Balance is important in more than investing and accounting. It is a way to think.
Planning is about balance. What I want and what I have to get it with. When?
I cannot be a good lawyer if I do nothing but study up to the time I pass the bar exams. Being a good lawyer requires a social element and you don’t learn that in the library. Same with medicine or engineering or architecture or teaching or plumbing or auto-body work.
Everyone needs a balanced skill set. They need to know what they know and what they don’t know. Lack know how, need know-who. Watch carefully for the “don’t know you don’t know” part. That is where the surprises live. Be alert to the “That’s funny, I wonder why it happened?” idea. Have another person show you things you don’t know.
Balance quality with price. A low price now may have a high cost in the future. Consider future usability when buying things you will use.
The third aspect is time. You must balance your resources across three time zones. The past, the present, and the future. All aspects work properly when none has been overemphasized.
If you devote too much resource to the future, you may minimize your present lifestyle. You cannot take an eight year old to Disney World thirty years late. If you overspend in the present you must underspend in the future to make it balance. Overspending and underspending are both wrong.
The present and the past and the future are all connected. If I spend $20.00 on lunch today, it cannot affect either the past or the future. If I put it on a credit card, it will affect the future because I must eventually pay the bill.
Debt is a reflection of decisions you have made in the past. Some seemed costless. A vacation on the VISA card, feels painless. The pain only appears in the future. When you incur debt be sure the money to pay the bill will be available without giving up saving or day to day spending then. Many people do not work that through adequately.
When acquiring assets rather than just spending, like a house or car, do you work through all of the future costs you incur. A house comes with spontaneous spending for new furniture, heat, hydro, insurance, maintenance, and municipal taxes. Just because you can afford the mortgage does not automatically mean you can afford the house.
It is a pity that governments do not build in the maintenance and renovation reserve for parks, roads, sewer systems, water, airports and bridges in the beginning. If they did, there might be fewer of them or maybe they would be built with future costs in mind. Not all future obligations are created by debt.
It would be interesting to build a budget the way a sports general manager looks after the salary cap. Each contract is a line item into the future spending budget. Decisions today have future implications.
You manage plans better if you express all of the implications of current decisions across the future.
Don Shaughnessy is a retired partner in an international public accounting firm and is now with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.