How to make financial trade-offs with confidence

In so many areas of life, whether we’re juggling work and family commitments, career demands, or even a yoga class, balance is the key to success. And there’s perhaps nowhere we see this reflected more than with our finances. We all have competing financial priorities. In any given month, we may need to save for retirement, build an emergency fund, help out an aging parent, save for a child’s college education, make sure we’re properly insured, take care of all our basic financial needs, and, yes, even have a little fun. In other words, we’re making financial trade-offs every day, whether we realize it or not.

Although everything on our long list of financial priorities probably sounds familiar, that doesn’t mean it’s easy. It can feel like a herculean task.

But it doesn’t have to be, according to Michael Norton, professor at Harvard Business School and author of The Ritual Effect: From Habit to Ritual, Harness the Surprising Power of Everyday Actions, and Heather Winston, assistant vice president, head of product strategy for individuals, Retirement and Income Solutions at Principal^®.

In fact, there are pros and cons in every financial trade-off we make.

"I do feel like most often it's not a question of whether the trade off is a do or a don't, but more of a question of: 'Is it right away?' Or 'If not now, when?',” Winston says. “I always try to help encourage people to put a few steps into place, and it always starts first by thinking about what matters most to them right now, what's most critical to them. And then, what do they want to do later? Just simply: now or later.”

That also means matching your to-do list with your personal priorities.

“We see that using money to buy experiences makes us happier than buying stuff,” Norton says. “Experiences, though, often happen with other people, so, you're not just buying yourself a trip, you're buying it for your family or your partner or whoever. But that's social and connecting as well, and consistent with your values. I think a lot about translating money into time: Am I using money in ways that are going to result in better time or not?”

One trick is to break those trade-offs into bite-sized pieces that you can do habitually, for as long a time, or as little, as you need to.

"Anytime you're confronted with making those tradeoffs, keep in mind that they're not an all-or-nothing type of thing. They're also rarely a 'forever' type of decision,” Winston says. “It's why I tend to talk so much about the need to take time to really understand who you are and what matters to you, and the things you're willing to sacrifice today for a better future. But there's no one size fits all approach.”

A version of this originally appeared as a podcast on Her Money.