Guns vs. Butter
Life is a series of trade-offs.
We have limited resources, be they friends, family, money, skills, experience, or whatever. There is nothing we have that is without limit.
The key to finding your own financial happiness is allocating your resources appropriately. This is much easier than it sounds.
In Economics 101, we learn about the trade-off every government must make between increasing public defense and increasing domestic production. This is called the “Guns vs. Butter” model.
Because countries have limited resources, leaders must choose between increasing the safety of the people and increasing the wealth of the people. More guns or more butter?
We make choices like this every day. But unfortunately, we typically make them in real time, with no real long-term plan. This can lead to a confusing web of bank accounts and create spending or investing decisions that work against our own true values.
Instead, it is important to take a step back every once in a while to understand our aspirations, both long-term and short-term. We need to compare these to our resources and, quite importantly, understand the risks required to get where we want to go.
Otherwise, we are likely to go down an unintended path or at least go through life never knowing what it’s like to be confident that our finances can get us where we want to go.