In personal finance, there are endless ways to optimize. Like using leverage to buy real estate, diversifying across a range of investments, driving the least expensive car, etc. When I say optimize, I mean it in a strictly numbers sense of what is going to make the most money and/or has the best long term financial outlook.
Here’s the Thing With Personal Finance
Here’s the thing with personal finance though—it’s personal. Meaning you need to make the right financial moves to best serve your life. Moves that align with your goals, family life, and overall health.
There are a few basic foundational principles that I believe everyone should follow like having an emergency fund, paying yourself first, spending less than you make, along with a few others. After that, you’ve got to do what’s right for your life, even though it may not be “optimal.”
Here’s an example. I have a few friends who decided to pay off their houses early. They all do very well and can easily afford the mortgage payment. They also had very low interest rates at around three percent.
The optimal thing to do would be to invest more and take the spread between three percent and whatever they earned on their investments, probably around 10 percent. However, they felt good about paying off the house and it helps them sleep better at night.
They’re aware that they could have made more investing but paying off the house worked for them and their families. Not financially the most optimal but it sure worked for them. Therefore, I believe it’s the right decision for them.
Do What Works For You
There are lots of people telling us what to do with our money. Invest in this, buy that, don’t buy this, get the newer house in the better neighborhood, etc. The list is endless.
All that stuff is noise, you have to do what’s best for you and your family. If buying the newer car is the best move for you and your family, then do it. If it’s not, then don’t.
Don’t worry what other people are telling you, they don’t get a vote. Thank them for their advice and move on to what works for you.
