‘œIn any moment of decision the best thing you can do is the right thing, the next best thing is the wrong thing, and the worst thing you can do is nothing.’ ‘“ Theodore Roosevelt

Although it would be easy to blame my financial implosion on a variety of reasons, such as a poor economy, lousy real estate market or just plain old bad luck, the root cause of my troubles boiled down to one thing:   I’d made a series of really bad decisions about relationships, housing, employment and money.   Although the crummy local economy and real estate market of the mid-1990s certainly didn’t help, it was my bad decisions that made me even more vulnerable to the storms of bad luck.

As I’ve fought my way back from losing my home and filing for bankruptcy, I’ve had to take a good hard look at the decisions I made in the past, and what I could have or should have done differently.   I am not re-hashing these decisions for the purpose of self-flagellation; rather, I’m trying to learn from my past mistakes and do better in the future.

Now that my wife is more or less out of work, the financial decisions we make now could have long-lasting repercussions.

These days, when I’m faced with a financial or business decision, I try to look at it with different eyes.   These are some of the things I try to keep in mind:

1.       Take the emotion out of the decision.   This is, of course, difficult to do because we humans are emotional beings.   I try to avoid falling in love with goods and services.   Although I’m willing to admit that I might want something very badly, I try to keep my mind focused on the dollars and cents impact the purchase will create.

2.       Require a business case to be made for most purchases, especially when buying equipment for our business.   When we decided we wanted to replace our aging, cartridge-hungry inkjet printer, we spent quite a bit of time figuring out whether the new laser printer we were eyeing would indeed have a lower operating cost.   Unlike my old business, where I would buy things because I emotionally thought they would improve business, I stop, sit down, and do the math before spending.   I even try to take this approach with smaller purchases, because they can often add up quickly.   A dozen ‘œsmall’ $10 purchases adds up to $120, which is no longer a small amount of money.

3.       When incurring debt, make a contingency plan.   When we bought our house back in September 2001, we consciously made the decision not to buy the biggest house we could afford.   Instead, we bought a house that would have a payment on par with the local rental market.   If we found ourselves in over our heads, we’d be able to rent the house out for close to our monthly payment, and we’d be able to avoid foreclosure.   When we bought a new car during the summer of 2006, we made a very large down payment, so we would never be upside-down in the loan.   If we found ourselves unable to make the payments, we would always have the option of selling the car for more than what was owed.

4.       Consider the long-term, short-term and opportunity costs of financial choices.   Although it’s often easy to see the long and short-term consequences for a decision, it’s harder to see the opportunity costs, or the costs associated with not having the money available to spend on something else.   It’s easy to see that the long-term consequences of buying a house are 15 or 30 years of mortgage payments, and the short-term consequence is feeling very house-poor while you adjust to your new budget.   It can be harder to imagine what you might be giving up, but it’s important to consider it just the same.

5.       Remember that circumstances can change quickly.   Life has a way of tossing surprises in your path, both good and bad, and it’s important to keep a certain amount of flexibility with your finances.   Good jobs can be lost or won on short notice, so it’s important to remain nimble.   When times are good, take advantage of your good fortune and put money away for the times that aren’t as flush.

6.       Research financial decisions proportionally to the amount of money involved.   When you are planning to spend money, do your research, but don’t over-analyze.   Learn to recognize the point at which additional information won’t help you improve the quality of your decision.   Buying a new $10 pair of gardening shoes doesn’t require much thought.   Understanding a new investment, or double-checking the safety record of an automobile is significantly more important.

7.       Understand that even if you are careful, you’ll still make mistakes.   Don’t beat yourself up when you do.   Although my wife and I don’t regret buying our new car, because we were extremely tired of playing auto roulette with our aged collection of wheezing junkers, we’ve since realized that debt of any kind is undesirable.   If we’d exercised a lot more patience and waited, we could have bought the same car three years later for probably $5,000 less than what we paid, plus we would have saved the $1,500 in interest charges over the life of the loan.   Of course we wouldn’t have had the three years of no-hassle driving, but looking back I wish we’d waited.   Lesson learned.

Although I can’t say every decision I’ve made since my financial implosion has been perfect, I think overall the trend has changed in the right direction.   Rather than making lots of bad decisions, I’m now making mostly good ones, which has kept me on the road to recovery.

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