I’ve had the privilege of being a financial advisor for 15 years now, and in that time, I have managed to assist a considerable number of clients retire. I remember many conversations with clients saying, ‘we don’t prioritise our cars over our lifestyle’ or ‘we’ve never owned a new car, it might be nice to buy one in retirement’. When I am dealing with their children the conversation often skews the other way, Mortgage $400,000 car loan $80,000, etc., so we need to cover for a car loan.
Here’s the truth, if your car is worth more than your investment portfolio then you have been successful in prioritising somebody else’s wealth above your own.
How so do you ask? Well for people that follow our socials, I use Algebra to solve the equation.
If you were to purchase a 2008 BMW X5 for $86,000 back when they were new, you would now have a car worth $12,000. However, if you were to choose to invest that $86,000 in a balanced portfolio achieving a rate of return @ 6%, you could potentially have $183,000 in your portfolio! What could you do with the money you are spending on that car now and into the future?
Opportunity costs is the amount of potential gain an investor misses out on when they commit to one investment choice over another. Understanding the potential missed opportunities foregone by choosing one investment over another allows for better decision-making.
We encounter opportunity costs everyday of our lives, do I purchase a burger for $8 or do I eat the lunch I bought from home. It could be argued you need the break, to get away from your desk. It’s ok though because the money I have in the bank will cover the cost.
If you went ahead and every day you had $8 in your bank account and bought the burger every weekday you that you worked, $8 per day for 200 days per week worked = $1,600 for the year. Then comes with that the health issues you would face by eating 200 take away meals per year. That doesn’t sound much – however if you add that up over 40 years of work the numbers start to increase to an astounding $247,619 assuming again our achievable 6% average return. Not to mention the impact on the environment when it comes to the waste of the burger joints wrappings etc.
These are things we take for granted in our everyday lives. However, these decisions could have significant ramifications on our financial goals throughout the course of our lives. Decisions our investment team are making to ensure they are buying the right stocks to compliment your portfolio.
Keeping up with the Joneses
Rather than ‘keeping up with the Jones’s be the Jones’s’.
What I really mean is, don’t try to keep up with everyone else, run your own race, and establish your own personal identity rather than one of how people perceive you.
Would you rather be wealthy, or look wealthy? Looking wealthy comes at a price, being wealthy is choice.
I’m not saying don’t go out and buy those expensive things, not at all, if you have the desire to do it then by all means go ahead. I am saying ensure to think about what I have mentioned in this blog before you go ahead and make any decisions on your financial choices. Consider the value of opportunity costs that can guide you to more profitable decision making into the future.
Written by Jason Fagg
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