At this time of year, we tend to have conversations with our clients about how to allocate their year-end cash flow such as bonuses, business profits, excess savings or gifts. When making these decisions, it is helpful to have already laid out a decision-making framework to determine how to analyze the options.

Recently, a friend of mine approached me about an idea for an investment that, on the surface, seemed appealing. Without a decision-making framework, I would have spent considerable time and energy analyzing this opportunity. I would have run numbers and projections (filled with assumptions and guesses), analyzed my ability to participate in the opportunity, gotten feedback from individuals with experience in this area and so on and so forth.

However, I already had a pre-set decision-making framework to run through. It only took me about two minutes to know that this opportunity fell outside of that framework. This opportunity was outside of my areas of competence, which is one of my criteria for an investment. I am comfortable investing in the stock market because it is an area I know fairly well. However, I know nothing about commercial real estate investing or investing in a startup, as examples. Therefore, those types of opportunities will not make it through my framework. I also need to be comfortable in the funding source for the investment, preferring not to use debt, which was another criterion that this opportunity violated.

It was a relief not to have to spend time analyzing this decision or battling the emotional appeal of the opportunity. It also made me confident in my decision, because I knew I had already put a great deal of thought and logic into crafting my decision-making framework which is aligned with my long-term goals and values.

As you analyze year-end opportunities, do you know what your decision-making framework is? Is it specific enough that you know when to say no, but general enough that it still allows room for an opportunistic approach?

If not, how can we help you develop this framework as we come to the end of the year?