Do a Dry Run Before a Big Financial Decision

Sat, Aug 21, 2010

Financial Advice

Too many people get into financial trouble by not thinking through the consequences of major decisions. To avoid this, try living through the consequences rather than just thinking about them before making a big decision in the future. What this means is setting up a trial run of the financial consequences of big decisions to judge how it will really affect you during the real thing.

One example is with buying a house and getting a mortgage. Take 6 months or a year and set up a savings account into which you put all the expenses that would be involved with the type of house you are considering. This means mortgage payments, property taxes, maintenance, and other expenses. At the end of the trial run, you will get a feel for what it would be like financially to own the house and how you would handle it. Not only can this help you decide whether or not to buy a house at all, but you can figure out the correct price range and type of mortgage that would best fit your situation if you proceed. On top of that, you will build a nice chunk of savings to boot.

The same concept can be applied to buying or leasing a car, education, and other major financial decisions. It will become easy to see what you can and cannot afford as well as where in the market you should be for each category. Many of these expenses are the biggest money related decisions you will make, so it is worth putting in a little practice and finding out where you are at before fully committing.

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