Options in the Financial World

I had no choice is often heard as the reason or excuse for bad financial decisions. This refrain comes primarily from a lack of understanding of the many options people have in planning and living sound financial lives.  The reality is that the financial world is huge and complex. Most often financial decision makers have several alternatives from which to choose in order to accomplish a financially related objective.  Many times no one alternative is the best choice and when all of the alternatives are identified and reviewed it becomes clear that a combination of several alternatives actually creates the “best alternative”. Sometimes no alternative meets the test so don’t do anything at this time is an option. Note that the process of reviewing the many options to accomplish an objective is systematically weighing the expected benefits versus the expected costs of each alternative or combination of alternatives. This analysis, for example, might include the impact of the alternative and related action on wealth creation or some other life’s financial goal. 

The following list identifies some of the financial options people can consider as they seek to participate in the economy and build a solid financial foundation:

• Saving over time and paying cash for all or part of the expenditure. 

• Using secured loans such as a home mortgage or car loan. Many options exist in this category including size of the down payment, duration and fixed or variable interest rate. Often, the decision to borrow in this situations depends on the value of the item purchased over time. 

•  Increasing one’s human capital or productivity level in order to enhance income.

• Incorporating student loans into the mix of monies to pay for post-secondary education. Student loans can come from private sources or government agencies. It is common for students to pay for schooling with a mix of options including savings, scholarships, investment cash balances, family payments, gifts, student loans, part-time job income, and revolving credit. Each of these forms of payment have expected benefits and expected costs and each should be evaluated based upon the expected return from getting an education beyond high school. 

• Making decisions about building a nest egg for retirement is diffucult for younger people because their lists of wants is long and their ability to pay is usually lower than it is later in life. Consequently, young people often struggle with making retirement funding decisions such as when to start, how much to invest, what form(s) should the investments take (i.e. savings, whole life insurance plans, stocks, bonds, real estate, pension plans, etc). These are common options and each one has good and bad points. Starting early is an important consideration when making funding choices for retirement.

• Every young person makes consumer decisions daily. Buying consumer items such as food, clothing, transportation and recreation takes money as well. Each category of consumer expenditures has many options within it. People don't buy food; they decide to purchase hot dogs or a sushi or steak, etc. People choose from many items in the clothing category and each choice has a different strain on the finances. To complicate consumer choices is the determination on how to pay for each choice. Cash, credit cards, payday loans, etc. Good financial decisions deliberately consider many options of payment or whether to purchase or not. Because only people choose, each decision-maker is empowered and responsible to be in charge of their life and financial decisions.

• Investing in assets that have the potential (maybe a history) of increasing in value after all costs are subtracted can have an important influence on long term wealth. This can influence retirement decisions as well. This decision is a conscious effort to reduce consumption in the short term to gain greater benefits in the long term. Most every long term investment has a certain amount of risk associated with it. Usually the higher levels of possible returns are linked to more risky the investments.