Let’s look at an example. Should I buy a Honda Civic or a Porsche Boxster? What would be the trade-off in this case? If you get the Honda, you will be spending less on all your costs associated with cars (vehicle payment, insurance, gas, maintenance, etc.). If you get the Porsche you pay more and perhaps have a more enjoyable driving experience, get noticed more and that’s about it. So the trade-offs in this case are: 1) How much money you have left over each month and 2) How much pleasure you derive from driving a nicer car.

So does that mean everyone should go out and buy a Honda Civic? (or Toyota Corolla? etc.) Of course not. You have to make that decision yourself. But obviously, with all else being equal, the person who buys the Civic would have more disposable income left over. That income could be used for numerous things: savings, vacations, dining out, etc.

Of course there is a bit of a paradox, no? I’m pointing out that in order to accumulate wealth (which will let you buy a big house and lots of Porsches) you have to forego the Porsche. (?!)

…but only for NOW. One of the biggest trade-offs you will have to consider is putting off immediate frivolous consumption. The second thing to consider is that you have to put your savings from your trade-offs to good and productive use! If you just end up spending it on other stuff instead of saving or investing… well then you should’ve just bought the Porsche! :)

There’s so much more to this discussion than what’s written here obviously – I certainly cannot cover it all in one posting. I think my main goal will not be to provide the answer to every question for you, but rather to empower you with the financial decision making skills to make your own decisions that will ultimately lead you to a financially healthy lifestyle.

Related posts:

1. The Paradox of Thrift
2. Refinancing your home Part 2: An Example
3. Your Personal Savings Rate