Newly engaged Jared and Maryam are excited to be planning their future wedding. The average cost of a wedding in Canada in 2017 was over $42,000. That’s a lot of money for a party. They could go all out and have the wedding of their dreams and conform to what’s expected of them. Or, they could plan a more modest wedding with just their dearest family and friends and use the remaining money towards something they may value more – a down payment on a house or start the small graphic arts business they’ve been mulling over, or Maryam could return to university to continue her graduate degree in environmental science.
Everything is a trade-off. If we take on an expensive car lease, we will have less for our summer vacation. If we opt to splurge on our summer vacation, we won’t have as much for savings. If we decide to save like crazy for retirement and the kids’ university education, we won’t be able to buy as big a house.
None of these decisions is necessarily bad. But they are choices. When you choose one thing over another you’re saying you value this more than the other choice you had. The problems arise when we’re often not consciously aware of why we make our decisions – both the reasons why we should and why we shouldn’t. In our day to day living, for the most part, we don’t think about the things we’re giving up.
Buying takeout for lunch occasionally is not a bad decision, especially if it gets you out of the office for a breather. However, buying one cheeseburger every day for the next 25 years could lead to missed opportunities. Aside from the potential harmful health effects, investing that money can give you a sizeable lump sum towards one or more of your goals.
We can’t have it all and that means we need to make tough financial choices. Instead of haphazardly spending here and saving there, consider the implications.
Your Money Trade-Offs
A father thinks, “I’m working mega hours to provide for my family.” The trade-off is actually spending time with his family. (Listen to Harry Chapin’s “Cats in the Cradle” to see how that can turn out.)
A beginning entrepreneur often does all the work herself rather than hiring a part-time assistant for $20 an hour who can take over the routine tasks while she focuses on what she does best with more available time, and potentially earning much more.
Fred wants to spend the weekend in Atlanta partying with his friends. He’ll get back to his debt repayment program later on when the bills come in.
Have you ever made a decision between two investments, stocks or funds and found that the one you didn’t choose is suddenly outperforming?
Doling out dollars
Most of us can’t possibly afford to do it all. We don’t have unlimited choices because we are constrained by our incomes. Besides, a hefty portion of our paycheque is usually already spoken for – mortgage or rent, car payments, utilities and food. So, it’s important to make conscious choices.
Since our paycheques are limited, we need to make three basic choices:
- Decide whether to purchase one item versus purchasing another.
- Weigh whether to purchase something today versus saving for tomorrow.
- When we save for tomorrow we have to decide what we want to save for.
We have to decide what is essential, what appeals to our interests and values, and what is merely desirable.
Often, the temptation is to put off saving for retirement and instead deal with goals in the order they occur – buying a house in your thirties, paying for the children’s education in your forties and then saving for retirement in your fifties. But financially it makes sense to deal with goals concurrently rather than consecutively – save for retirement right away, scale back on the house, trim down the college funding.
The reality is we can’t have it all. To get one thing, we usually have to give up something else. Financial planning is a method of consciously deciding how to allocate our resources, whether money or time.
We’re not always going to make the best choices. As we get older there’s a good chance we’ll have at least some regrets about decisions we’ve made, paths not taken, or how we behaved. If we knew then what we know now, we might have made better choices. Our choices put us in the situation we’re in now and made us into the person we are now.