What Would You Do? #1

Oct 10, 2012 by

dice with question marksWe each make choices with money implications many times a day. Alone, some are small—Should I stop at Starbucks? Maybe I’ll drive instead of bike to work today—and some aren’t—Should I sell my bond fund and buy an equity fund? Do we tell Billy that we can’t afford to send him to that excellent University to which he’s thinking of applying, or do we take out a loan and put off our retirement?

This post launches the Money Counselor “What Would You Do?” series. We’ve all made poor money choices, but usually we learn and do better the next time. The idea here is to share what we have learned to help keep others from making a poor—or at least a poorly considered—choice.

Each What Would You Do? article will outline a scenario with a dilemma and choice to be made by a person I’ve made up, either Dave or Diane (any resemblance to you or me is purely coincidental!). Most of the time, money won’t be the only factor involved in the choice, but money will play a meaningful part in the options Dave or Diane have. Also, most of the time, there won’t be a “right” answer (this is NOT a test!). I’d like to get at what should Dave or Diane consider in making the choice? What’s a good way to go about making the choice? Of course the best way for you to explain your ideas may be to outline what you would do in the same scenario and, most importantly, why.

Dave’s Daughter Wants to Play Piano

Dave’s 8-year old daughter Angela has fallen in love with piano. Her current BFF Alyssa (who’s mother is a partner with a big law firm in town) is taking lessons and practicing on her family’s new Steinway.

Dave doesn’t own a piano, but he and his wife have always tried to instil in their children a love of music and have quietly hoped some would get interested in learning to play an instrument—though ideally, one less costly than a piano.

Dave’s family is middle class. He and his wife pay off their credit cards monthly, they’re socking away money into retirement accounts (though not the maximum), their only debt is a mortgage and one car loan, and they’ve built a $5,000 emergency fund. They’ve also set up an account specifically to save for a Rocky Mountain vacation next summer. Their vacation budget is $2,500, and they’ve saved $1,100 so far.

Vacation or Piano?

Both Dave and his wife would be thrilled to see Angela really take to the piano. They fantasize about her becoming a virtuoso and worry about depriving her of the opportunity to learn whether piano might be a big source of joy in her life.

But then there are the practicalities. Dave has found on Craigslist a good, used piano for $900. Moving it to his home and having it tuned might cost another $150. But that’s just the beginning. Piano lessons for Angela would cost around $50 per week. Dave and his wife would have to save less or cut back somewhere—though they’re not sure where in their already frugal budget.

Dave and his wife are considering using their vacation fund to buy the used piano and postponing the vacation indefinitely or substitute a far less costly camping trip to a nearby state park. Or they could put the vacation on their credit card—or perhaps take out a home equity loan—and pay for it over time. Dave’s colleague John says he should take out a small loan from his 401(k) plan to finance the vacation. “You’re paying the interest to yourself,” says John.

What Would You Do?

This scenario is really a two-part dilemma: 1) Would you find a way for Angela to explore her attraction to piano, and 2) if so, how would you come up with the needed money? Also: Say Kid #2 announces a few weeks after the piano is moved into your living room that he’d like to take up the trombone. Now what?

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