PF Choices: Damned If You Do and Damned If You Don’t

A or BIt seems that there are many choices you can make about your personal finances that will get you excoriated – or at least criticized – by one group or another espousing particular strategies.  If you decide on strategy A you’ll get criticized by group B and if you decide on strategy B you’ll get criticized by group A!  Sure, people may be nice about it and say “to each his own” but you know they think you’re wrong!  So no matter what you decide someone thinks you’re stupid!  :/


I think you can boil each of these choices down to how much opportunity cost bothers you.  On the one hand you have a known quantity and on the other you have an unknown quantity with more potential (but not guaranteed) upside.


Here are several examples of “damned if you do and damned if you don’t” PF choices:



Frugality vs. Earning


Focusing on frugality is wrong because there is no limit to how much you can earn whereas cutting spending has limited potential.


Focusing on earning is wrong because there’s nothing stopping your spending from rising with your earning.



Debt Payoff Method


Using the debt snowball method is wrong because you’ll pay more in interest by not starting with the highest interest rate debt.


Using the debt avalanche method is wrong because statistically you’ll finish fastest by starting with the lowest balance debt.



Investing While in Debt


Investing while you’re in debt is wrong because your debt should be your highest priority and there is no guarantee you’ll get a better return by investing.


Focusing solely on paying off debt is wrong because you’re losing valuable time for compound interest to work in your favor as well as wasting contribution room in tax-advantage retirement accounts.



Home Renting vs. Buying


Renting your home is wrong because you’re throwing away money and helping someone else build equity.


Buying a home is wrong because you’ll lose your freedom and home values can fall!



Private/Expensive College


Going to a community college and a public university is wrong because you should consider the value of the education, not just the price, and a private college may help you earn more later in life.


Going to a private or expensive college is wrong because a student will be just as successful no matter what kind of college she attends and therefore she should minimize price.



Mortgage Payoff Speed


Paying off your mortgage quickly is wrong because you can invest that money instead and get a higher rate of return.


Paying only the minimum on your mortgage is wrong because you’ll pay tens or hundreds of thousands of dollars in interest.



Passive vs. Active Investing


Passive investing is wrong because you’re guaranteed to never do better than the index you’re mimicking.


Active investing (by professionals or DIY) is wrong because it’s unlikely that you can beat the indices because of your psychology and the fees and taxes incurred from turning over investments.



I do have opinions on which of these choices is right or wrong for myself and I could make a good argument why others should think the same way (probably you could, too!).  But I know there are scenarios in which the other option is the best one for the person making the decision – specifically, our individual goals and values will often dictate which choice is best.  When we can scarcely comprehend why someone would choose the opposite strategy, it’s a sure sign that our values and goals are quite different from that person’s.  Since it’s much more difficult to argue that someone’s values are wrong, as opposed to their strategies, we should probably focus on the positive and say that each of these strategies has its place and can be the right choice.


Can you think of any other PF choices that you’re damned if you do and damned if you don’t in the opinions of others?  Do you think any of these dichotomies are actually crystal clear?  What distinct values do you think feed into people choosing different strategies?


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31 Responses to "PF Choices: Damned If You Do and Damned If You Don’t"

  1. We’ve written several articles on these dichotomies (some recently).

    One thing I’d like to point out (which, oddly, goes with our post on Wednesday, I think) is that some of these choices come down to opinions– do you want to work harder or do you want to spend less money– but some of these are actually empirical questions with empirical answers.

    For example: Will an elite college give you better earnings power than a cheap one? The research-based answer is that it depends on your race, ethnicity and social class. Elite white do just as well going the cheap route. Disadvantaged folks are given a huge boost by an elite imprimatur. (On top of that, the elite school ends up costing less if your parents are poor enough.)
    nicoleandmaggie recently posted..An emotional update on the relatives: Also, a love note to having money

    1. Emily says:

      The thing is that even the empirical or research-based answers are still only probable outcomes, and perhaps the known quantity is more attractive than the unknown to some. I dunno, I have made decisions (sacrifices) based on desiring the probable outcome whereas when I explain my decision to others facing the same decision they are convinced they will be the exception. *shrugs*

      1. Sure, but that’s still different than things in which there is no “right” or “wrong” answer, even from a probability perspective. In economics we call it positive vs. normative.
        nicoleandmaggie recently posted..What do you call your own partner?

