Written by Nathan Gehring
It seems self-evident, your well-being should be a major factor when making financial decisions. But do you actually do it? Do you consider your overall well-being when making financial decisions?
Over the years of watching and helping people make financial decisions, I’ve seen well-being relegated to a secondary role or misunderstood or ignored entirely. Not always, but with shocking regularity. And as I reflect on this, I’m struck that it almost always happens for one reason…when making financial decisions, people confuse financial well-being with overall well-being.
For many years, as I helped people make financial decision, both the people I was helping and I would focus on financial well-being. We’d answer questions such as “what will make me the most money” or “what will save the most taxes” and so on and so forth…fill in your own favorite, I’m sure you have one. I still have a habit of falling into the old role when I’m uncertain or tired or uncomfortable.
But over the past few years, I’ve realized the questions should be more similar to “what supports my lifestyle and my happiness and my overall well-being the best?” That doesn’t ignore the previous financial well-being questions, but it acknowledges that the financial piece is only a small factor in the overall decision. Certainly we want to be tax efficient, but not so much so that it causes harm to a desired lifestyle. Of course we would like to be able to spend less and save more, but not if it makes living today miserable! Yes, more potential investment return is great, but not if it means you can’t sleep at night worrying about tomorrow’s markets.
Financial decisions cannot be made in a vacuum only factoring in financial impact and financial well-being. That will lead to poor decisions. Sometimes doing what improves your overall well-being may cost you some financial well-being. In other words, you’re using one resources to get another.
Sounds like the same decision you make every time you go to the store, doesn’t it? It is.