How do you approach a major life decision? Some take a “ready, fire, aim” approach – they’ll decide on impulse first and ask the important implementation questions later. Others go to the opposite extreme – they get so overwhelmed by minutiae and what-ifs that they can’t act, even when the opportunity is a good one. So how do you know if a choice you’re considering is the right one? Here are some tips to help you figure out when it’s time to make a change and if you’re financially ready.
Understand Your Feelings
Have you ever eaten a cookie when you thought you were hungry, and it turns out you were tired, or thirsty, or you just wanted a delicious cookie? Emotions can be tricky, and sometimes what we think we want can disguise what we’re really after. Before making a major decision, it’s worth getting to the emotions driving your need for change.
- Ask “why.” When you do some soul-searching, it might turn out the “why” that underlies your restlessness isn’t what you thought – and that might open the door for new, better opportunities. Say you’re thinking about embarking on a new career. What’s motivating that desire for change? Is it an undiscovered passion over something that’s meaningful to you, or is it dissatisfaction with something about your current career? If it’s the latter, what’s the cause – getting passed over on a promotion, a difficult colleague, the sale of your company? In that case, the solution might not be a new career – it could be a transfer or even a conversation with a supervisor.
This isn’t to say that switching careers isn’t appropriate – maybe it is, maybe it isn’t – but to determine the right solution, you first have to diagnose the source of your discontent correctly. This type of self-reflection doesn’t always resolve the issue quickly. The “Five Whys” technique, attributed to Japanese industrialist Sakichi Toyoda, asserts that you should repeatedly ask yourself “why?” to cut through half-truths and correlations and get to the root cause of your dissatisfaction. Keep asking “why?” until you get to the heart of the issue.
- Ask “why now.” If you’re struggling with identifying the “why,” try asking “why now?” What changes have occurred in your life to prompt this reaction? Sometimes the answer is obvious: You always wanted a boat and just inherited enough money to pay for it. Sometimes, though, it’s not so obvious: Maybe the desire to own a boat is to distract yourself because your youngest child just moved out of the house. The timing of a decision is often a clue as to its root cause.
- Ask “why not.” When major life choices go poorly, it’s often because the change we invest in isn’t the one we need to make. But sometimes it’s the reverse: Sometimes we diagnose the problem correctly but can’t spur ourselves to action. Maybe we overthink it, are naturally averse to change or are just prone to playing it safe. To really get to the heart of a decision, consider what could happen and ask yourself “why not?” If you find the potential consequences you’re afraid of are unlikely or unrealistic, there might be something else at play.
Make a Plan
Once you’ve weighed the pros and cons and considered your root motivations for making a change, it’s time to consider the financial implications and determine if your budget can accommodate a potentially new reality.
- Evaluate your current financial state. How prepared are you financially to make a change? Do you have enough saved for foreseeable immediate expenses? Do you have an emergency fund or other forms of liquidity (ideally not a credit card) should you need quick access to cash? What kinds of debt do you have, and would making this change impact your ability to pay it off? Emotionally and intellectually you might be ready for a change, but you still might have work to do financially to make a successful transition.
- Crunch the numbers. What are the financial ramifications of making this change? If it’s a purchase, consider not only the sticker price but less obvious costs like maintenance costs, operating costs and depreciation. If it’s a career change, is your income going up or down? Will there be new expenses you need to plan for? If it’s starting a new business, what resources do you need? Do you require a website, inventory and equipment? Do you need a business loan to cover start-up expenses? Understanding the ramifications can help you assess if this opportunity is financially feasible.
- Consider both the short- and long-term costs. A lot of financial decisions are made primarily based on the top-line number: a $100,000 yacht, a career change that reduces income by $50,000, student loan debt of $30,000. And for sure, that initial number needs to be planned for. But what other effects will such a change make on your budget? Do you have the cash flow to cover any new immediate and recurring expenses? Or will this free up cash flow, the way a top-of-the-line exercise bike might let you cancel a monthly gym membership? If there are significant upfront costs, do you have the liquidity and flexibility needed to make such a purchase work?
From a macro level, how would this change impact your longer-term goals? Would you need to extend your time horizon for your other priorities? Does it fundamentally change your plans, the way the purchase of an RV might cause you to rethink retirement? Are there tax implications or opportunities? Pay special attention to opportunity costs – would a major change now impact an equally important priority down the road?
Before making any major decision, it’s worth considering the advice of the ancient Greeks: “Know thyself.” How will such a choice impact your day-to-day decisions and your quality of life? Will it make you more content? Will it boost your self-worth? Are you considering this change because you want to or because you feel you should? Making choices solely to live up to outside expectations could be a waste of your money and, worse, a waste of your time.
For most major life decisions, there are going to be trade-offs, with no clear-cut right or wrong answer. Plans change, priorities change, situations change, and often without notice. That’s the value of having a Financial Advisor who understands you – not just how much you have to invest, but your current situation, the people who are important to you and what you want your wealth to accomplish for you in your life. We can keep you grounded, make sure you consider all the angles and ultimately help you arrive at a decision that’s right for you.
Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.