Written by: Corey Janoff
This post was originally published on our previous blog website on June 20, 2018 and has since not been revised and/or updated.
I have a dilemma that I am faced with. I would like to get some new golf clubs to replace my 15-year-old Mizuno’s. However, I would also like to get a new wine fridge that can store more than 30 bottles. The current one is stocked full.
My wife would not be pleased if I got both. Heck, she doesn’t think I need either. She thinks the money would be better spent on other “necessities” for the house, such as a storage bench for the front entryway, new bedroom furniture, new hardwood floors, an extended patio, a new kitchen sink, among other things.
The point of this post isn’t to dive into the theory that men and women come from different planets. We can all agree that theory is true. The goal is to point out that there are opportunity costs to everything.
Opportunity Costs
I think all of the golf playing, wine drinking people out there would agree that both constitute as essentials – hence the dilemma. Hitting a ball with a new clubface and drinking a nice pinot that has been cellared for a decade both create fantastic feelings. I could afford both, but it would generate unwanted discord in the house if I got two major things that I want and she didn’t get anything she wants. So, for now, it’s one or the other.
Money spent on new golf clubs is money I can’t spend on a new wine fridge. That means the vino collection will have to halt its growth temporarily.
Money spent on a new wine fridge is money I can’t spend on new golf clubs. That means I will still have an excuse for when I hook a five iron into the woods.
It would be nice not to hook a five iron into the woods though. The salesman at the golf shop guaranteed these new irons won’t hook, so I guess I can quit my day job and go for my tour card after I get them.
See what I am faced with here?
You Can’t Have It All
Like Warren G once poetically rapped:
I want it all; money, fast cars
Diamond rings, gold chains and champagne
Shoot, every damn thing
I want it all; houses, expenses
My own business, a truck, hmm, and a couple o’ Benz’s
The problem is, I haven’t yet released multiple platinum selling albums, so I can’t have it all. And like Mr. G’s fellow hip hop sensation MC Hammer found out – you can try to have it all…and then you can lose it all.
There is no such thing as too much money. There is no shortage of ways to spend money. That is why we have to make tradeoffs.
For some people, this is an easy decision. If the choice is between eating something for dinner, or buying a cheap pair of sunglasses at the gas station (and you don’t have enough money to your name to do both), you’re going to opt for dinner.
Once you have the essentials of food, water, and shelter covered and you have a little discretionary income, there are a lot of decisions to make.
Do I invest for retirement? Do I pay down debt? Do I invest for the children’s future college expenses? Do I spend money on a tutor so they can get extra help for school? Do we go on a vacation? Take the family to a baseball game? Buy new clothes? New car? New golf clubs? Wine fridge?
We can’t do everything at once.
Make a Plan
For many people, it can be helpful to make a plan for their money.
First, set a budget for bare bones essentials. That includes: housing and utilities, food, transportation, insurance, minimum debt payments, clothing (minimum essentials – you’re lying to yourself if you say you need to spend more than a few hundred dollars per year on clothes).
Next, start setting enough aside for your retirement so you can stop working when you want to and live a comfortable life. You get to decide what age and how you define comfortable. The sooner you want to retire and the more comfortable you want to be in retirement, the more you need to save.
Also, if you have any high interest rate debts (above 8% interest), budget some extra money to pay those down faster.
After all of those things have been covered, what is left is your discretionary income. You can choose to spend it on nicer essentials. A bigger home. Steak and salmon instead of top ramen and hot dogs. A nicer car. Nicer clothes.
You could choose to invest more of it for your future so you can retire sooner or life a more lavish lifestyle in retirement.
Or you could spend the leftover money on whatever. Maybe that is setting money aside for a home renovation project. Maybe that is taking a vacation. If you’re putting enough aside for a comfortable retirement and you have all of your necessities covered, don’t feel bad about enjoying yourself!
I know some people who have a game plan in place and anytime extra money comes in from a bonus or something, they allocate one third to retirement savings, one third to debt, and one third to fun. I think that is fantastic. Accelerate financial goals with two thirds of it and make memories with the rest.
Achieve It
Remember, you can likely have almost anything you want in life. But you can’t have everything you want right away. Besides, there is a feeling of reward and satisfaction that comes with delayed gratification.
The longer you wait for something, one of two things happen. Either you realize you don’t really need it and you move on. Or, it is that much more rewarding when you finally get it.
Now, I’m going to go play a round of golf and then open a bottle of wine and ponder this decision further.
