How To Make Better Money Trade-offs

There are money tradeoffs in most aspects of our lives. We have many choices and cannot do everything we want to do. For every choice we make, opportunity costs require us to forego benefits for the option not selected.

Opportunity costs are the loss of potential gains from other alternatives when making a choice. Tradeoffs between time and money differ significantly based on age and lifestyle based on our unique set of values.

With less time like Boomers as an older generation, you might place more importance on time while young people may favor money. That is not always the case. Here are the typical money tradeoffs we face.

Your Home: Buy or Rent

The opportunity cost of owning your home may prevent you from saving for retirement and making other investments. Your home will not likely appreciate more than inflation.

The term of your loan can vary based on 15 years versus 30-year mortgages–another trade-off. The longer the loan, the lower your monthly payments. However, the 30-year mortgage raises your total costs compared to the 15-year loan.

When seeking a car, you have a few alternatives in your money trade-off decision. Do you want a new or used car, preferably certified pre-owned? Are you buying or leasing this car?

A Car: Buy, Lease or Borrow

If you are getting this car for personal rather than business use, the tradeoffs between buying the car with a loan or a lease are relatively straightforward.

Spending vs. Saving

If you spend more than you earn, you either will be withdrawing from your savings and investment accounts or, worse, borrowing to pay for your purchases.

On the other hand, if you spend less than you earn, you can better afford your living costs and enjoy life.

You should be put savings aside for an emergency fund to cover at least six months of essential living costs. This habit will eliminate the stress of the unknown and reduce your need to abuse your credit card.

Emergency Fund Vs. Debt Payoffs

Swipe Up To Read More