Managing our money would be so much easier if we could approach it in a rational, no nonsense manner. “It’s cheaper to eat at home, so that’s what we will do every night for the next 20 years to save as much as we can for retirement.” Might look good on paper, but in reality, life is so much more complicated than that, and emotions (and enjoying life) do have an impact on our financial decisions. On the other hand, we can get into trouble if we allow our emotions to impact our finances too heavily. “I know the bills are tight, but I work too hard- I deserve this gadget/vehicle/vacation,” or “I had a bad day; I need some retail therapy.”
Money is a lot like food that way; just like you’re probably not having that piece of chocolate because it’s filling a nutritional need, those pieces of paper with the pictures of presidents on them contain so much more meaning than simply a way to pay the bills. In the same way a crash diet is nearly impossible to sustain, so is swearing off spending for anything but necessities. With both, that kind of black and white thinking leads to a slip equaling failure in your mind and the familiar “well I blew that” binge. Like dieting and so many other areas of life, balance is important with money too. Having a plan in place can help you have a realistic approach to managing your resources, without the emotional sabotage.
How do you start a plan anyway? The first step is to be honest with yourself about how well you are mastering the basic principles of financial success. Are you spending less than you earn? Do you keep consumer debt to a minimum? How about an emergency fund? Setting long term goals is critical as well. As Yogi Berra put it, “If you don’t know where you’re going, you might not get there.”
Understanding that our resources are finite, our long term goals and our values will help us decide how to allocate those resources. There are only five things we can do with money in the short term: we can save it, give it, pay taxes, repay debt, and use it for living expenses. That’s it. If we spend too much on living expenses we will have less to save; if we accrue debt and must use our money to pay it back, that leaves less to live on or less we have to give. Being intentional and purposeful with how we allocate that money rather than mindlessly spending allows us to make the most of what we have for the things and people that are most important to us.