  2. CashRebel says:

    Another good example is maintaining your used car or opting for a new car. I could go either way depending on the situation. And that’s the thing about all these PF debates, they can’t be decided in a vacuum. When someone asks for advice, I always tell them to explain their financial story from the beginning.
    CashRebel recently posted..June 2013 Goals Update

    1. Emily says:

      Haha! “Tell me your life story, please.”

      Isn’t there some math that helps with the decision to pasture a car? But there is still a lot of uncertainty. We’ll face those decisions with both our cars in a few years.

  3. I will now solve all of your dichotomies.

    Frugality vs. Earning

    The dichotomy falls apart when you focus on the effort per dollar spent. Ceteris paribus, witching from brand to generic takes zero extra effort to save substantial money. Spending hours planning your extreme couponing excursion is much harder to justify, unless you actually are going to use all 87 of those bottles of mustard you bought.

    The dichotomy also falls apart when you admit minimum lifestyle requirements. There’s nothing wrong with saying “Renting a 300 sqft studio apartment isn’t for me. Therefore I will rent a one or two bedroom.” So long as you’re living below your means there is no problem here.

    Debt Payoff Method

    Unless you have some kind of debt related neurosis, the debt snowball method is idiotic.

    Investing While in Debt

    Math is your friend. Compare interest rates. Problem solved. Exception made for people who have debt neuroses.

    Home Renting vs. Buying

    You need to understand your local housing market, your lifestyle needs, and what else you could be doing with the money. I’ve lived in areas where buying a house was almost a no-brainer. Where I currently live, I wouldn’t recommend it unless you have a family or some other hobby that requires a large amount of space.

    Private/Expensive College

    This is solved by understanding your field. A degree in psychology or women’s studies is essentially useless no matter where you get it. But if you go to Harvard, at least you’ve got that going for you.

    An engineering or medical degree is great regardless of where you get the degree. On the other hand, MBAs and JDs are go big or go home games. If you’re not going to a top school, you’re probably wasting your time.

    Mortgage Payoff Speed

    Again, unless you have some kind of debt related neurosis, math is your friend and at current 3-4% interest rates, early payoff makes no sense.

    Passive vs. Active Investing

    Understand how much effort you are wiling to put into investing. If you aren’t willing to put in the effort, stick to index funds. You’ll never beat the market, but it’s not like doing as well as the market is a bad thing.

    If you’re actively investing, you need to have a plan and base your decisions on the fundamentals of the company. Yes, you can beat the market by doing this. If you don’t have a plan and aren’t basing your decisions on the fundamentals, you’re just gambling and your risk of under-performing the market is a lot higher.
    My Financial Independence Journey recently posted..Emerson Electric (EMR) Dividend Stock Analysis

    1. I think it is a little unfair to consider the psychology regarding debt repayment as neurosis. Emotions play a bit part of budgeting and spending. You brought up that very part when you talked about housing. If somebody is more likely to stick to the plan with small wins from the debt snowball, then the math is in their favor by going that route instead.

      There are also other things that can affect the issue. My smallest debt, which is also the lowest (zero) interest rate, is also my only debt that is in collections and is therefore a giant black mark on my credit report. If I focused on my $27,000 5.5% APR student loan first, I’d be saving money on interest, but hampering my ability to borrow in the future.
      Edward Antrobus recently posted..My Day in Small Claims Court

    2. Emily says:

      I have solved these questions for myself, and I agree with your opinions to a large extent. However, you obviously value generating the highest net worth possible, which not everyone does. There is room in the world for other values, like peace of mind or risk aversion, and those may sway people to the other decision.

  4. These are debates that will always continue in time and each side thinks they are right. Yes, there can be arguments for both sides, but I find it easier to let people create their own opinions on it. While I lean to one side or the other for each opinion, I don’t like to put others down when they want to do something. The opinions in personal finance can be fierce.
    Grayson @ Debt Roundup recently posted..Are You Hardwired To Make Bad Investment Decisions?

