There are no ‘good’ money decisions

Ben Nash

When you’re trying to set up your money strategy we often hear stories or get advice from others about what you should be doing to get the best results. But in reality any decision can be good or bad for you. You need to understand what makes a money decision ‘good’ so you can make smart choices that will actually be ‘good’ for you.

I think everyone has received advice at some point from someone about something you can do with your money or some investment which will help you get ahead. It could have been someone in your family, colleagues, or mates, but chances are they swore by this strategy talking about how it worked for them and how it would work for you.

They probably told you about how someone has made a bunch of money doing this and that it’s a ‘no brainer’.

But could it be this easy?

I’ve seen a lot of smart people run into serious trouble making decisions that had been really successful for other people. But in each situation they all made one really common mistake, and paid the price.

When it comes to money options, there are no ‘good’ strategies. What’s good for you is going to be different to what’s right for old mate down the street. This is because the best decision depends on all the other things going on in your financial and non-financial life.

I wanted to share this story of one of my clients so you can avoid making one of the biggest and most common mistakes people make with their money strategy.

I had a client (Shane) that had some mates that were professional investors. Shane’s mates had been working in investments for more than 10 years and were into some pretty complicated investment strategies involving complex products.

Shane was earning a good income and was managing to save a solid amount with each paycheck. He knew he should have been doing something smarter with his savings and was getting hammered with tax, but didn’t know what to do and was worried about making the wrong decision.

After talking with his mates over a few dinners, Shane decided to put most of his savings into a fairly complex medium duration (around three year) investment. The prospects for the investment looked good and Shane was eagerly awaiting his pay day. Once the investment was made, Shane was watching the progress and everything seemed to be going well. The investment was making progress as expected and Shane and his mates were all very happy.

This all sounds great, right? Well sort of.

The long and short of it is that Shane ended up smashing it at his job and getting a good pay bump (he knew this was on the cards and had been working toward it for a while). Shane’s higher income coupled with a couple of the other strategies we had set up for him meant he ended up being in a position to buy his first investment property much sooner than he thought possible. And here’s the thing….

All these things on their own are great things. Investments doing well. More savings. Less tax. More income. Able to buy property. BUT, for Shane, because he was effectively locked into this long term investment, he was unable to exit and get the money back that he needed to contribute to the property he wanted to buy.

This put Shane in a difficult situation. His options were, exit his long term investment and not only lose the money he had made, but also pay a hefty penalty fee, and then buy the investment property he wanted. Or, ride out his investment and delay buying the investment property. Both difficult decisions and neither ideal.

Shane opted for the second option and held off on buying the property he wanted. Unfortunately, with recent house price rises in Sydney, this option ended up costing Shane a packet in terms of lost earnings. His investments have since matured and made money, but he is looking at house prices and now can buy a lot less for his money.

The problem is that people often get caught up thinking a particular decision is a good one, like setting up an investment, buying a property, or paying down debt. This is not always the case, and if you don’t think about the impact of what you’re doing and how it fits in with all the other aspects of your money strategy you can run into big trouble.

The thing Shane didn’t think about was how this investment fit in with his other plans. Shane got caught up with trying to make a good investment, and didn’t think about his future plan or how his situation might change.

When it comes to making money decisions if you want to avoid trouble, think about how the decision you’re making fits with not only your situation today but your future plans and how your situation might change over time.

Take the time to think ahead and set up a considered financial strategy to help avoid making decisions that will slow down your progress and hold you back. Maintain flexibility within your strategy and you’ll be able to pivot and to get the most out of your money.

There’s no such thing as a ‘good’ investment.

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