The Top 2 Not-Quite-Financial Pitfalls
There are millions of ways to spend money, and almost as many ways to spend money poorly. But figuring out what’s important to you and what’s worth the investment is a deeply personal topic. Since reasonable people may disagree on whether this trinket or that experience is worth the cost, I’m going to touch upon a different topic today: Not-Quite-Financial Pitfalls.
What exactly do I mean by that? Well, they are things that on face value don’t seem to be financial decisions at all, but ultimately don’t make you any better off financially, and often leave you worse off emotionally or physically too. There are lots of examples that come to mind, and I’m sure you can think of many more, but let’s focus on two of the most common ones.
Death By A Thousand Cuts
This phrase was originally a very literal form of torture and execution, but in modern times has been co-opted to express the difficulty that slow, incremental change brings about. I’ve recently begun thinking of the financial equivalent of this concept. When working through my clients’ financial plans, I pay attention to more than just how much they spend vs how much they earn.
I’ve found that the number of transactions a person has in a month is equally important in figuring out their long term financial health. A latte every morning and fast food every night adds up quick – both in number of transactions and absolute dollar amounts. But more shockingly, perhaps, I’ve found it to be correlated with lower levels of happiness.
Considering that one of Monte Largo’s core values is Happiness Is The Most Enviable Luxury, I feel like I still need to investigate this further. So I’ll admit I have a limited sample size right now, but on the whole, I’ve found that clients who spend a lot of money in fewer transactions (going to a fancy restaurant, buying a big vacation, etc) tend to be happier with their choices than those who spend the same amount spread thinly across many transactions.
That’s why I call this spending strategy Death By A Thousand Cuts. From a financial standpoint, it’s difficult to know exactly how much you’re spending when there are dozens more transactions than you can reasonably track. From an emotional perspective, it appears that making conscious choices with your money – which means buying fewer big ticket items but forgoing the daily expenditures – is a speedier road to happiness.
Fees & Charges
No surprises that fees and small charges are a source of frustration for many. And there’s something to be said about paying a fee when there’s no other option, but for most people that’s not the case.
Water Bills. Student Loan Payments. Mortgages. Taxes. What do all these things have in common? Several things, but primarily that bad things will happen to you if you don’t pay them on time, even more so than your average bills. Student Loans can’t be written off in bankruptcy court, non-payment for water bills can let the government put a lien on your house, and I’m sure you understand why you should pay your mortgage and taxes.
Regardless of which bill it is, late payments are an enormous financial drain. A $25 fee here, a $25 fee there. But the small financial drawback to paying late pales in comparison to the monster that lurks beneath this all too common practice. If a client has the money to pay her bills on time and still doesn’t, it’s a pretty big red flag in my book that she obviously doesn’t value her money. But there’s also an element of wider carelessness.
People who don’t take the time to value their money enough to avoid silly fees and charges, tend to also not value their time as highly as they should. They don’t push back on bosses for making them work unnecessary overtime. They say yes to everything only to say no to some things at the last second, straining friendships. Time and money are both finite resources of which we have to learn to take control. Poor discipline in one area tends to bleed over to the other.
There are dozens more types of not-quite-financial pitfalls that bleed from the financial realm into the personal or vice versa. Let recognizing them and challenging yourself to overcome them be a goal in daily life. If you suffer from one of the above mentioned issues, don’t let it get you down. Do something about it! And if you can think of any other not-quite-financial pitfalls you want to share, I’d be happy to hear them.
Nathan is the Chief Financial Advisor at Monte Largo Financial