Financial Flexibility

Answer 1

One of the lessons that I’ve learned through dealing with my own personal finances as well as guiding clients as they deal with their own is the importance of maintaining financial flexibility. There are myriad choices we all make concerning our finances. Some of those choices allow for flexibility and other choices lock us in to a course of action, an investment vehicle, or a tax situation from which we cannot easily back peddle. Of course every situation is different and it’s never a good idea to make a generalization into a financial rule, but I’ve found that given the choice between locked in and loose, loose wins out most times. Think about a giant tree. How do those large trees survive to an old age? They are only able to keep surviving because they bend with the wind. A rigid tree that was inflexible would snap. Without flexibility a tree would die when its roots hit an obstacle. With flexibility, trees are able to reroute their roots around (or even through) obstacles. I know money doesn’t grow on trees, but the metaphor is an apt one. I recently bought a car. Now I could have placed a large amount of money down on the car, but the interest rate was so low that I chose not to. Having that cash on hand for contingencies was more important to me than to lower my monthly payment a few dollars. That’s not the only way I chose flexibility in this situation. I also could’ve chosen a shorter term loan and had no problems making those payments. Instead I opted for a longer term loan with lower monthly payments. Now I still have the option to pay the higher amount that I would’ve with the shorter term loan, or even more if I want to. But opting for the longer term loan leaves me with more control over the situation. Now I feel confident that if faced with any unforeseen circumstances I’ve set myself up to be able to adapt to those changing conditions. I’ve seen plenty of situations where things went sideways on people and they weren’t able to respond in the best way because they’d lost their financial flexibility. Think about the principle of maintaining financial flexibility as you make financial decisions.