Steve was a successful manager at a local company in his town. As he was sitting in my office describing his situation I could sense the enormous stress he was under. He made a good wage, enough to adequately care for him and his family, yet his finances were a mess. With bewilderment he said, “How can I successfully manage a multi-million dollar budget at work and make such a mess of my own personal finances?”
I’ve heard this and similar statements often in my many years of financial coaching. There’s a simple and revealing answer to this question. The answer can help you do better at managing your own personal finances.
A few years ago my wife and I decided we would spend less on our summer vacation. As we tweaked our budget for the year, something we do every January, we decided to spend only $1500. As summer approached the discussion of our vacation began to surface. Our daughter Rachel, who can be extremely persuasive, used the argument that this may be the last vacation she would take with us before heading off to college and eventually move out on her own. As you probably guessed, my wife and I gave in. We booked a 7-day cruise for the 4 of us, wiping out most of our savings.
Why did we do it?
The answer is rather simple. We chose between short-term gratification [a great vacation] and the less exciting option, saving for the future. In other words, we made an emotional decision.
Personal financial decisions are just that; personal. Managing the budget of the company you work for is simple. The money isn’t yours. In fact, your job, and your compensation, is based on you managing well and making good spending decisions. Your motivation for doing a good job is tied to a very tangible benefit, keeping your job.
Managing your own personal finances isn’t the same. The crucial difference is your emotions. Every personal spending decision has an emotional component. We buy things we want, which brings a certain level of pleasure and satisfaction; an immediate reward. In a family this is multiplied by the number of people who all have their own wants and desires. A typical family makes between 80 and 120 financial transactions per month. A significant number of these transactions are spent on wants, not needs. Choice of food, brands of clothing, gift buying, entertainment, are all items we spend on that trigger our emotions.
What can we do to meet our basic needs and provide for some of our wants without going into debt and wrecking our financial future? I suggest 3 things that will help you and your family manage better.
3 Things To Manage Your Money Better
1. Spend every dollar on paper before you get paid
Too often we spend money without really knowing our financial ability. We look at our checking account balance, we do some mental math, and decide we can spend. The reality is, most of us can't remember what we ate for lunch three days ago. How can we expect to make good spending decisions doing mental math? We can’t! A thought through written spending plan that governs where you'll spend and how much you’ll spend, will take the guesswork out of it and empower you to do better.
2. Budget in the fun stuff
Often when people try to get their finances under control they cut out everything that’s non-essential. The problem with this approach is that it’s not realistic. Going from spending freely to not spending on anything other than essentials is setting yourself up to fail. It’s no different than those new year resolutions you make every January. You can't go from all to nothing. Take a balanced approach. Make sure you're meeting all your financial obligations, like paying bills and saving, while also allowing for those things that make life worth living.
3. Find accountability that works
Smart and successful people seek help from those who know more than they do. They are teachable and willing to ask for assistance in order to get better. You’re not alone in this struggle. Why not enlist help to ensure you’ll reach your financial goals? Something as simple as a monthly meeting with a coach or accountability partner, to go over your progress can have a significant impact on your success.
Do you recognize the emotional part of your financial decisions?
What do you do to overcome the emotional pressure to overspend?