I keep my deck of Oblique Strategies cards on the desk of my home office, which also doubles as my recording studio work surface (you can listen to my solo albums here or here & my collaborations with Jeremy Lemos here or here). I typically pull a new card from the deck once a week, referring to it when feeling stuck or uninspired, and most of the cards are as appropriate for work as they are for music. Here is this week's:
Faced with a choice do both
A lot of people get hung up in false dichotomies – should I do this or should I do that – in situations where doing both is a viable option. An example that I hear a lot goes something like this: "I have some money set aside, but it is not earning much in interest. I'd like to put it to work but don't know what to do. Should I invest that money or use it to pay off my debt?"
The first thing is to double-check whether the person is already doing the right thing. There are lots of situations where having a lot of cash on hand is absolutely the smart move – when saving for a home downpayment or the birth of a child, for example. For our conversation, though, let's assume that there really is more cash than the person needs in that account.
Let's also assume that addressing either would make the person feel better – otherwise, why would they ask? Finally, I think we can assume that neither option is an obvious screaming emergency, or the choice would be easy and the person would not be asking for advice.
Barring those situations, though, I say, "why not do both?"
If some of the money was used to repay debt and some it was invested, would you be in a better situation than you are now? Probably, and you'd be killing two birds with one stone.*
Now, someone might argue that if the rate of return on your investments is greater than the interest rate on your loan, then blah, blah, blah. Sure, there is probably one option that makes more sense numerically. But we're not robots and we don't live in a numerical world. People make decisions – and stick with them – based on feelings. Would you feel good about choosing only option A if it meant ignoring option B? Or would you feel more comfortable with a quick & easy solution that lets you do a little of both, even if it's not the "perfect" choice according to a spreadsheet or financial calculator?
Or, even better, let's add a third option: leave some of it in savings (you never know when something unexpected will pop up), invest some, and use some to kill a bit of that debt. This lets you put a portion of that money to work immediately while holding a bit in reserve for later. If you are still sitting on too much cash six months from now, you can always put it to use then. Keep it easy, right?
If you have a question about your own money or would like a second opinion, drop me a line! My work number is in the signature below and this email address is always checked by yours truly. If you're ready to schedule an initial call, you can click the link below my signature to access my scheduling page. Thanks!
Timothy Iseler, CFP®
Founder & Lead Advisor
Iseler Financial, LLC | Durham NC | (919) 666-7604
Iseler Financial helps creative professionals remove stress while taking control of their financial futures. As both advisor and accountability partner, we help identify current strengths and weaknesses, clarify and refine your long-term goals, and prioritize understandable, manageable, and repeatable actions to bring long-term financial well-being. Reach out today to take the first step.
* The whole "killing two birds with one stone" phrase seems misused to me. It typically expresses a desire to take care of two tasks at once, usually because doing both isn't much more difficult than doing just one. But have you ever tried to kill even one bird with a stone? Or even hit a tree branch with a stone from more than ten feet away? It's actually super duper hard! "Kill two birds with one stone" should be reserved for displays of extraordinary skill or dexterity, not something like swinging by the library on your way to the grocery store.
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