Don't Micromanage your Finances
99.9% of the time when normal humans think about financial health, they think about not buying crap that they don't need. Sometimes they might even think about not buying stuff that they do need or at least would greatly enjoy.
Like, how many people do you know that really like to go on vacation to exotic fancy places? I know a ton; and it seems like they are always planning the next one with zest. Here is where, as a financial adviser, I would normally start to plather on about how much of a waste it is and why don't they go somewhere cheaper or do a staycation or whatever? However I haven't really delved into the expenses associated with keeping people sane in this world. Keeping your motive corspse pleased and rarin' to go on the next business day is an absolute necessity in this day and age, and on occasion it takes more than just a protein shake and 7 hours of sleep to prep. You may need to enjoy life a bit. (citation needed)
The old adage "man cannot live on bread alone" serves to illuminate the possibility that perhaps there is more to life than work. And, *gasp,* maybe it is worth some pittance of your time to pay for a vacation or something you like.
I'm going to change gears here on you. I have always wanted a Z06 Corvette. NOT the new flashy absurd Z06 things with the navigation and the huge ridiculous screen in the middle of the dash and gauges that they make now for upwards of $90k. I want a C5 baby, that will be plenty for me. Funny thing is, these cars have been hovering around $20k for quite some time and it is easy to find a clean low mileage example for a pittance more. Recently these examples have been dipping into the $15k range. Some even with the low miles, go figure. Talk about a temptation, as if I needed another one.
Recall that this article is about not micromanaging your finances. Well ok great, let's not do that here, full speed ahead and buy it Dave! Wait just a second. Waaaaait.
This is the point where not micromanaging sounds good on paper, but what exactly do I mean by not micromanage? Of course this is not a situation devoid of any mental management whatsoever, it is merely a situation where I could be using less judgement than normal if some conditions are met.
There is an extremely simple point I was getting to, and I use it all the time for expenses on the macro-level, and here it is:
And when I say how long would I work, what I really mean is how long would I have to work my normal schedule to have an additional 16k in my bank account? Well that would change from person to person substantially. Let's say that you were a super baller at finance and with your normal day job and savings habits, you could save an extra 16k in only 1 year!
Well, when you put it that way - I would say no deal. I don't want the car that bad. 1 year of work is an immense amount of time to be on the grind. And in reality, for many people it would take a year or more to come up with that kind of cash. No fun car is worth a year of anybody's life in my opinion!
See the whole process was simplified with one simple calculation. This process boils down to this: How long would I have to work to save that money? Is it still worth it to me? Would I sit behind a desk or whatever for an additional X months to facilitate this?
A few important notes when using this new mental process:
- This applies to fun stuff only. If you need a reliable commuter car to get to work this method should not be utilized as written. If this is the case, do further micromanaging level calculations in your head.
- When I talk about savings I mean CASH IN YOUR BANK ACCOUNT after so many months. After tax income people. After paying healthcare, after paying into your normal retirement savings, after your normal savings, etc.... This is not some before-tax nonsense like the IRS uses to screw you, this is real life.
- If you like your job this process becomes an abnormality to a great degree and I would hesitate using it as written if I were you. Lucky thing for the average Joe - he hates his job and can use this reasoning to get ahead!
Well there it is. Keep in mind we are trying not to micromanage and stress over these decisions, we are not trying to avoid management altogether. Apply this level of thought to your next vacation.
- Lets say you got a trip planned that will cost you $3,000 and it would take you 3 months to save that amount. Are you still game? Would you have just as much fun for $1,000 going somewhere else or just balling hard at home?
- Let's say you want that new fancy watch (or pair of leather shoes) that everybody is raving about. It's 150$ and you wouldn't even notice the money leaving your bank account. Say you save that amount in 2-3 days. This is something you feel you would wear everyday or most days. You still wana buy it?
- Want an organic Ribye steak for dinner? Thats 18$ holy crap. Normally the meat portion of dinner would cost you 5$. Technically that brings you to 13$ cost. Takes you 2 hours to save that much money, you still want that meat?
Good luck out there