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There are few feelings worse than when you realize that you made a financial mistake. That sinking feeling is sometimes called “Buyer’s Remorse” when you look in the shopping bags the next day and realize the sum of your purchases is larger than how good the clothes make you look. Financial mistakes are a hard topic to discuss because no one wants to discuss mistakes in our finances. In our finances, we all want to discuss our great investment results, a perfect trip to the Caribbean we got at a steal, or how we negotiated a hard price on the new sports car.
The truth is financial mistakes happen to us all. No matter our age, rank, profession, or income tax bracket, we all make a financial mistake from time to time. The difference is how we react, understand, and recover from those financial mistakes. I distinctly remember as a young Army officer reviewing a large purchase of furniture that I made and realized to late the payments were far too steep for my paygrade (of course I bought it just before I PCS’ed to a new post several states away!). I looked myself in the mirror, realized my error, and spent the next year rarely going out so I could pay off the loan quickly. Oh yes, I kept that furniture over 20 years – so I could get my money’s worth!
Here are five steps to follow to help get over a financial mistake instead of ignoring it and hoping the problem will go away:
Action Step #1 – Acknowledge the Mistake. The first step in realizing a financial mistake was made is to realize and to admit it. Often times, we can look back and see some early warning signs such as a late payment or willing a paycheck to deposit early. During this step, you need to determine the precise amount of the negative financial effects. The critical part of acknowledging a mistake is so you do not give yourself endless amounts of personal grief for the mistake. When you realize the mistake, then you own the mistake, and make a personal pledge that you will resolve the situation quickly and effectively.
Action Step #2 – Talk with Your Significant Other. Once you have acknowledged the mistake, then you need to discuss this with your spouse or significant other. Of all the steps, this one can be the most difficult because no one likes to look “foolish” or “irresponsible” in front of the most important person in their life. Openness in financial management is one of the most important of all the financial management tips you will ever learn. By being open, we understand the pressures and then both people will now own the solution.
Action Step #3 – Get Outside Advice. Depending on the financial problem, you may have to seek the help of a relative, a friend, or a financial advisor. The outside advice is important because they will provide you with perspective and ideas how to resolve the problem. What appears as an unsolvable problem to you could appear to someone else as perfectly solvable based on his or her knowledge, experience, and contacts.
Action Step #4 – Determine Options Together to Resolve the Problem. Once you understand the mistake, have had a discussion with your significant other and talk to a trusted advisor, then you can look at your options to resolve the problem. You can come up with three options that solve the problem and do not get you deeper into other financial difficulty. As a ground rule, stay away from a “wait and see” or “do nothing” approach. Determining steps to resolve the issue is critical.
Action Step #5 – Resolve the Issue & Take Steps to Prevent a Repeat Mistake. Once you have determined how to resolve the issue then take steps to fix the problem. Fixing the financial mistake will make you feel better and give you a path to go forward. Finally, understand why you made the mistake and what you can do to prevent it in the future. No one makes a financial mistake intentionally, but we may rush a large purchase, not fully factor the debt into our budget or forget about an upcoming payment. Understanding how you made the mistake is critical to preventing it from happening again in the future.
We all make financial mistakes from time to time. Everyone. By acknowledging the mistake, creating options to resolve the problem, and discussing it we create a path forward and action plan to actually fix the problem.
Problems do not fix themselves – firm resolve, unified action, and support fix problems.
How have you overcome a financial mistake? Share your advice in the comments below.
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