I read a good article in Strategic Finance magazine (yep, I’m that big of a nerd) and thought I would try to summarize their article on how to develop and grow your critical thinking skills. Critical thinking, IMHO, will help you, in most aspects of your life, including on your personal financial journey.
Critical thinking is a manner of thinking that employs curiosity, skepticism, analysis, and logic where:
Curiosity means wanting to learn,
Creativity means viewing information from multiple perspectives,
Skepticism means maintaining a “trust but verify” mind set,
Analysis means systematically examining and evaluating evidence, and
Logic means reaching well-founded conclusions.
Why do you need strong critical thinking skills? Because you need to expand your personal accountability beyond value stewardship (sticking to a budget) to include value creation (increasing your net worth!), with increasing responsibility for strategy (don’t let your finances happen to you, be intentional about where you want to go – set goals!).
One of their suggestions is to focus on data analysis (use your personal financial history), in order to improve critical thinking skills – to think analytically and apply tools to help extract insights and actionable information from data. The data analysis process:
1) Identify data analysis opportunity
2) Specify the objectives of the analysis
3) Develop expectations
4) Analyze the data and investigate
5) Evaluate the results
6) Formulate a remedial action plan
Assess your critical thinking
- How often do I ask insightful “why” questions?
- How frequently do I generate compelling new ideas?
- How inclined am I to challenge the validity of new information?
- How vigorously do I tackle unfamiliar, complex problems?
- How adept am I at making decisions under uncertainty?
One of the suggested critical thinking activities is to perform a SWOT (strengths, weaknesses, opportunities, and threats) analysis (see a good explanatory video below – I know the process is designed for business but I think you can apply to your personal finances too). I suggest you perform a SWOT analysis of your personal finances; maybe budgeting is a weakness for your household. One of my weaknesses is going out to eat. . .
Anyhow, I thought it was a good, thought-provoking article.