Intensity vs. Diversity
Does it ever feel like there are too many needs and not enough money? You're not alone! There are lots of priorities vying for our money. We may need to buy a car soon. We'd love to purchase a house one day. We want to buy an engagement ring for the love of our life. That trip to Europe looks pretty fun. We have a medical procedure coming up in a few months. So many things!
How do we juggle all these priorities when there's more need than money? There are two primary lines of thinking: intensity and diversity. Intensity is just that, intense. It's the strategy by which we focus on one particular goal until we achieve it, then shift our focus to the next one. Diversity is the opposite. It's recognizing there are several priorities in life, and then spreading the dollars over each one. We make less progress on any given goal, but we're making progress on several.
Let's use an illustration. Let's say we have $2,000/month of discretionary income. Also, here are the upcoming needs/wants:
Car: $10,000 (needed by year-end 2024)
Engagement Ring: $4,000 (proposing in the spring)
Travel: $2,000 (needed by year-end)
House Down Payment: $20,000 (not urgent)
Medical: $500 (needed in January)
If we take a more diverse approach, we might allocate $400/month to each of these sinking funds. We'll slowly make progress on each. However, we'll fall short of the necessary timing on a few.
If we take the intensity approach, we'll focus 100% of the funds on the next item on the list. It might look something like this:
November: $500 to medical (done) and $1,500 to travel
December: $500 to travel (done) and $1,500 to engagement ring
January: $2,000 to engagement ring
February: $500 to engagement ring (done) and $1,500 to car
March, April, May, and June: $2,000 to car
July: $500 to car (done) and $1,500 to house
Aug+: $2,000 to house
We can refer to this as cashflow mapping. This is a common exercise we do to help clients prioritize, plan, and execute their goals. There's also a third option. I call it the hybrid approach. Instead of diversifying or putting 100% focus on the next item, we determine what monthly saving is needed to hit each goal by the deadline. Let's use the $10,000 car as an example. Instead of going all-in on the car in early 2024, we recognize we have 14 months to hit the $10,000 goal. This equates to approximately $715/month. So, instead of crushing the car with absolute intensity, we can meter it out while attacking other goals at the same time.
This is a helpful tool to add to your arsenal. Definitely try it sometime, especially when the needs start stacking up. It can give us a lot of clarity and much more control. Personalize it to your needs and lean into your values. And as always, meaning over money! Always meaning over money.