It 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!
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?
photo from Free Digital Photos