Staying Flexible

Take a moment to think of how much your life has changed over the past 10 years. For me, I was studying Finance at Iowa State University while a member of the Men’s Golf Team. Life was pretty darn good! Since 10 years ago was 2008, I do remember reading the Wall Street Journal headlines about the investment market fears and how unprecedented the daily movements were. Since those days, I have lived in two different cities, worked at two different firms before starting my own, and am now engaged. Life is even better!

But enough about me, what about you? How has your life changed over the past 10 years? I’m sure you have had changes you couldn’t imagine. And that’s the point I want to make today.

How do you think your life will change over the next 10 years? Studies show that most people underestimate how much their lives will change over the next 10 years. This is even the case after the study participants acknowledged how much their lives had changed over the previous 10 years.

So why should you care? The rate at which your life changes directly impacts your personal finances. If you are making big decisions today, you may end up regretting them years down the road when your life has completely changed.

One of the big “lifestyle vs numbers” conversations I have with clients is with respect to paying off a mortgage. Since mortgages tend to have low interest rates and home values appreciate at about the rate of inflation, those that want to grow their wealth quickly may want to invest their dollars outside their home. Individuals that want to maximize flexibility by being debt free may want to pay off their mortgage as quickly as possible.

The reason why paying off the mortgage early may make the most sense is for exactly that reason - flexibility. Since we often underestimate how much our life will change, having more flexibility is more likely to make us happier. If we are stuck with a monthly mortgage payment, we may not be able to change our life or take a new job opportunity as soon as we would ultimately like. Don’t take this as debt is a bad thing. Used properly, debt can be a valuable tool in your financial life. However, what debt does is limit choices and reduces flexibility. The less debt that is on the books, the more we can allow our future wants and desires to flourish.

Since we know our lives have changed drastically over the past 10 years and that trend is likely to continue into the future, the more flexibility we maintain in our finances, the happier we may find ourselves years down the road.