MSE News: The secret to avoiding bad financial decisions

Former_MSE_Paloma

Suppose I offer you a bet on the toss of a coin. If you win you get £100, if I win you give me £1. Would you bet? ...

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The secret to avoiding bad financial decisions




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miller

I was thinking about this in general terms yesterday. It's important to make a distinction.

The majority of people make correct decisions. That is, they took the time available to evaulate the options and took factors into account such as previous experiences, their knowledge and researched around the topic. That applies to anything, not just finance.

Incorrect decisions are made rashly, on impulse and without considering all the facts.

Both of these can turn out to be right decisions or wrong decisions.

Fixing your interest rate before a collapse would be considered by most to be a wrong decision with the benefit of hindsight, even though it was correct at the time.

...basically IMO most people decide things with the best of intentions and generally make correct decisions even if they later turn out to be wrong. Either way there is no need to beat yourself up about it!

MABLE

We thought the right thing to do was fix our mortgage for 10 years but with hindsight perhaps not so wise. We fixed it in 2005 at a rate of 4.89 percent and 3 percent early redemption fee. However we made over payments of £500 for the last 12 months and then cleared the mortgage last month.

You live and learn.

Bigphil1474

I would have thought that if people are reading this, they would fall into the group of people who do generally (try to) avoid making bad financial decisions. The website is largely about learning from others' experience (bad and good) plus very useful tips and access to most, if not all, the information you might need to help you make a good financial decision. If you aren't looking at this website or other sites that help you, then you're already on the wrong track. Fortunately, I haven't made any significant bad decisions in the past ( a few minor ones), although we did stock up on toilet rolls last month but found the same brand much cheaper elsewhere later. Doh.

Pincher

I am very happy to take responsibility for my own bad choices.
It's when other people deliberately renege on the deal that really mess you up.


E.g.


1. You are getting far too good a deal because we never anticipated the BOE rate to stay so low for so long, so it's an extraordinary circumstance that allows us to charge what we want, instead of what the deal says.


2. They say you can port your mortgage when you set it up.
But what happens? Sorry, MMR means we won't let you port it after all.

loldalton

When I bought my first house I worked in a Financial Advisers and I happily took out an endowment mortgage with all the information required that past performance was not a guarantee of future performance and markets can go up and down. This was I'm 1999, so after much negativity towards mis-sold policies of the 80's. I knew the risk and was happy to have a punt. I then met my partner and he used to argue with me that I had made a bad decision. I held my endowment mortgage for some some years and kept an eye on the market, and after several warning letters the market had gone down in the early 2000s I then decided to switch to a repayment mortgage. I kept the endowment as a savings vehicle for a while and eventually cashed it in to purchase a car. I don't regret my decision, it was a educated risk and as you rightly say you can't see what's going to happen in the future. I'm not feeling any regrets as my circumstances have changed again, as have the markets.

Million_Percent

We took a five year mortgage fix in early 2008 just as the so-called credit crunch was kicking in. Nobody knew what interest rates would do. As it turned out we ended up paying over the odds for 5 years. I don't regret the decision even though a different decision might have saved us quite a bit of money. We opted to fix our mortgage at a rate that we knew we could afford at time when interest rates could have soared. It was the right decision at the time and I'd do the same again in the same situation.

enthusiasticsaver

We made a decision in the early 90s when interest rates were rocketing to take out a special mortgage where we paid a lower interest rate with the difference put on the mortgage leading to an increase in the balance. It was done at the time, naively as we had two small children, interest rates were rising rapidly and I had given up work to stay at home with our daughters. Very quickly though on looking at our mortgage balance rising rapidly we realised the day would come when not only would we have to cope with the high interest rate (the term was limited) but it would be on a much higher balance because of the way the mortgage was structured. At that point I went back to work and changed the deal.


It was certainly a poor financial decision as it cost us more but it did buy me an extra year at home with our daughters so I cannot regret it totally. There are always reasons why people make poor financial decisions and mostly it is a case of not thinking things through and going on gut instinct. It was a lesson learned for me and from that point on I never signed up to something without mulling it over for a period of time and looking at pros and cons of every financial deal from that on so it taught me caution which is no bad thing.

angelface251

Hi guys this is what I am beating my self up over. 10 years ago I had a successful career and 4 properties. Then I lost my job and had to sell some of the houses. I was left with one house and my main residence. I foolishly listened to my ex partner at the time and bought a house in Turkey with him by selling that one investment I had, now because of mortgage arrears I am unable to get a mortgage though I have a healthy deposit and am upset that I probably would never be a landlord again. I am thinking now of ways to make that capital I have about £50 k grow so that in time I can have enough to either buy another house as I will sell my current main residence as it has a big mortgage on it at some stage in the future. I am trying to aim for mortgage free living ideally. Before you ask I need to sell and he dosen't want to so is refusing to. Any ideas on any of these issues? Thanks guys.x

rosieposie4

my partner and I have just found out that his parents are about to be evicted from their home as they took out at Sale & Rent Back deal in 2007. They have known there was a problem since 2010 but its taken so long as test cases were going through the Courts but Supreme Court has now come down in favour of the lenders (despite some of the Schemes owners being in jail for fraud). The house is worth about £240 - it[s a 3 bed semi (they got £50k to clear mortgage and debts and then paid peppercorn rent). They are retired and now facing a pretty bleak future. We are stunned, sad, angry, frustrated, powerless, etc. Has to be one of the worst financial decisions? if only they'd spoken to us at the time we could have explored other avenues like downsizing or helping them out with remaining mortgage...

Mars_Bar

In poker this is known as results-oriented thinking.

I called with 2% chance of winning and hit my card, beating the other players at the table and winning the tournament. I'm therefore a great player, yes?