But What Will You Give Up?

One of my friends reached out, wanting my input about a big decision he and his wife are considering. They own a house that roughly fits their needs, but house fever is setting in. In a weak moment, they cracked the door open and started looking at houses. Surprise, surprise.....they found an amazing one! Fortunately, though, they are taking a measured approach to the decision; hence, they sought my feedback.

I asked for a handful of numbers to understand the lay of the land. What's the current house worth? What's the current mortgage balance? What's the breakdown of the current mortgage payment? What does the new house cost? After a few simple calculations, I derived one critically important number: $1,700. That's how much their monthly payment would increase if they green-lit this decision. There are many other variables worth considering, such as furnishing the house, higher utility bills, additional maintenance considerations, etc. However, that $1,700 number is vitally important.

We talked about a few of these nuances before I asked THE most important question: "But what will you give up?" In other words, where will this extra $1,700/month come from? Oh yeah, I also added one caveat: "And you can't say, 'We'll just make more income.'" He laughed and said he was about ready to say, "We'll just make more income."

"More income" is a terrible answer to this type of question, as it just stacks additional pressure and tension on us. While this new house might increase their standard of living, taking the just-earn-more-money approach will inevitably lower their quality of life.

So, back to the real question. What will you give up? Buying this house will require them to reallocate $1,700/month away from one or more categories. But which ones? Their giving? Their saving? Their investing? Their fun? All of these have substantive consequences. Buying this house isn't inherantly bad, but they must be clear and honest with themselves first.

That's why we must answer this question when making big financial decisions. There's no such thing as a free lunch. Every time we create a financial obligation in our lives, that money has to come from somewhere. We ought to think about that before making such decisions.

Ultimately, they couldn't think of a good answer to that question. They loved the house, but not give-up-$1,700-of-other-things-we-care-about love. Thus, they passed. Good call; very good call. I suspect they will thank their former selves in due time.

Whatever decision you have on your plate that involves the increase of financial obligations, always ask yourself, "But what will I give up?" Your answer will be telling.

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