Tip of the Week: In Financial Planning, Absolute Wealth is not the Goal


Hey everyone, I’m back with another tip of the week.  I want to share a recent discussion that I had with a family around buying their first home.  These are people who are military veterans who have moved around a lot, and preferred renting until this point.  Now they finally have some stability in their lives and their future careers are taking shape.

So of course, the rent vs buy discussion always revolves around numbers once we start getting an idea of the interest rates that are available and the true price of the home or homes that they are looking at.  Now, my general viewpoint is that people should rent until they have some expectation of stability as the cost in terms of time and money when owning a home for a short period is often much higher than renting, especially with the transaction costs involved. And people could find themselves with less flexibility should long-term plans change.

With that said, everything in financial planning is a series of tradeoffs.  Spend more and save less today, you may have more fun but have to delay your major goals.  And vice versa.

So after doing some number crunching, the cost of ownership versus renting was mostly a wash. Though, in this particular situation, buying a home entails significant risk due to the price of homes in that area considering their current income.

After all of that, I was asked for my counsel as a


friend and advisor.  Was this a bad decision? And my response was that this case is not really a question of good or bad.  We’ve gone over the risks and the numbers and the opportunity costs several times. Instead, the real question is, how important is buying this home to you?  On the scale of your major goals and needs and desires, how important is this to you?

And that question gets to the true heart of financial planning.  The objective is not to solely maximize wealth.  Instead, the first objective is to create the wealth that you can use to buy those things that are important to you or to have those experiences that are important to you or to provide for others that are important to you. And the second objective is that you have the information to make a deliberate, informed decision as to which tradeoffs you want to make.

It’s not just about having a big bank account by the time you die of old age.

Thanks for watching. If you have any questions on what I’ve discussed or if you want to work with me to develop your financial plan, send me a message using the information in the credits.  Until next time!



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Remember, the topics discussed in this video are for informational purposes only and that past results do not guarantee future performance. If you would like to discuss your financial situation, please email me at Derek.Merkler@Parsonex.com. 

Advisory services offered through Parsonex Advisory Services, Inc., 8310 S.Valley Hwy, Suite 110, Englewood, CO 80112. 303-662-8700.


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