Happy Friday y’all!
As you know, I’m a big believer that knowing your personality plays a HUGE role in how you manage your finances – for the better or the worse. It’s no secret that I personally choose paths that excite me more than other, possibly “smarter,” financial routes, but I also know myself well enough that if I can’t stay motivated then none of it really matters in the end.
The way you answer today’s question will say a lot about yourself as well, and particularly how you trust yourself around money.
Let’s see how much harder this one is to answer than our last one on whether you’d go to jail for a year for a million dollars in return ;) Something tells me you’ll have to think a little longer on this one, haha…
Okay, here we go…
Would you rather…
Have $250,000 in cash but also $250,000 in debt?
Have $0.00 cash and $0.00 debt?
POW! Good one right? In both cases the end result is the same here ($0.00 net worth), however each side comes with a heavy set of circumstances. And for arguments sake, let’s assume that the interest rate on this debt in option A is equal to what you can expect to get back in the stock market long-term (8%’ish), and that it also doesn’t come with an asset you can sell to quickly wipe it away. It’s just straight up debt that you have to pay off the old school way ;)
How do these two routes make you feel? Which has the best potential for long-term success with your history? Which one *excites* you more?
Personally, I almost always choose option A in these cases. The idea of having *something* saved up/invested vs nothing almost always outweighs everything else to me. Cash is so powerful – and empowering! – that it brings not only a world of opportunities to your fingertips, but also a world of confidence at the same time.
Just knowing you have the money for opportunities is also an incredible feeling. Anyone can spend money, but to store up cash like that? Completely different story. And with being able to kill all your debts at any point you want too just adds to the empowerment. Even if all you do is invest it all (of course if you don’t trust yourself to use it wisely then we all know which option you should choose!)
So to me it comes down to not only the confidence/exciting factor, but also the fact that most people have a much harder time saving money than they do spending it. Even if it’s “good debt” like a home or education/etc. If you start at a level playing field with $0.00 and $0.00 (which, btw, WE ALL DO!) the odds are stacked against you unless you were smart enough to read blogs like this from the start ;) Something I didn’t even do myself, and brought a staggering $350,000 of debt to the table (mortgages) before I began paying attention to my own finances, ugh.
Again, much easier to spend than to save.
But of course, choosing option A also means you now have to deal with that nasty-sized pile of debt too. And there’s something to be said about having a clean slate and starting from the ground up – even if you have no padding to fall back on. I’ve never had any debilitating amounts of debt before so fortunately I don’t know what that feels like, but I’m sure if I had my answers would be quite skewed here. I know many of you are dealing with this in real life now and in some cases have all the debt but none of the savings, so I’m super interested to hear what y’all have to say about this. And I’ll do my best in the meantime to get the magical Would You Rather Fairy over there as soon as possible ;)
All this to say though that our history and personalities play a large roll in how we deal with our money. Not only in answering ridiculous(ly awesome) questions like these, but also in how you manage your finances on a day-to-day level as well. It’s all very much personal, and it all very much MATTERS.
So… Which option are you leaning towards here? Lots of cash with equal amounts debt, or a completely blank slate with none of either staring back at you?
Drop your answers below and let’s watch those brain cells of yours start percolating… I guarantee it’ll be a fun discussion to join :) And quite possible that you’re dealing with this in your life today! Lots to appreciate and work on in both cases.
PS: If you listen to our podcast you might have heard a similar question we posed there as well – but more along the lines of home ownership. Our guest asked us what we’d do if someone gave us $250,000 to buy our dream home outright, and my answer was to take the cash but keep on renting (big shocker), while my beautiful co-host chose to invest the money in rental real estate instead, and the poser of this question – Steve Stewart – chose to actually get the house. No right or wrong answers here, except of course the one that is right for YOU.
[Photo cred: demibrooke]
Jay loves talking about money, collecting coins, blasting hip-hop, and hanging out with his three beautiful boys. You can check out all of his online projects at jmoney.biz. Thanks for reading the blog!