Chocolate or vanilla? Cake or ice cream? Beach or mountains? Either/or questions might have their place when it comes to icebreakers or dating profiles, but they have also become incredibly pervasive in personal finance. Pay down debt or invest? Grow your income or cut expenses? Donate time or donate money? Focus on little leaks or big holes in budgets? There’s a place for either/or questions, but personal finance probably isn’t it. Here’s why:
Life Doesn’t Happen in a Vacuum
Thought exercises are great ways to practice mental gymnastics, but very rarely does life unfold the same ways someone’s thoughts do on paper. Even if your brainstorming looks less like a line and more like a swirl, life is arguably more chaotic simply because of the sheer number of variables and extenuating circumstances. Never mind the fact that no one has still managed to manifest that giant pause button that so many of us long for. No matter how much the research shows that multitasking might actually rob us of our best work, very rarely does life allow us to truly only deal with one issue at a time. As a result, this either/or mentality often doesn’t apply.
Both is Best
Let’s look at some of the most common personal finance conundrums. Should I invest in my retirement or pay down my debt? It’s a question that I ask myself a lot. Pillars of the debt-free community will argue passionately about riding yourself of debt as fast as you can, not only to free yourself from interest and to make a guaranteed return but for the serious psychological and emotional benefits. Other people will argue that investing for retirement makes the most sense mathematically because of the power of time in the market (hello, compounding!). Realistically, neither option is ideal. If you only invest, you’re getting dinged with interest for the life of the loan. If you only pay down your debt, you are missing out on years or possibly even decades of time that your money could be working for you. Both is best.
Then there’s the whole idea of growing the gap. Financial success is simple on paper. Spend less than you earn and invest the rest. The bigger the gap, the bigger the financial freedom. The question is how do you grow the gap? Do you reduce your expenses or grow your income? Frugality is amazing, especially once we actually figure out what it is. But frugality isn’t everything. Not even close, no matter what the headline fodder tells you. The fact of the matter is you can only cut so much without also compromising your happiness and health. So then the answer must be to grow your income, right? That works, but it is a gradual process. There are no overnight successes. So here’s another instance where it makes a lot more sense to cut your expenses while you work on landing a raise or growing your side hustle.
Not convinced? Let’s peek at another perennial favorite of personal finance. Do you donate time or money? Because you do donate, right? Volunteering your time is so beneficial because it allows charities, schools, or other community organization the manpower that they need to accomplish tasks. Plus, volunteers can witness the impact of their time firsthand. Warm fuzzies for everyone! Still, if everyone opts to only give their time, how do these organizations keep the lights on? The cost of overhead and resources can only be paid with cold, hard cash. So what is best to give? Both.
The same holds true for budgets. While no one will ever be able to convince me that the latte factor isn’t real (just ask my closet!), I can very much admit that holes in my budget also wreak havoc. Passing on thousand dollar handbags and pricey cell phone plans is just as important as saying no to clearance shoes. Cultivating free hobbies (dare I say real hobbies) is just an important as dodging insidious little expenses for me personally. While we could spend all day arguing one side or the other, the bottom line is big-ticket expenses and small mindless transactions are both problematic. The best budgets keep an eye on them both.
One is Still Better Than None
So why the fascination with either/or? Aside from the fact that they help make the personal finance world feel a little bit more like Hogwarts (50 points for Gryffindor! 100 points for Mortgage Payoffs!), there are more legitimate reasons why these either/or questions are asked.
No matter how much of the 10x scalability Koolaid you’ve consumed, at any given moment, you have a finite amount of time and money. As a result, you have to decide what gets the biggest bang for your buck when it comes to actual bucks and mental resources. Don’t have extra money to spare? Donating your time matters! Working a job where raises just aren’t on the table (teachers, I see you!)? You had better work on cutting your expenses. Can’t come up with any income to invest because of your sky-high credit card interest? Pay down those totals.
It’s very true that doing one thing is hugely significant, especially in a world where the vast majority of people seem content to not just carry debt, but to continue to saddle themselves with more money problems. Still, I would push back hard at the notion that financial decisions have to be either or all of the time. By embracing both at least some of the time, we might make more money progress than we imagine.
So Tell Me…Is there a particular issue where you find yourself firmly on one side or can you see both as best when it comes to money matters?