Thursday, January 29, 2009

Decision-Making is Hard

A couple of days ago, Trent at The Simple Dollar wrote a post about the difficulty he has making financial decisions, such as starting a Roth IRA. Although I do take the time to think through before making financial and personal decisions, I usually choose one course of action quickly and work through the details as I go along. Many of those close to me, C in particular, are more like Trent.

C took well over a year to open an ING savings account; he asked me to send him an account invite several times before actually signing up. He also put off opening any CDs with ING while the rates were still high (in the 4-5% range, those were the days...), because he hadn't had the time to fully work through the best option of where to keep his money and for how long. Contrastly, I opened my ING savings account in the summer of 2007 after reading testimonials on several personal finance blogs. Of course, I took the time to read through the account literature on ING's site, made sure my deposits were FDIC insured, and did a bit of rate comparison on bankrate.com, but I gave myself a date by which I would open my account and did it. I did the same thing when I opened my CDs at ING, several at interest rates much higher than ING is currently offering; I did some reading to find out what the liklihood of a Fed interest cut would be, and I made sure I opened CDs a few days before any potential rate cuts, while rates were still high. This paid off majorly -- according to my ING tax statement for 2008, I made $889 in interest last year.

Another example is my downpayment fund. Some people would say that I should just put that money toward my loans, and I can't say I think that's a bad idea. But, right now I'm not sure what the best option is for me. My loan interest rates are all low at the moment (only the private loan has a variable rate, and it dropped from 8.25% to 3.25% over the past three years), so I'm planning to continue snowballing them for now. At this rate, I'll have the federal loan paid off by the end of next year, and the Perkins loan paid off shortly after that. Although I may decide to move some of this money toward paying off my loans even earlier, for now I'm going to continue saving for a downpayment, Even if this is the "wrong" decision, I'm putting money away every month, and I can always change my course of action. The important part is choosing to take action and following through.

3 comments:

stackingpennies said...

T is also like that! It took him like a year to get his first credit card.

Money is emotional and decisions that are "wrong" sometimes are the best for our own mental health!

oneyearrentfree said...

You probably won't be shocked to learn that C does not have a credit card. ;)

I agree with you completely, I really think that just doing something, *anything*, is better than doing nothing at all. You can almost always correct a mistake.

R G said...

Whether you should pay off your loans or save for down payment.

Here's my thinking: Chances are your mortgage is going to be the biggest piece of debt you'll ever be laden to. My belief is the bigger chunk of that loan you can knock off from the start, the better you'll be. You can save boatloads of interest payments if you put up healthy down payment.

Scenario: Start with a $250,000 30-yr loan today. Interest rate: 5.33%.

Interest paid over 30yr = more than $250,000.

The bank makes a $251K profit.

Pay $25K down and save $78,798.29 on interest.

I hope this helps!

RG
Founder

The Household Money Tree