What are your financial trade-offs?
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lisad

We all have choices, so many choices that at times it’s hard to decide. When dealing with money, sadly it is often only about one choice, what makes the most, or just more? This is a trap that most will fall into when viewing money in isolation. To avoid such let’s examine the strategies below.

Know your values

I encourage you to ensure that you understand your why. Only in understanding this will you be able to make choices about your money that align with your core values and desired goals.

While money is an enabler, we also have to remember that it is not an unlimited resource and you will therefore be faced with difficult decisions. So it is important to ask yourself if your “ideal” achievable?

We often have goals that may not be achievable without making some changes, some trade-offs. In my experience your trade-off may be the time taken to achieve your objectives, requiring you to prioritise which goal you value more now and determine those that can be deferred to the future. For others, it may be necessary to alter your goals so they are financially achievable and still in line with your values.

If, for example, you are not going to be able to afford to cease working at your desired age, due to the fact that your money will not last your foreseeable lifetime, you have some choices:

  • spend less now and retire at your desired age and on your desired levels of income
  • continue with your current lifestyle, but work longer than desired
  • continue with your current lifestyle, but accept a reduced income over your later years
  • take on more risk in an effort to achieve your goals
  • a combination of the above

This is where understanding what you value is crucial in being able to make the correct decisions for you.

Or perhaps you currently have young children and you have a number of goals that require funding: home renovations, taking an overseas holiday and purchasing a new car. It may be that currently your priority is to provide a comfortable living environment for your family while valuing your current lifestyle (without the burden of additional debt). You can still achieve your other objectives, just over a longer time- frame than originally desired.

Make informed choices

When is enough enough? Moving to a better postcode for increased financial stress and heightened pressure on your career path… Is stretching to reach multiple goals worth the trade-off? It comes back to your values.

If you know your “enough” then you can trade off other things, being fully aware of what it is that makes your soul soar, what you are passionate about. That’s the entire point of working through your values and priorities, of “knowing you”.

If you haven’t worked through your values, you will probably find that you have a number of competing priorities from a resources point of view, as you will even if you have gained an understanding. The point is that your values are your guiding light - they make decisions easier.

Say you’ve decided that you are unhappy in your career; you feel unappreciated and hardly get to see your family, let alone have time for you. You could quit. You could take a change of direction, but say that change involves a reduced salary. You’re worried about how you will keep up the large mortgage payments and private school fees; you’re stuck. Well, actually you’re not. What do you value more, the big house or your sanity and the time spent with your family? Or perhaps you value success and resilience. The decision will be made so much easier if you are sure of your core values.

Trade-offs may need to be made

Now I probably sound like the world’s worst financial planner suggesting that you could sell your house or investments; I mean, what about the future? I’m not suggesting that you keep disposing of assets to avoid the need for income, as we all need to live on something throughout our retirement, but you would be surprised how the results flow when you are pursuing something you are passionate and authentic about.

Trade-offs don’t just apply to your goals, but in fact how you manage your money. You are going to have to make decisions about issues such as access/liquidity versus forgoing such. About, importantly, risk and return. As with all areas of your life it is crucial that you are making informed decisions. As you may be aware, the general investment principle is that the higher the return, the higher the risk. There may be times when you choose to take on an increased level of risk to achieve an increased return, but you must understand what you are taking on. Such as knowing that when opting for a higher interest rate than those offered by the traditional banks, it involves additional risk.

Managing your money and life is often about trade-offs and compromise, as is any relationship, but just as there is a line in the sand with relationships, a line that can’t be crossed, you have to figure out that line in the sand with the intersection of your life and money.

3 Comments

'Knowing your enough' what a beautiful way of looking at your relationship with your finances. And it's so true, the things that make me the happiest don't have a price tag attached. 

Thanks @lisad.  I love your suggestion of looking at decisions as a choice or a trade-off.  Every decision we are making about finances or life is a trade-off or a choice between one thing & another.  It's so useful to look at that choice through your values.   Thank you for sharing your wisdom!

I love your articles. They are so deep emotionally. Thank you.