Cause and Effect

In business world, I would regularly lead our teams through a process called FMEA – Failure Modes and Effects Analysis.   The tool is simple to use, and it applies to our money management as well.

Maybe you are perfect and never make mistakes with your money, but for those of you who are not Jesus, then we know that we make mistakes with our finances from time to time.   It is important to analyze WHY we made the mistake so that we can learn from it.

Here is how you work a FMEA.   You first list the problem.   For an example, let’s say that someone has failed to invest in their company 401(k) for the past year.

Failure Mode: Failed to invest in company 401(k) for the past year.

The second step is to list all of the potential causes of this “Failure Mode”.

Potential Causes:

  • Did not set up automatic withdrawal from paycheck
  • Did not budget, so did not maximize opportunities to invest

The third step is to list the controls that are in place to prevent the causes from happening (if any exist).

Controls:

  • Automatic withdrawal from paycheck
  • Set up monthly reminder on calendar to ensure that a budget is prepared each month

What have been your financial “failures” over the past year?   What were the causes and what controls can you implement to make sure that they these “failures” do not keep repeating?

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