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Financially speaking…

October 27, 2005

I have my finance final tonight, and I will be lucky to pass, which for me, will kill me if I don’t. After ten weeks of study, I will tell you that I still can’t apply finance to business, but I can apply some of the concepts to real life.

In life, there are risks and there are returns. Generally, the greater the risk, the better the return. We take risks with our careers, our friends, even our families. Every time we make a decision on whether or not to take a risk, we try to determine if the return on our investment is worth it.

Take, for example, shopping. I am one of the most notorious when it comes to retail therapy. Whenever I am upset, I find myself wandering through the mall or the aisles of Target, picking out things that I could buy to make me happy. But when I get to the point of needing to leave the store, either with or without my purchases, I weigh the rate of return on my investment.

“Is spending the money on this now, to appease my current state of sadness, going to make me feel better tomorrow when I’m trying to figure out how to pay my rent?” If the answer is “no,” then I will put everything back and leave empty-handed. The equity gained from the purchase is not worth the liabilities that I’ll incur to procure it.

I think it’s always that way in life, with anything we have. Relationships, purchases, career moves. It all comes down to balancing the books at the end of the day. When things don’t balance, we look to figure out why. We make changes, we sell our assets to pay off our liabilities. We look to see what today’s investments will be worth tomorrow. Sometimes the changes are drastic and risky, but they pay out well in the end. At the end of the day, we look to turn a profit and choose whether to reinvest in our lives or pay out dividends to our investors.

Now if only I can apply these concepts to the five questions I will be answering shortly, I will be okay.

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