    1. Emily says:

      Opinions certainly are fierce! Money certainly can be one of those hot topics. I do feel strongly about some of these dichotomies so it’s important for me to keep in mind that if others think differently, they probably have some kind of reason (emotional or not) and ultimately it’s their lives!

  5. That’s a good list, and you’re right: there’s often not a lot of appreciation for different methods.

    DIY vs. Outsourcing is another dichotomy I see people taking sides on.

    I personally think there is sufficient diversity of personalities that, most of the time, there’s room for any of these strategies to be the right one. Behavioral economics teaches us that people are not 100% rational automatons who always act in their own best interest. In fact, it’s much more likely that there are gaps in our thinking, many of which we are not aware of. Additionally, as humans we have those pesky emotions — doing the thing that is best for us financially (keeping low interest debt around to invest more) may not be the best thing for our happiness.

    Acknowledging the nuances in our behavior & emotions makes it possible for strategies that are not optimal for a 100% rational automaton (e.g – debt snowball), still yield the best results for some humans.

    Besides, sometimes I think we are splitting hairs. It’s often choosing between two obviously beneficial activities that are sufficiently rare and asskickingly positive that there isn’t any reason to deter someone from the choice that works well for them. Don’t let the good be the enemy of the great.
    Done by Forty recently posted..We’re back, with Gratitude

    1. Emily says:

      I like your last paragraph a lot and that was in my mind when writing this post. Instead of going for perfect behavior like avalanche vs. snowball, we should be excited that someone is taking big positive steps to pay of their debt. I think if you are executing a plan that you’re comfortable with that’s a “win” even if it’s not the plan a fully rational automaton would pick.

  6. Probably any issue concerning debt is going to be dividing. There are those who believe that any and all debt is inherently wrong and should be avoided. Dave Ramsey even suggests paying cash when buying a house. Others, however, will believe that debt will advance their goals more quickly, whether it is buying a house, education, or leveraging your investments.
    Edward Antrobus recently posted..What is the Difference Between a Bill and a Debt?

    1. Emily says:

      True, there are possibly moral positions that come into play with debt or certain kinds of investing. Those would trump other values.

  7. Its all a matter of opinion. In the end if you are doing something different than someone else they usually have something to say even if they don’t say it to you. In my opinion the only that is going to truly matter is finding what works for “YOU”. All the other stuff simply doesn’t matter and just makes for great conversation. You may have on person that had a great experience paying off their mortgage early and another who is doing well by investing instead. I try not to push what I believe on others. If they ask what I am doing I tell them and let them know it works my family and I but that they need to do whats best for them.
    Thomas | Your Daily Finance recently posted..June Stats, Updates, Goals, and Future Plans

    1. Emily says:

      It’s good that we can have the conversations and learn from each other, but at the end of the day we each have to deal with our own finances only!

  8. Lucas says:

    Most of these seem to boil down to a risk vs return decision. So your personal temperment and that of your spouse play a huge role in these decisions, and you have to be sold on your own decisions to stick with them. Of course everyone then has to prove that they are right in their decisions because if everyone else doens’t agree with you there is a chance they will look down on you right 😉

    For us:

    Frugality vs. Earning

    Initially it made more sence to focus on the income as there was a higher reward posibility. However at this point increasing income would require more time and energy than we are willing to give and it has a hugely decreasing payoff. Our time and energy are better spent on learning to be more frugal and or learning new skills that provide bigger returns.

    Debt Payoff Method

    -Neither of us have ever had much debt at all (max debt was $9000 – $6000 car and $3000 student loan), but we did use the debt snowball method (and yes paid off student loan first). I think it probably cost us a total of $50 in extra interest payments, but probably helped us focus on getting rid of each debt at that point.

    Investing While in Debt

    -I always invested to get 401k Match but then pay off any other consumer debt. Maxed 401k before working on paying off house.

    Home Renting vs. Buying

    -This one is very location specific. Would be a much easier choice if transaction costs on houses were much less (one of my personal dream is to change the real estate market completely). We bought in 2008 at the low of the market and it has been a good choice for us. I would not advise anyone to try to get in on a market that is going crazy or going up really fast.

