Financial Decisions: Dealing With Long Term Consequences

Last Saturday I was invited to Paul’s (coworker) house for his daughter’s birthday. Our daughters enjoy playing together since they are of the same age. I finally got to see the new in-ground pool he installed a month ago costing about 30k all in all.

I have discussed money and retirement several times in the past with him and we always come out in agreement of how important it is to maximize savings in order to get out of the race as many years earlier as possible. However, I found his decision to dump 30k on an in-ground pool excessive since he took a loan to pay that amount which will be added to his ever growing mortgage. This is not the first time Paul goes big on a high ticket item. His new car last year cost him about 40k.

Paul’s plan for early retirement is simple: dump as much money as possible in his RRSP mutual funds. 2 years ago our company got bought by a bigger one and our new contracts specified a retention bonus equivalent to our yearly salary to be paid in 2 payments over the course of 2 years. I have the impression Paul spends on big ticket items knowing a small windfall is on the way.

Even though we are both in our early 30′s, Paul’s gross household income is probably double that of mine because he is more senior and his wife is a full time employee compared to my wife working part time.  Yet while sharing the same goal with different household incomes, I will come out ahead in terms of the mortgage. If I stick to my plan of maxing out payments on my mortgage for the next 3-4 years, my mortgage will be finished and I will be able to divert more cash flow into investments.

I must admit that I love his pool and prefer it way more to the above ground pool I got in the backyard. I also like his new car but for now, I prefer to stick to my 2005 Toyota. I thought it over with my wife, we can afford to redesign the whole backyard and dig a new pool, we can afford to lease a BMW on top of that but the end result is more debt, a bigger mortgage. This is blasphemy in my dictionary since the dream of financial independence would slip through my fingers and this dream starts with closing the mortgage first.

Paul who has been investing since 2000 complained repeatedly that his return over the last decade has been nil, he is not getting closer to his objective. With the decisions he took, I don’t know if he simply knows how to enjoy life better or if he has grossly miscalculated his future revenue. After all, we are both white collar employees and he should be aware that our positions can be exported to faraway places in a heartbeat. In fact, we are going through some tough time right now and uncertainty is looming.

Do you think of today’s happiness or of tomorrow’s financial burden when you decide to spend? I would love to hear your input.