Talk to Others About Financial Decisions

This is a guest post by Jim of Bargaineering. Jim is also co-host of the Personal Finance Hour, a weekly personal finance radio show.

Before I make any financial decisions, I always try to talk to someone about it. Whether it’s buying something from Amazon or investing in a stock, I always talk to at least one person about the decision before I make it. There are a lot of benefits to sharing your decisions with others, here are just a few of them.

Fraud protection

Most of us are pretty good at spotting fraud. We don’t know all the security features in the twenty dollar bill, but most of us can spot a fake from a mile away. Every so often, however, you run into a Madoff investment “opportunity” or an intricate multi-level marketing scheme that manages to slip past the fraud detector…

That’s when running the idea past a friend can be crucial. Even the simple act of talking through and explaining the opportunity could clue you in to the fact that it’s a fraud.

Achieve a better understanding

On the internet, there is always someone who knows more about something than you do. Whether it’s a hot new investment or a new bank account, chances are someone has done a lot more research about it and can give you more information to help you make a good decision.

One of the reasons why I started the Bargaineering Forums was because I realized that I don’t know everything about everything. I’ve been fortunate enough to have readers who do, so I invited them to join the forums to share their wisdom. It’s a small community but we have all manner of experts and always welcome new perspectives.

Cooling off period

You just walked into a store and you saw the latest and greatest shiny gadget or gizmo (if electronics aren’t your thing, substitute something you really like). You want it. You don’t need it, but you want it. Why not ask your friend about it?

By introducing this small barrier, you give yourself time to cool off and think more rationally about the purchase. Maybe you wait a month to get it, perhaps you wait for a coupon or a sale, or maybe you go back to the store and buy it; regardless of the outcome, you let yourself cool off and think more rationally about the decision.

Possible gotchas

This tactic isn’t without downsides. It’s important that you find people who know more than you do about the subject, so you get constructive feedback and aren’t stuck in “teaching” mode. You want to talk to someone who can critique the decision, not simply understand it and agree because they’re deferring to your knowledge.

It’s also important to just use your friend’s input as an additional data point. Weigh their viewpoint along with everything else rather than treating their opinion as the be all and end all. Just because they agree doesn’t mean it’s a good decision!

Do you use any of these techniques whenever you make money decisions? Which have you found to be most/least effective?