What To Do When Faced With Financial Trade Offs

One of the top questions we get has something to do with financial tradeoffs. Should I buy a house or invest my money? Should I pay off debt first or start investing? The list goes on and on and while there are a few exceptions to the rule, the majority of the time it comes back to what we call the financial roadmap. This clearly outlines what decisions you need to make in what order and gives you a clear goal to focus on.

Today, I wanted to address the reasoning behind the steps. The most critical part of the roadmap is phase 1. This phase is where we build the financial foundation to protect our wealth while we build it. Many people like to skip these steps– mostly because it isn’t fun. Buying a house or investing feel way more exciting than paying off your debt or saving an emergency fund.

However, sometimes people skip this phase because they honestly think it makes financial sense. Maybe a financial expert even told them to compare ROI (return on investment) and make your decision based on that. So that is what you do, and on paper you may be getting a better ROI by choosing to invest now rather than paying off debt. So by that logic, it seems like you definitely should start investing now instead of paying off that debt as fast as possible, right? Or maybe you look at the housing costs and it seems like that will definitely give you a much better return on investment? (We have another article here where we talk more about the house decision specifically).

The problem is, money is not just on paper. We are emotional beings and we do not always behave as logically as we do in our heads. We have to create a system that helps us stay motivated. The roadmap helps you stay motivated by focusing on one goal at a time. And the order of those goals is important. Money is 80% behavior and 20% head knowledge. This means that what the ROI says only counts for 20% of that decision. The other 80% comes from the behaviors you actually do.

It is A LOT harder to stay motivated if you skip those first steps. How motivated are you going to be to go back and pay off that debt if you are in a nice beautiful house? How motivated are you going to be to save an emergency fund if you are already investing? Then, an emergency does hit and you have debt and a hefty mortgage, no emergency fund and are forced to drain all that money you just put into your investment accounts. You are essentially going backwards which never feels good.

The financial roadmap helps you to feel like you are making real progress and that is real motivation. So create that foundation. Just do it. And do it fast. Then you will be on your way to bigger and better things and never have to think about the ROI on that decision again. Plus, I have never met a single person who says “man, I really wish I didn’t pay off my debt.” Never. The feeling that brings, is worth every spare penny you may be losing through choosing to do something else first.

I promise you will get to the fun stuff. We are big fans of investing. It is critical for building wealth but create that secure foundation first and then follow the goals one at a time as you progress to financial freedom. You will not regret it.