What Do You Want?

For most people the question of "What do I want" seems easy to answer. The truth however is that if people knew the "true" costs of their wants they may not want them. The realization that even the things that bring us joy have costs will help us determine if the joy is worth the cost. If it's not then it's called a burden, and who really wants one of those? Most people only have this ah-ha moment after the fact, but if you condition yourself to weigh both the tangible and intangible costs you'll enjoy the fruits of your labor regardless of the size of your garden.

One of the first ah-ha moments you'll have to have is that although some things are priceless, they are not without their costs. I say this because in order to find out what you truly value in life you have to monetize everything. This puts the comparison on an apples-to-apples basis. For example, let's say you have a car payment that's 250 dollars a month. You also make 25 dollars an hour and can work 10 hours. Now to complicate the situation as reality usually does let's imagine you have kids who play baseball 10 hours a month at the same time you would be working. Consequently, watching your kids baseball games also cost you 250 dollars a month. Now here's the question you should be asking yourself. Is watching your kids play baseball making you desire driving that car, or is working to pay for that car making you sorry you're missing the game? I hope for you and your families sake it's the latter, but the dollar cost is the same. You also need to understand that the car will be a heap of trash in 10 years, and your kids will pay dividends for decades. One could make an effective argument that the actual "true" cost of the car is higher.

Now how about hating that 9 to 6 corporate job? You don't like your boss, or making someone else rich? Then start your own business and be your own boss. I hope you hate the 401k match and the cheap employer provided health benefits you're leaving behind too. While you may not have recognized the value they had when someone else paid for them you sure will know the cost when you foot the bill. It will take a lot more hours of work to make up for the unsubsidized benefits you'll have to buy. Whether you want to realize it or not making your own schedule and calling your own shots not only has value, but also costs.

Unfortunately we don't associate things that bring us joy like watching our kids play sports with their respective costs. Nor do we give value to things that don't necessarily bring us joy like our health insurance until we don't have it. What this does is bring an uncontrollable feeling of want and discontentment to our lives. It also causes us to prioritize poorly which ultimately costs us more. We all want to be Tiger Woods the golf champion, and Tiger Woods the billionaire. What most of us don't want is to be the Tiger Woods that gave up his childhood to be a future golf pro, or Tiger Woods the recent paparazzi magnet. The phrase "I wish I was Tiger Woods" usually leaves out the sacrifices he made to be the Tiger Woods we want to be.

If you read my last blog as well as this one you can clearly see where I am going. Financial success and happiness has just as much to do with understanding the intangibles and subtleties as it does bringing home a fat paycheck. What I want is for you to survey you life and work to rid yourself of what keeps you from the things that bring you joy. If you're happy to do the work then it's obviously worth the cost.

The Cost of Ignorance.

I thought I would get the most sensitive (or insensitive) subject out of the way early so we can move on to the educational part of this process. It's widely understood that before you can prepare for the future it's sometimes necessary to revisit the mistakes of the past and see what we learned in hindsight.

Ignorance (or optimism and confidence as it's often called in the world of finance and academe) is what has driven this economy for the better part of a decade. The subjective outcomes of surveys used to measure this state of mind are published monthly and can rally markets which in turn rallies consumers. This intangible feeling of optimism (or foolish optimism) is what has been keeping our economy afloat. It's also hidden our economic problems and ultimately what put us in our current position. For years we spent more than we earned in a hopeless attempt to finance our way up the social ladder. God forbid we not all appear to be in the "middle class". We all knew the explicit price tag of our frivolousness, but there is another cost hidden in every transaction or decision that's usually absent in economic or political conversation. These unspoken and mostly invisible costs are known as implicit costs.

An implicit cost has no obvious price tag. The true amount of implicit costs can only be calculated if you have the education and rationality to methodically think through your decision. Even then it's an estimate at best, but an estimate is better than nothing. A good example of an implicit cost is what happens when purchasing a house you have to work a few extra hours a week to afford. The actually money you've paid to the bank is the explicit price tag. The implicit cost of your decision would be the added stress, higher blood pressure, less time with family, and all the other things doctors tell us are counter productive to our health and happiness. These costs seem obvious now right? If not then they will when those hospital bills arrive. That brings me to my point which is unanticipated implicit costs lead to more explicit costs.

Companies that are leading their industries today know how to calculate these costs and deal with them. Those that don't are no longer in business. The banking industry is the poster child for this. Today's thriving companies are becoming more profitable not because revenues are abundant, but because they learned to control costs. While this crisis has not left a single bank unscathed those who planned adequately for both what they knew, and what they knew they did not know are still here.

The point of all this is that the true costs of your decisions can never be captured on a price tag alone. Since these costs vary by your personal situation it's ultimately up to you to determine them. The ability to estimate them however is going to be directly related to how much you choose to educate yourself on the matter. The first part of this education is knowing that every financial decision you make will have these implicit costs. In this economy more income can be hard to come by, but keeping what's yours by controlling "true" costs is something every man can do.