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Financial Flexibility

My friend’s daughter (~21 years old) just bought her first car. It was a big financial move, and she had lots of options.

  • Look for a used Honda? Lots of frugal experts would point in this direction.
  • New-but-reasonable? This is what I did. In May 2012, I bought a brand new 2012 Toyota Rav4. I’m still driving it today.
  • Go all out! There are places to be and people to impress…I want a cool car!

For better or worse, this young woman went with Option 3 and bought a 2024 Ford Bronco (for roughly ~$45,000). It’s a cool car (one of the most popular cars in America since the Bronco came back to life in 2021). That “cool factor” was essential to this young woman.

ford bronco on the road in the mountains

But by stretching with this purchase, she’s damaged her financial flexibility in other areas of life. Financial flexibility is the ability to absorb financial downfalls, react to financial changes, and find contentment at various consumption levels.

In the world of physical fitness, stretching improves physical flexibility, and that flexibility helps prevent muscle- and joint-related injuries.

Similarly, maintaining proper financial flexibility helps cushion the financial blows life will inevitably throw your way (sudden expense, loss of a job, dog ate the tennis ball, etc).

Flexibility in Contentment

My friend (whose daughter bought the Bronco) discussed how she felt great discontent about driving around a used junker. I totally get it. All else equal, a cool new car is way better than an old junker!

But all else isn’t equal. Namely, the price (or more accurately, the cost per mile) of the Bronco is way more than the used junker.

We all know someone who fits this mold. They just have to have the nicest stuff. Well, it’s time to hit them with this all-timer of a quote:

Look around you. All that stuff used to be money. And that money used to be time.

black and white laptop computer

The question becomes: are you content, fulfilled, happy? Different strokes for different folks. Some people need the fancy Bronco, while others despise spending hard-earned dollars on a depreciating asset. How much of your time are you willing to trade for stuff?!

It’s a superpower to feel content and fulfilled at multiple spending levels.

That line can’t be emphasized enough.

Overspending is typically tied to the search for contentment. Very rarely is that contentment found behind the wheel of a car.

We’re all different, and our “contentment flexibility” will vary depending on the topic. We each have areas of life where we say Hell Yes! and happily pay high prices. For you, it might be wine or nice dinners or dog toys. For me it’s squash rackets and books and high-quality baking ingredients. That’s the idea of bimodal spending.

happiness is a piece of cake close up photography

But if you can still be happy at various spending levels, your financial life is bound to improve.

Flexibility in Your Budget

To some, financial flexibility means having room in your budget.

Life will throw you curveballs. Can you roll with the punches and keep your head above water?

You might have seen headlines like “47% of Americans Can’t Afford a $1000 Emergency Expense.” There’s barely any room in their budgets. Their situation is like glass, shattering under the slightest bumps. A healthy emergency fund solves this by providing vital flexibility.

photograph of a glass breaking

It’s ironic: this flexibility is created by saying “No,” but then empowers you to say, “Yes!” We must choose to not spend money to grow this flexibility; a penny saved is a penny earned. But the benefit of budgetary flexibility is saying “Yes!” when sudden fun spending opportunities arise.

Geographic Flexibility

Would you be happy living in New York City? What about rural Iowa?

If you have the lifestyle flexibility to move to a low-cost-of-living area, it’s an amazing financial superpower. For kicks and giggles, I compared New York City to Sioux Falls, Iowa. The overall cost of living is more than 100% higher in New York City. If you’re reading this in Iowa, let me know!

  • NYC rent is 295% higher than Sioux City
  • Restaurant prices are 87% higher
  • Groceries are 77% more

If you’re tied down to a high-cost-of-living area (tied down = not flexible), it is what it is. I won’t tell you to abandon your family in New York City to save money in Iowa.

corn field during daytime

But if you can move to a low-cost-of-living area, what’s stopping you?

Does Money Buy Happiness?

When my colleague Chris meets with clients, he often says, “I’m not sure if money buys happiness. But it buys flexibility. And for me, flexibility does lead to more happiness.”

I think he’s right.

Most of us want options, and that’s what financial flexibility is all about. We want to option to afford, ideally, anything. But we can’t afford everything. It’s just like Paula Pant told us on Episode 75 of The Best Interest Podcast:

You can’t afford everything, but you can afford anything.

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