    Private/Expensive College

    -I would usually vote for good but lower cost route here. I went to a good public college but had large scholarships, my wife went to community college then a smaller prive school while working to pay her way through school. My advice to my kids is going to be to try to avoid as much student loan debt as possible as I usually don’t think the risk is worth the potential pay off.

    Mortgage Payoff Speed

    -After maxing 401k I think paying off your house is one of the best low risk, guarenteed return investments you can make. It also provides huge amounts of financial freedom!!!

    Passive vs. Active Investing

    -I am content with matching he market and keeping expenses low. Lower risk and usually slightly higher then average return then activly managed funds.

    1. Emily says:

      I agree about the risk vs. return pattern. People do get quite defensive over these decisions! Good point that many of these decisions will be swayed by life stages or environmental factors.

  9. Matt Becker says:

    I think it’s pretty tough to say that any one choice is right or wrong in all circumstances. As you say, it pretty typically boils down to the person’s individual circumstances along with an understanding of the strengths and weaknesses of each approach. I will say that there are certain examples where the probability is such that one approach is far more likely to be better than another. The active vs. passive debate in investing is one (passive is much more likely to benefit you, though it’s certainly possible to do better with an active approach). Term vs. whole life is another one where the probabilities are very highly in favor of one (term). But I would say those are the exceptions rather than the rules.
    Matt Becker recently posted..Stop Focusing on the Negatives. Start Enjoying Life.

    1. Emily says:

      I guess it makes sense that in the two cases you mentioned, probably the main reason people go the inferior route is because they are being sold it!

  10. leaving your day job is wrong because you lose company match and perks and staying at your job is wrong because you make less than you could freelancing.
    Pauline @ Make Money Your Way recently posted..Why real estate is one of the best ways to make money

    1. Emily says:

      Good point! That one is very individual and highly intertwined with values like freedom, autonomy, and security.

  11. All great examples! I think that people tend to get defensive when these topics come up, and often get entrenched in their positions. The great thing is we all have the freedom to make our own choices, and to be accountable for the outcomes!

    One additional example I thought of is having one parent stay at home after having a child, versus having 2 parents work. There is criticism either way, and each side of the debate would likely have great points. In the end, like the other choices, it’s up to each of us to do what’s best for our own lives.
    Tie the Money Knot recently posted..Paternity Leave: Do You Think It’s Important for Employers to Offer It?

    1. Emily says:

      Ugh, that is a vitriolic one, and probably more infused with personal values that strictly a financial decision. But again, career-wise, there is a more-known track (continue working and advancing) and a less-known track (drop out for a while, how to return?).

      1. eemusings says:

        Oooh, now that is definitely minefield territory. Financially/career-wise, staying home is pretty risky.
        eemusings recently posted..London, how do I love thee?

  12. I don’t think there’s a right or wrong and I wouldn’t judge other people for the decisions that they make. What works for your might not work for me and vice versa. I know lately there’s been a lot of discussion in the pf community about vacationing when you’re in debt. You only live once vs. you shouldn’t vacation at all when you’re in debt.
    KK @ Student Debt Survivor recently posted..How to Find Money for Surprise Expenses

    1. Emily says:

      That’s an easy one to answer from a net worth perspective, but difficult in practice because of differing values and needs.

  13. […] @ Evolving Personal Finance writes PF Choices: Damned If You Do and Damned If You Don’t – It seems that some faction of the PF community will disagree with you strenuously on almost […]

  14. […] PF Choices: Damned If You Do and Damned If You Don’t was featured in the Carnival of MoneyPros. […]

  15. […] Values, or our priorities, are squishy. Each one of us has a unique values constellation. Our values can change over time, too. Values inform the financial goals we set and the tactics we choose to meet them. To be frank, in personal finance values can sometimes trump math, or mess math up. We won’t all arrive at the same decisions, not because math works differently for each of us, but because we all have different values, personalities, experiences, risk tolerances, etc. (Values are why people argue about snowballs vs. avalanches and other fiercely defended personal finance dichotomies.) […]

  16. […] to ‘earn more’ are fairly rampant in the PF blogosphere (of course, balanced by the ‘spend less’ mindset). I read all the time about bloggers’ and commenters’ side […]

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