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In financial planning, a common question goes something like this. . .

  • I’m thinking of remodeling my bathroom
  • We need to have the driveway replaced
  • She’ll need a new car by the end of the year

. . . how should I pay for that?

Of course, in its simplest form, the answer is always the same.

With money.

From there, things get slightly more complex.  Is it better to use cash on hand, pull from the investment portfolio or borrow at low interest rates?  Are there tax considerations?  Maybe it’s a blended approach of all of the above?

These kinds of answers are best reached when an advisor has pretty detailed knowledge of a client’s overall financial picture, tax situation and long term goals.  But provided that relationship exists, these are still fairly easy conclusions to reach.

However, these answers may not be getting at the actual question being asked.  This really speaks more to how COULD someone pay?

What lies deeper behind this question is something much more nuanced.

How SHOULD I pay (buy/remodel/replace…)?

Packed in this one six letter word are value judgments, fears about poor decision making, wondering what other people would do or what other might think of our choices, etc. Using should suggests some standard exists by which we should benchmark what’s important to us, especially around how we choose to allocate our money towards those objects or experiences we want.

Part of why we go through a Discovery meeting and continue to talk through seemingly non-financial details of our clients’ lives is specifically to help answer these underlying questions.  The more we understand about what really matters to you, what you truly value, etc. the better we can be at helping present the various tradeoffs in any decision or question around creating the best version of the life you want for yourself and your family.

The first step in that process when these questions come up is eliminating the “shoulds” altogether.

Shoulds, at their best, are limiting statements that may add some discipline or motivation to the decisions we’re making.  But more often, they drudge up more negative consequences like those mentioned above.

While there are good rules of thumb, benchmarks and standards we can apply to many financial planning principles, the best planning work is done on a case by case basis with your particular values and variables taken into account.  When we can combine how you use your resources with what is most important to you, the answers to how much and what you spend on become much, much more clear.