The 5-Year Rule for Financial Decision-Making
How many times have you been scared of making the wrong choices in life? Worried that one wrong move, and you’ll be suffering consequences years down the road?
That was the bane of my existence in high school. When faced with a myriad of opportunities before and during college, I was terrified of making the wrong choices. I felt like I had to do everything and be available for every social event that came my way. It resulted in one miserable me — and an empty bank account to boot.
I’d had enough of working extra hours at my job to pay for things I didn’t want. I realized that the things I was doing wouldn’t matter years down the line. I was making friends with people I knew would disappear from my life as soon as I graduated from college.
Someone suggested that I use a method of financial decision-making called the “five-year rule.” The idea is simple: Just ask yourself if the situation you’re dealing with or the choice you’re about to make will matter in five years.
Once I started using the five-year rule, I almost immediately started making better choices.
I dropped two “friends” who loved to gossip constantly because I realized that they wouldn’t be in my life five years down the road. To this day, I still use the five-year rule when it comes to my life and my financial decision-making process.
The Five-Year Rule in Action
Once you’ve decided to play by this rule, you have to be honest and accept responsibility for your choices. Carina Tovar, who is currently in the international studies program at Brigham Young University, rocked her money choices when she started making smart financial choices back in high school.
Tovar wanted to make sure she got off on the right foot at college by purchasing a computer. “By far the best choice I made in high school was to find small tutoring jobs and saving the money I made,” she says. And because of that, “I was able to buy a computer, which is basically my lifeline in college.”
She even had extra money left over to help pay for some of her college expenses without having to totally rely on her parents.
Applying the Rule to Your Financial Decision-Making
When making choices, know that whatever you choose will have consequences. They don’t have to be bad — it’s just something that happens as a result of your choice. That’s it.
You do, however, need to have the courage to say yes or no. Financial decision-making seems scary because we’re afraid we’ll make the wrong choice. Let me put on my mom pants and tell you that you’ll be fine, no matter what choice you make. Making good financial decisions means that you need to trust yourself.
Whenever you’re confronted with a choice, start asking yourself, “Will this matter in five years?”
For example, I had a college friend who took out extra student loans so she could buy groceries with the money. She sheepishly admits she should have thought that choice through — she hates paying interest on the food she ate years ago.
If you want to dig deeper, ask yourself two more questions:
“How will I feel about myself if I make this choice?”
“What’s the worst that can happen if I make this choice?”
It won’t take you more than a few minutes to ask these questions whenever you need to make a decision. You’ll start to hear a voice in your head (no, you’re not going crazy) that will reveal the right answer. At least it’s the best choice you can make for yourself at the time.
Trust me, you do know the answers — you just need the courage to listen to that voice in your head, even if it’s saying something you don’t want to hear. And if you still need a little extra help, there are tons of personal finance apps that can help — from PocketSmith to Digit.