1. What are the limits to problem at hand?
2. How do you define a good or a bad outcome to the decision?
3. How should you measure the outcomes?
4. What do you bring mentally and psychologically to the decision table?
5. What are other ways to look at the problem?

A Mutual Fund Example
One example of solving the wrong problem is to pursue a high rate of return from a mutual fund investments without first deciding what kind of comparison or benchmark you should use to determine if the return is high enough. For example, index mutual funds that are designed to mirror the results of the Standard and Poor’s 500 index consistently outperform rough 80% of all mutual funds. The original problem may have been how to choose mutual funds with high returns. A better problem to solve would be how choose mutual funds which consistently perform better than the S&P 500.

Final Thoughts
Remember that most problems involving money usually involve something else besides money or mathematics. If you focus on the parts of the problem that are objective and that can be measured or solved with common with equations and spreadsheets, you may miss the most important part of the problem.

Next Lesson: Not Looking at All Sides of a Problem

Before you make a financial decision, you have to know something about your needs, the effect your decision may have, and how you go about making a decision. Some common money decisions that often happens too quickly is what credit card you should have, whether to buy or sell a stock, or whether to go into debt to replace your boring old (and paid off) car for a shiny new one. Taking the time to make a proper decision can save you a lot of frustration and regret, especially if you do it consistently.

A Credit Card Example
Let’s look at the credit card situation more closely. There could be dozens of reasons why you suddenly decide that you need a new credit card. You might not have one at all, but one day you decide to rent a car and find out that you need a credit card. You might have a card already, but you find a way to transfer balances and reduce your interest rate for the first six months. Even if you think you need to take action right now, it always makes sense to think it through to see if it is the right decision for you. The following are just some of the questions you should ask yourself before you sign on the dotted line:

1. What do you want to accomplish when making the decision? - At the very least, figure out if it is a short term or long term goal.
2. Who will be making the decision? - Typically anyone who will be responsible for paying the bill and whoever will be allowed to make charges on the card.
3. How should the decision be made? - Figure out things like whether you need to decide after comparing other options, or if any one person will have veto power.
4. Does the decision significantly affect other decisions?
5. Does the decision have to be made at all? - Think about what would happen if you took no action.
6. Does the decision have to be made by some kind of deadline?
7. What’s the worst that will happen if you don’t make a decision?
8. How much time do you need to make a decision?
9. What kind of options do you have?
10. Do you have any experience making this kind of decision, and if so what did you learn?

Once the background questions are settled and you have a good understanding of your overall situation, you have to start dealing with the decision making process. You should finish gathering any information that you need to make a decision. For credit cards, this would be things like late fees or other penalties, how much interest you will be charged, and what kind of no-interest grace period you have. These kinds of details should be spelled out in the agreement. If you don’t understand it, don’t sign it. If you don’t see it in the agreement, then it’s not part of the deal.

The next big steps are making the decision and carrying it out. If you decide to do something, then follow through. If you decide to do nothing, then take no action, no matter how tempting it may be. If you decide to change your mind, go through the same decision process. Don’t make the mistake of being logical and systematic the first time through and then being very informal the second time you wrestle with the same decision. Every decision is a combination of your analysis and your judgment. If you have a consistent process, you’ll likely improve the quality of both your analysis and your judgment.

Final Thoughts
Keep in mind that a credit card can turn out to be a long-term relationship. If you pay your bills in full every month, it can be a very happy and harmonious relationship. If you fall behind, it can turn real ugly real quick.

Next Lesson: Solving the Wrong Problem

The Making Money Decisions posts will take you through a few basics of decision making and take some of the stress out of making decisions about your money.

The ability to make good decisions is as skill that can be improved through practice and the use of the proper techniques. None of these techniques are based on any sophisticated mathematical or psychological concepts. If anything, the basic techniques of decision making are about figuring out what information you need for a decision, making a clear decision, and checking up on the results afterward. It is about finding the proper balance between intuition and analysis and recognizing that you can develop all the decision making skills that you need to become a better investor.

Next Lesson: Taking the time to think about your money problem

Examples, include

Mortgage $1,000
Babysitting $500
Utilities $250

The next step is to list out your monthly income

Salary $3,000
Spouse Salary $2,000

Next you will need to think about how much you would like to save. You’ll need a cash buffer and to save for retirement. You may want to think about other goals such as your next car and whether or not you will save for your kids college education. This is the whole idea of pay yourself first. It represents a way to make sure you put your savings goal first.

The difference is then the amount you can spend on all the other things.
Obviously, you need to think about groceries, gas and everything else that you need day to day. I purposefully lump all of these items into one big general fund. Because they involve a large range of trade offs that you will need to think about. This is the opportunity to get creative.

You can think about what you truly value and use to make your life fulfilling. Personally, there is no way I could actually live without Internet access, but I could live without my NetFlix account. To save on gas I started carpooling and got a special fuel perks card. If I really want some purchase that I can’t afford perhaps I’ll find some coupons or cut back in other spots.

