Options vs Choices

Finance
Options vs Choices

For a long time, this has always been a subject that fascinated me in life and even more so in personal finance. It was a chapter in my half-written book on how and why to become debt free. Differentiating between options and choices is very important when analysing debt. This can be even more so in other parts of personal finance especially FIRE. A recent very well written and thought-provoking article by Tawcan reminded me of this subject again.

Options and Choices, is it not the same thing?

Well no, it is not. Let’s start with the simple noun definitions from google and move from there:

  • Choice: An act of choosing between two or more possibilities.
  • Option: A thing that is or may be chosen.

From these definitions it can be seen that options actually provide choices. Therefore, the more options you have the more choices you will potentially have, which leads to more potential possibilities and outcomes. So, you must recognize what’s the best options to have in life so that you can make the best decisions.

This is where my debt theory comes in. Having a large income provides many options, not all good which leads to some difficult choices. Having more choices also does not make you happier, probably less so. Here is a good TED talk on the paradox of choice.

Having said that though, people love to look at earnings rather than net worth. People always think if I earned what that sport star does I would… (fill in the blank). The problem is the more you earn the more debt will be offered to you. It’s far easier to go into debt and buy that expensive car with a high income (while convincing yourself you need it) as you actually have the option. This means that you will have more options which can lead to bad choices. Don’t fall for it, if you’re a high earner protect yourself against over-exposure to these options and potential choices.

The inverse is however true of having a high net worth (no matter your income). This entails having negligible debt compared to your assets which provides a brand-new set of options. Options like what to do with my time, how to invest and protect my wealth, which charity am I passionate about, etc. Suddenly the options are not how to make my car repayment this month, how to ensure all the credit cards are settled, etc. Other positive options include not being geographically bound and more predictability in your future personal wealth. In summary living debt free with a healthy net worth provides far better options which leads to easier choices than living with high debt levels.

The correlation with FIRE

For those unfamiliar with the acronym FIRE stands for Financial Independence Retire Early. There is quite a revolution on this subject at the moment. But as in the article referred to above FIRE is not as straightforward as it sounds. You see FI provides you with the option to RE. Whether you RE or not is your choice.

I agree with Tawcan on this one and that is why I am focussing far more on the FI and ignoring RE for now. I also do not have a firm FI targeted timeframe but ensure diligent progress. Because FI provides the option to RE should I want to take it or not. It always reminds me of the Steve Jobs quote: “For the past 33 years, I have looked in the mirror every morning and asked myself: ‘If today were the last day of my life, would I want to do what I am about to do today?’ And whenever the answer has been ‘No’ for too many days in a row, I know I need to change something”.

The thing is that it does not help to think that all the options provided by RE will make you happy while you are miserable on your FI journey there. It is not the end state but rather a new chapter. Therefore, I will focus on becoming more FI every year while understand the options it provides me and enjoying the journey.

And when you go RE?

This is something that I believe takes a lot of personal thought and soul searching, especially when you enjoy your job. Most people that focus on RE hate their jobs and understandably so. There is a chapter ‘Filling the void’ in close relation to this in The 4 Hour Work Week that Tim Ferriss in a recent podcast eluded to as not getting enough attention. RE is something you must be ready for and have a plan for, neither of which I am/have at the moment.

So, while journeying to FI I will continuously try to create better options while reminding myself to be grateful for all the ones I have. Be grateful for the ability to work where I can enjoy the majority of it (using negative visualization can be handy). And generally, to be more financially content, as you can never be too financially content, can you?

Always grow your wealth for tomorrow while being content with your wealth today.

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