Most of us have made financial decisions that have left us poorer – but sometimes success isn't measured in dollars. Frances Cook outlines four 'bad' money choices you're unlikely to regret.
The point of being “good with money” is not to build up a pile of cash that you never spend, hoarding it like Smaug sitting on a pile of gold.
The point of being “good with money” is to use it to build a life that you love, whatever that looks like to you.
And that’s exactly why some decisions that on paper are bad financial decisions, can actually be the best thing.
Here are some common myths about bad financial decisions, that could actually be for the best.
1. Renting a house instead of buying
Buying a house can be really important to financial stability, but not if it comes at the wrong time in your life.
Buying a house means putting down roots, staying in one place, and committing to that mortgage. Again, great stuff if it’s the right time in your life. But sometimes that’s simply not the case.
For instance, younger people who are in the early years of building their career, may need more flexibility. To move to where the opportunities are, build skills rapidly, and climb the ladder fast.
And New Zealanders sure do love to move. Between 2018 and 2023, Stats NZ tracked 2.2 million of us changing our address.
A big driver of that is younger people, moving to where they see more opportunity for building those crucial early wins. They’re not wrong to make that a priority. Investing in your earning power can be a more powerful first step than paying off a giant mortgage.
Buying and selling a house can be expensive, take months, and stop you from making those all-important moves. Or maybe you’re in an expensive area, and buying a house puts you right to the limits of what you can afford. One move on interest rates, and the bank could sell it out from under you.
In either of those cases, putting money towards investments such as shares, while continuing to rent, can mean you’re actually getting ahead without buying that first home.
2. Accepting a drop in salary for a sideways career move
Now, I don’t think you always have to have a drop in salary, if you’re wanting to make a career change.
I’ve known plenty of people who changed industry exactly because that would earn them more money.
But if it’s genuinely the case that you want to make a career switch in order to improve your quality of life, and that’s going to be a drop in salary, yet you’ve run the numbers and can make it work?
Do it.
We spend more time at work than with our spouse, or other loved ones. Let’s make sure this is a life you enjoy.
And actually, it usually works out financially anyway. 2020 research from NZ Productivity Commission found that people who stayed loyal to a job had average wage growth of 3% per year.
Those who switched job? Average wage growth of 4.6% per year.
Look at the various options to make it work – if this is purely a lifestyle move, have you built up investments and KiwiSaver in order to give you a solid financial base to work from?
Or, is it a move where you accept a small salary drop now, in the hope of big gains in a booming industry later? Get planning, get moving.
3. Paying for childcare when going back to work
Let me head off any parenting debate first, by saying whether you choose to go to back to paid work after having kids, or become a full-time parent, I don’t care.
Whatever one is important to you, go for it, and I think you can only know which one you’ll want after bub arrives.
However, I’ve heard some people weighing the debate by saying it’s “not worth” going back to work, because it costs the same as daycare costs.
And that’s one consideration I think should be taken off the table.
For starters, it only ever seems to be the mother’s salary that is compared to childcare costs. For some reason, we never say that it’s not worth dad going back to work, because it cancels out his pay.
Hmm. Interesting.
Besides that factor, time out of the workforce can mean it’s harder to progress later, such as by getting a promotion that comes with a pay rise. So it’s not just the earning power right now that you need to factor in.
Even if your salary ends up being the exact same cost as any childcare, it’s only a few years, and you need to think about the future factor too.
Like I say, if you want to parent full time for other reasons, absolutely go for it. But childcare doesn’t have to be a bad financial decision that weighs on that choice.
4. Selling an investment that’s stressing you out
In investing, we often talk about knowing your risk tolerance.
Because even if the numbers look good, if a normal sharemarket dip means you’re lying awake at 3am, panicking that you’re getting it wrong, it simply might not be worth it to you.
This is why I’m a big fan of starting small with investing, such as with something like $20 a week.
You can learn by doing, but you also get the chance to experience investments going up and down in value, while you have less money on the line. You see how it all works, toughen up, and by the time you build up to investing more, it truly doesn’t bother you anymore.
Until then?
If you’ve made a big investment, it’s not going how you expected, and it’s weighing on you? Then maybe it’s time to start over, start smaller, and give yourself a mental break.
Stay in the game, and build a life while building your money
It’s all too easy to cling to hard and fast money rules like “buying a house is always good”, “never sell investments”, or “pursue the pay rise at any cost”. But sometimes a “bad” financial decision is the best way to preserve your cash.
If you try to force something that simply isn’t working for your life, you run the risk of burnout, or making a reactive decision later that’s even worse.
Or if something like an investment is stressing you out, trying to grit through it at all costs might mean you eventually quit investing entirely. When instead, you could have simply switched to a more moderate strategy that works better for you.
Very few decisions are truly fatal for your finances.
A bankruptcy-level mistake is rare. But burnout, resentment, and quitting entirely are rather common, and a more realistic danger to your money life. So it’s usually worth thinking it through, deciding on what’s best for your long-term goals, and then having the courage to take the path less travelled, if that’s what’s right for you.
The information in this article is general in nature and should not be read as personalised financial advice.
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