Action and Reaction

 

Early in our school lives we all learn about Issac Newton and his apple mishap that led to his theory of gravity. Well Newton also had some laws of motion and his third law of motion loosely states that for every action there is an equal and opposite reaction. Welcome to world of consequences. For every choice you make there is a choice (or several) that you did not make and every decision leads to a result, good or bad.

Consequences start at a young age. Things you have control over but often don’t have the maturity to appreciate, like the importance of good grades, for example. Once we move on to the next level in life we choose our major in college or career in life, and we would do well to choose wisely. How many people are willing to go into debt for an education that may not provide the means to easily pay back that debt? That one decision will have ripple effects throughout life.

How many people delay investing in their retirement accounts early in their working lives because they think they can’t afford it, because it will negatively affect their lifestyle? The fact is that their lifestyle will be much more adversely affected in old age if they wait too long. It’s not that they can’t afford it now, it’s that they won’t be able to afford it later.

Taking a What Next approach to decision making is to weigh as many options as feasible, and to choose carefully. Asking What Next means you have a long term outlook and understand the ramifications decisions have. In financial planning terms that means understanding the future value of a decision. Put simply, the future value of a dollar invested today at 10% interest is $1.10 one year later. The future value of not going into debt to fund your education is the ability to start saving earlier and building your retirement nest egg sooner.

I don’t have children but I think I might have spent more time talking about the consequences of that decision with Julie, than most people who do have children. I’m not sure I can think of a weightier decision than the choice to have children and yet I wonder how many people treat it with the reverence it deserves.

The everyday choices we face today will affect the life we have later. Buying a house, a car, toys, taking lavish vacations, all diminish your ability to save for the future. Whether you stay in your home for a long time or move frequently, whether you buy a new car every couple of years or hang onto it for a decade, will determine your level of success. It is a balance between now and then.

The question for you is, are you well balanced? (I know what some people say about me – so let the jokes begin) Do you have a long term outlook on life? Are you confident that your choices today will still look correct a year or five years from now?

Share some examples of long term decisions that have paid off for you and some that didn’t.


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