Financial Review: Tough decisions...

These economic times have made a lot of us face some tough decisions in our lives. Everything from our spending habits, things we do for fun and our saving habits have come under scrutiny as we try to ensure our families' well-being. Whether facing a lay-off, reduced pay, or the concern of cut-backs at work you may have had to take a hard look at your budget, and many have had to decide where the money will come from for the necessities of life.

There are 3 principles you should utilize if you are facing these decisions, and using these principles will help you make those tough decisions. There are consequences when you are forced to find sources of money not intended to be sources of daily living expenses, and the emotions of the situation you are in may lead to a decision you may regret very soon in the future. So making a sound decision today can keep you from regretting your decision later.

Principle I. What’s Important. As Americans, many of us are proud of what we have accomplished – the nice house, the nice vehicles, the investment portfolio, the vacations, etc. When you are facing a tough decision of where the money will come from for the mortgage payment or groceries, the accomplishments quickly fade away. The first principle is to remember what is important – your family. Whether you are married and have children or are single, taking care of your loved ones has to come first. At the end of the day your worth is more than dollar signs or nice stuff.

Principle II. Ramifications. With each option you review for accessing the necessary capital to get through the tough times, there are ramifications. It is best to start with the consequences, research them all, and decide which consequence is the least offensive. A few examples:

• Home Equity Loan: With an equity loan on your home, you will pay back the amount borrowed plus interest. The deeper consequences could be additional penalties for late or missed payments, and the inability to sell your home if you have to because of how much you now owe in mortgages.
• Retirement Accounts: Accessing your retirement accounts may come with IRS penalties, and taking a loan out against your 401(k) has interest charges and a mandatory repayment schedule. Additionally, having a loan may prohibit or cause further penalties and interest if you attempt to rollover your plan to a new employer or an IRA.
• Family Loans: Asking family or friends for a loan may be one of the hardest decisions to weigh. A loan can change the dynamics of your relationship, and sometimes admitting that you need help is the toughest action of all.
• Credit Cards: Living off of credit cards has never been a sound practice, but more and more people are using credit cards for cash advances and general purchases. If you pay your credit cards off each month it may be fine, but carrying credit card debt oftentimes has the highest interest rate of any option you have.

These are only a few examples, and there are many more options, but again it is important to know all of the ramifications to your options before you make your decision. Often, what appears to be the best decision can end up costing you a great deal more than originally thought.

Principle III. Rest Assured. After you have made your decision, take a breath, and know that you made the best decision for the situation you are facing. Second-guessing yourself after the fact or wishing you would have done this or done that serves no purpose. We all learn from mistakes, but take a lesson learned as a lesson learned, period, not as a lesson learned that you will continually regret and beat yourself up about over and over.

Facing tough decisions is something more and more Ohio residents are dealing with on a regular basis. The best approach to a tough decision is not to focus on why it happened, or what the decision was; rather use the 3 principles above as a logical approach to answering the tough questions. There is no one right answer for everyone, each of us have different needs and resources, and researching the ramifications of utilizing a resource can help you clarify which option is best. Just remember that the only constant is change, and this too will come to pass, so don’t feel as if your entire financial future is ruined because you had to make a tough choice today. The promise of tomorrow is powerful.

Mark Zagrocki is a Financial Advisor in Westlake.

Wells Fargo Advisors did not assist in the preparation of this report, and its accuracy and completeness are not guaranteed. The opinions expressed in this report are those of the author and are not necessarily those of Wells Fargo Advisors or its affiliates. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Wells Fargo Advisors, LLC, Member SIPC.