Security in financial decisions

May 31, 2007

I’m a risk-taker. I’m also a numbers nut, so often times I am drawn to the financial solution which generates or saves the most money (the optimal solution).

Recently, however, I’ve been considering the value of safety and security when making financial decisions. Here’s an example of my old reasoning: would I rather pay a loan down quickly in chunks or save for future expenses and slowly work down the loan? Well, the ambitious side of me wants to work hard, eat rice, and put every ounce of money towards paying off the loan within a year or a few months, savings nothing or little for a rainy day. Now I’m seeing the lack of balance in that argument.

Whenever considering budgets, it’s important to think slowly. A steady diet of paying off bills and saving for the future is a far superior mentality to the one into which I often fall. Build a strategy that prevents that worst case scenario (losing your house, losing your car, not paying bills on time). If you haven’t thought about it yet, let me tell you that insurance is a losing bet. You’re wagering that you won’t have an accident, but if you do, they’ll cover it (or most of it). But, it’s not a break-even gamble – they add a little extra to run their business and make a profit. So, should we stop buying insurance? No, of course not. Sure, we lose a little in the long-run, but we prevent that rare total loss event from ever occurring.

Here’s another, more simplistic example. You’re on Deal or No Deal. There are two briefcases left: one contains the million dollars, and the other contains one penny. The creepy guy in the booth offers you $300,000. Should you take it? Mathematically, you shouldn’t, because the pay-off from moving forward is $500,000 on average. You win half the time; you lose half the time. But, consider it from a security stand-point. If you take the bribe, you get $300,000 and change your life. If you don’t take it, you win half the time and change your life, and you lose half the time and don’t change your life. By taking the bribe, you change your life 100% of the time. I hope this illustration is transferable enough to your monthly budget. The point is to make decisions that guarantee financial success and prevent that total loss situation.

Make sure you have found a prayed-over peace for where your money is going. If the unexpected happened, do you feel confident in your ability to recover and keep pressing forward? Are you setting yourself up for success even if it means sacrificing a little of that optimal/ideal wealth? Be encouraged by what God has entrusted to you, and rejoice in both paying bills and growing savings.


2 Responses to “Security in financial decisions”

  1. bethfisher Says:

    It still gets me how saving some now is going to pay off in the future… it’s amazing. I picked up The Wealthy Barber this weekend with some of my birthday giftcard money from the Fishers (it makes me happy that I personally didn’t have to pay for a book about money). Anyway, its great, and I’m wondering if you’ve read it. It’s definitely written in a style easy to read and gives great financial advise. The first thing is to put 10% aside to put into Mutual Funds… anyway, we have it if you want to borrow it (sometime when you’re in State College this summer) or think about picking it up… its great so far!

  2. bethieboo Says:

    I really appreciate ya’ll blogging about finances. It’s something I get stressed about often and dont’ feel as if I have the time to tackle. But, reading your blogs makes me have a positive outlook on things. Keep it up! 🙂

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