you can find the right answer to a hard choice if you consider which option best aligns with the person you want to be, or the values you want to live by.

That, at least, is the very philosophical answer to dealing with hard choices, which might not feel practice enough (especially when this is your money we’re talking about).

Using our values and ideal life vision to make financial decisions does not mean we should just completely throw all the numbers out the window and stop caring about financial facts.

We still need to consider your balance sheet, investment strategy, net worth, and a million other technical aspects that go into making a sound financial plan.

We need to look at the convergence of what we can quantify, like the numbers, and what we can’t, like your values and vision for your life.

This is how you can start making much higher-quality financial decisions: when you build a strategy that accounts for your financial reality and reasonable future assumptions — and then factor your values, goals, and priorities into that framework.

That allows you to stay grounded in what the numbers are telling you… but it also points to the secret to making final decisions that bring you the most happiness and fulfillment.

Once you understand the objective landscape of your financial life and identify the choices you have available to you, the “best” course of action for you is the one that most closely reflects the person you want to be.

Need help getting started with the right strategy for you and your situation? Learn more about our financial planning programs at BYH.