This or that? How to make smart financial decisions.

So, you just got a surprise tax refund. What do you do? Hop on a plane for a spring snowboarding trip or pay off your credit card? Your finances are full of decisions like those. It’s an ongoing game of “this or that?”

When those “this or that” questions come up, how do you make the best financial decisions for you? You’ll find the answer in your priorities. Knowing what they are and using them to guide the way can help you make the best decisions. 

And that’s not to say you don’t don’t go snowboarding if you truly love it. You absolutely can. 

That's the power of having a financial roadmap that comes with your Facet Foundations membership. Your roadmap prioritizes your finances around your goals, big and small, so you can make the best “this or that” decisions to reach them.

Sure, maybe you’re paying down your credit card, but you also have an entertainment and travel budget figured into your roadmap – because that’s important to you. With those priorities marked on your roadmap, those “this or that” questions are much easier to answer.

Let’s take a look at financial tradeoffs and see how they help you live the kind of life you want.

Spending has two costs

When you buy something, you know the cost. But there’s also a hidden cost. The formal term for it is an “opportunity cost.” Put simply, it means when you spend money on one thing, you’ve lost the opportunity to spend it on something else.

For example, if you go snowboarding with your refund, it comes at the opportunity cost of paying down your credit card.

And if “time is money,” opportunity costs apply to how you spend your time as well. You can’t do two things at once. For example, do you spend your Saturday afternoon tackling that big pile of laundry – or do you pay the people at the Fluff & Fold to do it for you so you can hang out with your friends? Maybe you haven’t hung out in a long time. Paying someone else to run the spin cycle for you might make sense that week, even if it costs you more than usual.

The same opportunity cost applies in your career decisions. Say a job offer comes in, plenty of opportunity costs crop up when you consider the pros and cons:

• You get two offers. One has a better pay hike than the other, but it comes at the cost of a longer commute. You’ll have less free time.
• You have a thriving side gig that you enjoy. One company offers a role that you’re really excited about, but you know it calls for some long hours. That’ll come at the expense of your side gig.
• Maybe you get an offer from a government agency for a job that seems pretty secure – and another from a startup that might be riskier, but possibly more lucrative. Is the job that pays less worth the security?
• You and your partner welcome a baby into your home! Now, does one parent work and the other one stays home? What makes sense financially? What makes sense for the family?

For sure, some of these choices feel like they’re life choices on top of financial ones. And that’s absolutely true.

In that last example, your heart might say, “I want to have more time at home with our kids,” but your head might say, “If I work more and earn more, we can help them graduate debt free.” Maybe it’s a question of spending more time with your kids when they’re young, and then putting more time into making money when they’re older.

Once again, your personalized roadmap can help you prioritize and make the best call for yourself and your life overall.

These examples remind us of something else – life happens, and your roadmap will adjust. If you see any life changes coming down the pike, reach out to your planning team. They can help you fine tune your roadmap to make the most of those changes.

Rent or buy? Another tradeoff.

A prime example of trade-offs is whether you choose to own or rent or lease the bigger things in life, such as a home or vehicle.

Let’s look at homeownership first.

Home ownership can symbolize things like security and stability. It can also act as an investment if you expect its real estate value to climb over time. Yet home ownership calls for things like down payments, upkeep costs, buying new appliances over the years, taking your own time to maintain it.

On the flip side, renting or leasing a home calls for no down payment, little or no upkeep of your own, and you have a landlord to take care of things like appliances and the building itself. However, you don’t get the benefit of an investment that comes from owning your own home. Yet a certain independence comes with all that. When a lease is up you have the freedom to move as you like. 

You’ll find tradeoffs with vehicles too.

Leasing means you’ll always have a new, or almost new, vehicle because many leases last three years. A nice ride might be important to you. In the long run, it will cost more than buying, but you’ll enjoy a nicer, more luxurious vehicle loaded with the latest tech.

On the other hand, buying a reliable vehicle means you’ll stop making car payments one day. Those couple hundred dollars you once spent on a payment each month can go toward other things. And even though it’ll go down in value over the years, you’ll still own it eventually. That means you can cash in on it. You can sell it to another person or use it as a down payment for a new car.

So, whether you’d rather have an eight-year-old Toyota or a two-year-old BMW in your driveway is up to you. Again, depending on what’s most important to you, the possibilities of what you could do with the money you save might make the cheaper car a no-brainer.

Your goals, your priorities, and your roadmap

While making trade-offs often means you can’t have it all, you can have what’s most important to you. Spend some time thinking about your priorities, what money means to you, and what it means to your partner.

Then, get it all down in your roadmap. Your financial roadmap and your planning team can help you strike the right balance. Your roadmap is the place where your goals and priorities come into clear focus. With that, you can make all those “this or that” decisions that help you live the kind of life you want. And reach out to your planning team any time. They can help with those kinds of choices if you still find yourself in a toss-up.