“Life is the sum of all your choices.” – Albert Camus, philosopher, author, and journalist.
This is the first of a four-part series on Financial Success Through Policy Based Decision Making. The initial question is WHAT IS POLICY BASED DECISION MAKING? That is what will be discussed in this article. Future articles will tackle WHY use policies, HOW to draft policies, and When / Where are policies best used for financial success.
We are constantly faced with choices. Some choices we make quickly and automatically relying on mental shortcuts. Some choices we agonize over. While other choices are made by default when we don’t consciously make a choice. The field of behavioral economics has demonstrated that people are not always rational when it comes to decision making and even small decisions can impact one’s future. It is important to avoid the common pitfalls that lead to poor decision-making such as doing too little or too much research, mistaking opinions for facts, decision fatigue, a failure to learn from past errors and more.
When you get a raise at work does it become part of your regular spending? When you need a new car do you take out a loan? If your tax refund is larger than expected, do you purchase a big-ticket item you have been waiting to buy? These are examples of choices you may be faced with from time to time.
Do you know how you will make each decision as it arises? Will that decision be based on a temporary perspective or in the moment will you find the time to fully think through the decision and consider all the potential outcomes both short and long term?
Policy based decision making is a short-cut to making decisions that are likely to move you in a direction that you want to go. Policy decisions are those that determine how you will act in the future. Developing policies ahead of decisions will provide both a quicker answer as well as one more likely to be in tune with your true desires when presented with choices in the future.
A policy tells you how to make choices to act in alignment with your values and goals. Values are one’s beliefs about what is important. A collection of guiding principles. A compass that gives us direction. Goals are specific ways to execute your values. Goals are something we aim for and then check off once accomplished. Values are enduring and guide us on our journey toward our goals.
Policy based decision making is the practice of developing policies in advance of decisions that provide the guidance necessary to make a decision that is aligned with your values and moves you toward your goals.
Successful policy-based decision making involves a four-part process. 1. Define your values. 2. Determine your goals/priorities. 3. Based on your values and goals develop policies for your financial life. 4. Consistently use those policies when making decisions. The result of this four-part process is a greater level of financial success as defined by your goals.
