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Money Management - Head Matters


3. Decision-Making Process

Making financial decisions can be difficult. Financial decisions can cause stress and greatly influence your feelings of self-worth. Besides wiping out your irrational beliefs, choosing accurate money mindsets, and managing your income , you also can organize for your financial decisions. Here’s one way to do that:

Let’s watch how Cindy comes to a decision using our model.

Cindy recently graduated from college. She was reminded by the financial aid office that her loan payments were to begin six months after she graduated, although she could start paying earlier if she wanted. “Oh yeah,” Cindy thought, “that college loan I started four years ago. How am I going to pay for it?” Cindy went to the financial aid office and they suggested she look at her current expenses to see if there was anywhere she could cut back. They also gave her the five-step process for financial decision making.

Step 1: Identify the problem or issue. My loan payments are due starting in December. “Why does this have to come during the holidays?” she thought. “I don’t have any extra money to pay this now.”
Step 2: Gather and evaluate information.  My balance on the loan is $6,000, the rate is 6.8% percent, and the term is for 10 years. The payment is $67, which is approximately the same amount as my current cable TV bill. Cindy called the cable company and asked how much it would be to cancel service and reconnect later. It is no charge to cancel and would be $28 to reconnect. They asked why. When Cindy told them, they offered to knock $20 off per month for three months. Cindy was surprised by their offer. She wasn’t going to decide for a few months, so she took them up on the rate reduction while she made her decision. Cindy also found out the price for the standard packed was $32 per month compared to the $67 she was currently paying.
Step 3: Consider the costs and benefits of various alternatives. Cindy looked through her budget and couldn’t find enough anywhere else to pay the loan payment of $67 per month. In fact, she would have to cut back in other places to get some better clothes for work, additional gas money, and insurance. Cindy thought about the standard cable package, but she still wouldn’t be able to afford that. Her friends came over often to watch movies with her and she didn’t want to miss out on those friendships. She talked to her best friend. Gloria said no problem, why don’t we come over to her house for the movies? She also talked to her mom, who said she was proud of her for looking at this so early. Her mother offered to record programs and told her that the public library had lots of movies that were free to borrow.
Step 4: Make a decision and take action. After four months (and two months before the payments were to start) Cindy canceled her cable TV. She borrowed DVDs from the library, went to friends’ houses for movies, and had her mother record special programs for her.
Step 5: Modify the decision and action as conditions change.  Cindy continued to use her personal money management skills and they carried over to her work. A year later, when her boss was trying to decide on adding more hours for the business, Cindy shared the five steps for financial decision making. Her boss was impressed and gave her more responsibility and a $100 per month raise. The cable company had a special offer of three free months. Cindy decided to get the standard cable back and save the raise until she evaluated her options. 
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