Telling Yourself the Truth: You are…

On a basic level personal finance should be an easy subject to learn.  After all the math required only includes a working knowledge of percentages, compound interest, addition, subtraction, multiplication and division.  By the end of elementary school you had all the skills you needed to do it and the concepts are very easy to learn like spend less than you earn.  Yet despite that fact, lots of intelligent people have problems with their money.  So what’s wrong with us?

Well the fact is despite our best intentions you are likely a little like me and have those moments where you are lazy, selfish, impulsive, stubborn, willfully ignorant…take your pick of your most unflattering moments.  We keep telling ourselves that things would work if only we were better people.  It’s time to face the truth we are never going to be better all the time.  Everyone has their off days, so rather than planning around you suddenly getting a halo, perhaps the solution is for you to plan for those unpleasant moments as well.

How?  You make the good things you want done as painless as possible for yourself.  Set up automatic bank transfers to your savings account and RRSP for the day you get paid.  Or sign up for a slightly higher mortgage payment to help get that mortgage paid off faster.

Then on the reverse side you make the things you know are bad more difficult to do.  This is where you really start planning for your own particular weakness areas.  In my case, it means using spending cash rather than a debit card or credit card for those day to day little expenses.  Why? Because I’m lazy.  I hate tracking little expenses so by using cash I don’t have to.  I would much rather just use cash for lunches out, the occasional coffee at Timmy’s or a DVD that just came out.  So when the cash is gone I know that I’m done my budget.

Another example is  a friend of mine recently got an ebook reader, but specifically got one without a Wi-Fi connection.  Why? She admitted she had poor impulse control around buying books and being able to buy them just about anywhere was too much temptation.

So rather than hoping we would suddenly become better people we faced the truth and planned for what we actually are: lazy and impulsive.  It’s ok to admit we all have our bad moments.  Actually if you want to really take control of your financial life you need to admit to yourself what you bad moments are and start working around them.  It’s certainly easier to do than trying to wear a halo that just doesn’t fit you.

8 thoughts on “Telling Yourself the Truth: You are…”

  1. Great post. If I may add to the discussion by relating to my professional career in project manager.

    A key task in planning a project is estimating how much time project tasks will take. When tasks involve people, a good practice is to add ‘slack’ time to each day of a task. This acknowledges that, although a person may be able to complete a task in (estimated) 5 days. Due to the fact that people are impulsive, we add (example) 20% to this and up the estimate to 6 days to account for any unpredictability.

    Essentially, this is risk management. I work this into my personal finances, because like you, I do not have a a level of self-control which parallels to the chemical stability of iron. I assess the likelihood that I may go over budget on any given month, and by how much – and then add this to what I would like to spend.

    Overall, this practice would apply more to people who are just starting out. Having three years of data under my belt, I have a better idea of my personal habits, as I can draw a fairly accurate annual average from this data. All this really means though, is that I still do the same thing, just in a different way (using historic data rather than guessing where I will stray and by how much).

    e.g. Let’s assuming that my budget goal is to spend $125/week on the general Entertainment category. Most weeks, I’ll spend $125 or less. The odd week (4 weeks a year), I’ll spend more (maybe I wanted to go skiing – $200 for a day). Since I know, on average I’ll spend an extra $200/week 4 weeks of the year, I can work this into my weekly budget. And so, my Entertainment budget is $140/week – which $15 representing a contingency account.

    In support of you point; yes! Its okay to be yourself. We don’t need to beat ourselves up about it, or get down when you fail to meet you personal budget objectives. Simply, know yourself, and plan for it.

  2. I recently got an e-book reader (kobo on credit card rewards points) and this last week when they came out with the new wi-fi version I was kicking myself for not waiting.

    But I used to have the same issue as your friend with impulsive buying of books, so after reading your post, I guess I’m now happy that the option isn’t there! 🙂

  3. Great post, and Kiester did a nice input. I am trying to use cash for my expenses and it seems to work well. I now use my credit card only for expenses required by my employer (which means I’ll get a refund and pay my card with it) (or at least I TRY to do so… not perfect yet, but I’m on the right path)

  4. Interesting site,
    I really think you should get your numbers and assumptions check by an Actuary, not a financial planner.
    According to what you’ve suggested, I should be retired years ago…
    It’s good thing to live within one’s mean though.

  5. I went through similiar exercise a few years back, it’s a learning process all the way. Initially I thought I was doing pretty good…until my actuary friends explain to me how they will do it themselves.
    So instead of 45, the magic number is somewhere between 50 and 55. With the assumption I’ll live till 100.

  6. Great advice!

    In regards to “what’s wrong with us?”, while personal finance is very simple, no one takes the time to learn it. It’s really a shame that so many people are bad with money. The education system should be more proactive in teaching students the importance of personal finance.

    Speaking as a young individual, another problem is that personal finance is viewed to be uncool. Who wants to start an RRSP when they can buy that shiny new car. By the time most people realize they need to start getting serious about personal finance, they are middle-aged with no idea how to go about it.

Comments are closed.