A great one we have started is cooking with our kids. We save money by not going out and our kids really enjoy it. I’m sure you can think of similar examples to help you cut back spending, but still enjoy life.

The problem is that the mental accounting the family had to do to stay on track just wasn’t working. Instead we switched to a complete cash based system. Each family member was given an envelope with a certain amount of cash for everything. If my wife finds bargains at the grocery store she can have a little extra the next time she goes to the beauty salon. If she decides she has to have that certain something at the grocery store and doesn’t have enough money for the salon then she will just have to live with a few of the grey hairs a little longer before her next color treatment.

After using the system for a month it has worked well for us and allowed us to stay on budget.

The first thing you need to
do, even if you know you can’t
pay your taxes owed,
is to send in your completed tax return. The penalty for not filing
is more than the penalty for not paying. Once you have your taxes
filed then you can figure out what you are going to do about payment.
Below are some of the most common solutions for paying for taxes when
you cannot afford to pay. The right option for each person varies
depending upon their unique financial situation.

Find the Money Elsewhere

Many times you could easily
get together enough money to pay off taxes by thinking outside of the
box a little. Some options to pay in full when you don’t have
the money are the following:

• Credit Cards
• Home equity loan
• Friends and Family
• Pay advance from
  employer
• Sell old items on
  E-bay

Some of these options should
be used wisely. Even if you can borrow money, sometimes there could
be a better option. Consider some of the below options before borrowing
money.

IRS Installment Agreement

This is a very common mechanism
to pay back IRS taxes owed. The IRS will allow individuals to pay taxes
off in monthly increments (including interest) if they can pay off the
tax amount owed in 3 years or less. To apply for an installment
agreement you will need to fill out IRS form 9465 with the IRS. This
agreement will allow you to have money taken right out of your bank
account that will go towards the taxes you owe. This is a better
method to use than using a credit card because the interest rates are
typically lower.

Financial Hardship/Uncollectible
Status

If you cannot qualify for an
installment agreement, you may be able to get determined uncollectible
by the IRS. This will temporarily put you back on good terms with
the IRS and prevent the IRS from taking any actions against you.
They will check back every so often to see if your financial situation
has improved enough for you to pay back the taxes you owe.

Offer in Compromise

This is typically a last resort
option. The IRS will only consider this option if they think it
is very unlikely they will ever collect the taxes you owe. Under
this method you will pay a lump sum offer to the IRS for taxes owed.
The amount paid is typically much lower than the actual amount owed.
To apply for this you will be required to fill out a personal financial
statement and submit IRS form 656 to the IRS to be considered.
Very few of these filings are actually accepted and it is highly recommended
to consult a tax professional before attempting to make this type of
filing.

Picking the right method to pay back taxes is important. If the problem goes
ignored, penalties and interest on unpaid amounts will add up very quickly.
If you need help
with taxes and
help with picking the best resolution method, you should consult with
a tax resolution firm.

I have no doubt that in ten years this will be some cool, hip part of Detroit that everyone wants to visit. An interesting example of creativity during a tough patch in our economy.

You Are Eligible For A VA Home Loan If:

• You have had 90 days or more of active duty service during wartime
• You have had 181 days or more of active duty service during peacetime
• You were discharged for circumstances that were not dishonorable
• You are currently active duty personnel and you meet the above service requirements
• You are the surviving spouse of a Veteran who died during service or because of service-related injuries and you have not remarried.

You will also need to show work history and ability to make payments for the loan you are applying for. Lastly, there are three other reasons these loans are good for veterans.

No PMI Insurance is required.

VA Loans require no money down and you will see no penalty rates

VA Loans have lower rates than conventional loans.

Given the current economic environment this is a great option for those who have dutifully served our country.

They found that in dealing with fear and stressful situations there are two important parts of the brain. The amigdala and the frontal lobes. The amigdala is the primal part that process information quickly and starts immediately getting other parts of the body involved. The frontal lobes involve higher reasoning, but take longer to use. Essentially, when seals in training are confronted with a situation in the first impulse is for the amigdala to take over, but in order to succeed they need to use the other parts of their brain to execute their given task.

They outlined 4 steps used to create mental toughness and help trainees succeed. I think you will find that you can use these same techniques to help you achieve other goals for yourself. Basically, what they found is that the brain is very complex and lots of different signals are traveling all over the place. By using these techniques the recruits were better able to accomplish their goals.

1. Have a clear goal - It seems kind of obvious, but what the more successful trainees did was take it a step further and break down their large picture goals into very small and specific goals. For example, one former seal talked about his goal in the morning was to make it to breakfast and then his goal was to make it to lunch.

2. Mental Rehearsal - The candidates were instructed to rehearse in their minds the steps they needed to take over and over again.

3. Self Talk - I’ve never recorded this for myself, but apparently you can say like 300+ words a minute to yourself. This has a profound impact on your minds ability to reason and solve problems.

4. Mood regulation - This is the ability to quiet some of those hormones and other chemicals that start to go running around. They found one of the best techniques was to use controlled breathing. Slowly exhaling could help reverse these trends.