How to make smart financial choices

A scan of the many surveys about New Year’s resolutions reveals that it is common for people to set a goal to improve their financial situation. This may include saving more, repaying more debt or even investing more wisely.

How do you choose what financial actions you take?

To achieve a goal of improving your financial situation means you will need to make even smarter financial decisions that you have in the past.

Some typical decision making types that I come across are described below. Do you recognise yourself in one or more?


Follows the glitz and glamour of the latest trend. They end up changing frequently with the fashion rather than sticking at things. You can pick them as they always have an engaging investment story to tell at the barbeque or in the office kitchen. On the surface they appear active and ‘with-it’ but zoom-out and their progress is minimal.

“Have you heard about…?”


The champion likes to stand atop the dais. They are persistently hunting for the approach with the potentially best return or fastest way to get rich but give minimal consideration to the effort and knowledge required to achieve it.

“I’ve heard you get better returns if you…”

Paralysed Analyser

Detail oriented lover of spread sheets who easily gets lost diving down yet another rabbit hole so ends up taking very little action.

“I’ve just got a few more calcs I want to do”

The Ostrich

Listening to all the options described by the Fashionista and Champion overwhelms the Ostrich. They find deciding a bit too hard so instead procrastinate and hope that it will all work out.

“Meh, I don’t think about money”

The Groupie

Like the Ostrich, the Groupie finds it hard to make a decision but still wants to take action. They comfort themselves by doing what they see everyone else doing and then hope for the best. Often that will be what they heard from the Fashionista or Champion – after all they seemed to know what they were talking about.

“Well that’s what everyone else was doing”

My guiding principles for making financial decisions

Back when I was a graduate engineer I was a blend of the Paralysed Analyser and the Groupie with my financial decisions. I eventually found it so overwhlemelming analysing direct shares that the first share I ever bought was on the recommendation of the Human Resources officer whose office was next to mine. (I used to hear him on the phone to his stock broker so assumed he knew what he was talking about.)

In the ten years since I changed careers from engineering to financial planning I have evolved some principles that guide my own financial decisions and the actions I recommend to clients. The principles are as strongly influenced by my (growing) knowledge of human behaviour as they are of my financial knowledge.

I share these guiding principles with you in brief and hope they will help you make the right financial choices for you right now.

Overall philosophy

Money management and wealth creation are not about the money. They are about the life experiences money helps facilitate.

Money is just one resource required to facilitate the experiences in a fulfiling life. You also need to nurture you mind, body and soul and prioritise your time.

In short money is one means to an end.

Further, most people have better things to do than labour over managing their money and creating wealth.

When to start

Take action now since delay is the greatest cost in wealth creation.

Inaction is more costly than steady progress.

That said inaction or “pause” is often better than ill-informed knee-jerk action. To start it doesn’t have to be the best it just has to be good.

For example, just because you don’t know the best way to create wealth for retirement doesn’t mean you can’t start today to put away an extra 10% of your gross income into a cash savings account.

Where to start

Start by learning about and fully understanding what you have already got. For example:

  • the different types of bank accounts for cash savings
  • credit cards, loans and the best way to get out of debt fast
  • superannuation

How to filter possible actions into the right next actions for you

1. First pursue the high impact low effort actions

I am ambitious by nature with lots I want to achieve. So I am constantly open to more efficient and effective ways to get things done. I am seeking the sweet spot of outcome for effort required.

In regards to money that often translates to finding the lowest effort way to get a good enough outcome. You just need enough money to facilitate the experiences that matter most, whilst ensuring you have time left for those experiences.

It’s like filtering your actions based on Pareto’s 80-20 rule.

I often ponder “is there a simpler to understand and easier to implement way of achieving a similar financial and lifestyle outcome?”

As an example of a high impact low effort strategy, rather than busily trying to scoop more money into your money pot first plug the leaks – leaks such as high loan interest and duplicate fees on multiple superannuation accounts.

2. Learn and evolve incrementally by shifting one dimension at a time

(This principle requires a full article to explain but here it is in overview)

Some of the dimensions for wealth creation are:

  1. The source of funds (yours, a lender’s, other people)
  2. The entity structure (your own name, partner’s name, trust, company, superannuation)
  3. Direct or indirect (e.g. direct ownership or via a managed fund)
  4. Asset class (equities, property, fixed interest, cash etc.)

When you start out with a simple route you may start by investing:

  • with your own money
  • within the superannuation entity structure
  • indirectly through a managed fund
  • that is invested in a diversified portfolio of asset classes

At each evolution of your strategy you can ease the amount of knowledge you need to acquire by incrementally changing one of those dimensions at a time.

For example let’s assume you started by understanding your existing superannuation. To evolve you could just change the entity structure from superannuation to investing in your own name. You would invest in the twin sibling managed fund to the one you chose in your superannuation account.

(If you are just starting out then I understand if that explanation lost you. Tackle the earlier principles first.)

Coming up

In future articles I will describe some more processes to help you laser in on the best place to start for you right now. You’ll assess where you are in the Six Stages of Wealth Creation.

I am very interested in your thoughts and reactions on my guiding principles. Please share them in the comments below.

One thought on “How to make smart financial choices

  1. Another great newsletter Matt – Thank you! I hope you’ve had a great start to 2011 & look forward to seeing you on the East coast. I’m in Sydney now and we’ve just been put on the Approved Provider’s List for NSW Training so if you know anyone who’d like to do our course for free, let me know. My plan is to turn SW Sydney into Sexy, wealthy Sydney 🙂

    And I like your descriptions of the different decision making types – so true. xx

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