Why It’s Hard to Really Take Control of Your Finances

Keeping your finances on track is hard because, as humans, we are all weak. We’ve always been well-organized, and as long as we’ve had steady incomes we have had at least a few hundred dollars to spare every month (which has since increased). This has a downside because it makes unplanned purchases seem like no big deal. There are a few too many times when we have needlessly spent hundreds or thousands of dollars on something without giving it much thought or time to save up and possibly realize that it’s not a great idea.

Contrast this to many people who report that they couldn’t handle an unexpected $300 expense and you can see the danger that lies in being on top of your finances. Once you’ve gotten to the point of avoiding big mistakes, it’s all too easy to stall there and be comfortable… until you realize that you’ve been missing out on something bigger once it’s too late.

To correct this you need two things: a solid plan to reach a higher level, and a way to limit your spending without feeling like you’re making big sacrifices. That is, unless you’re facing an emergency like having to pay an interest rate over 10%. Then do make sacrifices.

We have the plan, which is to take full control by freeing ourselves from the need to do all but the occasional work in the next 10-15 years (or sooner). We both plan to continue working beyond that point so it provides more flexibility but it’s not the most urgent goal. That makes the limiting of spending a bit of a work in progress. There are a few things we are using to help with this:

1) Trading in. While we are very comfortable with what we spend on now, we are actively making trade-offs in a few areas. We currently limit our travel, to the point where our credit card rewards are enough to cover most non-business travel. We recently turned down an invitation to a Caribbean wedding because the price offered for a week at an all-inclusive place was ridiculous for a country that should be cheap. But once we have reached our goal, we will give ourselves permission to spend any further working income on things that would be ridiculous purchases for someone who isn’t financially independent. We currently believe that we would enjoy a 1-3 month cruise for example.

2) Using the right comparisons. If we compare ourselves to our neighbours, our household is short by about 5 4×4 super-duty trucks, which we could use for off-roading across sand dunes to get the groceries. On the other hand, if we compare ourselves to bloggers such as Derek from Free at 33, our savings rate is worthy of a Halloween haunted house (we’re working on it). I’m currently comparing myself to some people who have reached a much higher level of income, and figuring out what they’re doing right. And when I compare things to my past travel experiences, any time I hear someone complain about their life being uncomfortable it draws the kind of reaction that doesn’t make for good relationships (I can usually restrain it though).

These aren’t sacrifices, since we’ve figured out that what’s important to us can be translated into getting good income from rewarding work, having lots of freedom, and spending relatively little for where we live. Comparing ourselves to people who have made the right moves helps us get what we really want sooner. We’re not giving that up just to get a big shiny motorboat.

3) Earning it. This involves the oft-overlooked pleasures of waiting for things. For example, some people will go out and spend hundreds or thousands of dollars on a personal trainer because they want to get in shape RIGHT NOW. They typically end up back on the couch pretty quickly. I spent a couple of hours at the gym with a friend learning some basics, and then spent 6 years practicing on my own before finding a (free) weightlifting program online last year that has led to much faster gains. The only expense to date has been the gym fees after I graduated. I’m still a bit uncomfortable spending $55/month and driving to the gym twice a week (maybe biking next summer) but with 7 years of commitment and good results to show for it, it’s clear that I’m getting some value from it.

For another example, I was inspired last year to start playing the guitar (thanks Keith Richards for the final push and some great examples to follow!). I immediately applied the idea of earning it. After doing some research on used guitars, I was a bit surprised that the best deal for something likely to be good for more than a year was to get a new one. My total cost for the initial gear was $230. Not bad for years or decades of entertainment, considering some people can spend that in a night at the bar! Going further, I earned the skills by not paying for lessons. Instead I found simple examples online and built skills the hard way.

Now that I’ve shown that I’m still interested after a year of practice, I’m considering the next step up which is more expensive. I don’t want to turn this into another unplanned expense that hurts our cashflow, so I decided to earn the financing as well as the skills. Taking an idea from Robert Kiyosaki, I’ve decided to make this a challenge by tying it to my goals to increase my income. Once I have reached $5,000 in total income from new products and services that I don’t currently sell (including those passive income projects as well as some new services I’m planning in my main business), I will be getting a good electric guitar. The rest of the income (after taxes) will go into our investment portfolio and I imagine those new sales will keep going to generate a lot more income. That’s a win for our income, our investments, and my own personal entertainment!

4) Using automatic limits. Despite everything I just said, I am comfortable with buying anything… as long as we’re keeping our monthly spending below a certain level. In other words, once we’re taking steps to reach our goals the rest can go to anything that catches our fancy. Mr Money Mustache’s recent post has another take on this with the idea of only doing home renovations yourself. If you go that way (which we should be doing a bit more – the only thing we hired out is not going to last), you’re naturally limited in how much you can spend at the same time that you’re saving money.

A lot of people would complain about the burden of these limits, but in reality they fit well because it’s hard to fully enjoy what you’re buying if you spend faster than that. You could pay to have your home remodeled top to bottom in a month (ok, you obviously live somewhere contractors are booked for less than 100h per week). But in addition to not having the satisfaction of seeing your own work every day, anyone who does that will probably be planning the next remodeling or even moving within a year, instead of taking the time to enjoy it.

So in the end the hardest part about being in control of your finances isn’t avoiding the mistakes, it’s doing the things that will really put you ahead. You have to enjoy pain to carry a credit card balance and pay interest on it without taking steps to pay it down faster. But once you’ve avoided the big mistakes, and even made a plan to get further, there are still many things that can get in the way. Controlling your monthly cashflow is an important step, and we will always be looking for new ways to do that!


3 responses to “Why It’s Hard to Really Take Control of Your Finances”

  1. TimelessFinance says :

    Great post. If building wealth was easy, everybody would do it. And, yes, it’s critical to remember the flip side, be reasonable, etc.

    I think it’s super important, when money truly is scarce (e.g. if a person has credit card debt) to have a ‘scarcity mentality’. But after you’re “safe” — you’ve paid off consumer debt (or student debt, or pretty much anything in which a “debt blogger” is embroiled) and you’ve got an emergency fund, to develop a “wealthy mentality”.

    A mentality of wealth involves some consumption. Buy, in moderation, the “stuff” that adds a lot of value to your life. Invest something in your relationships. As long as you’re financially on track, it’s a valuable part of becoming wealthy.

    But also don’t blow cash. Most “debt bloggers” I’ve read who have gotten out of debt (Free at 33 definitely excluded) either continue with their scarcity mentality or use their new found debt freedom to justify buying a big house or a new car, etc. In short they come down with a case of consumeritis — they want the trappings of wealth, even though they don’t even have the wealth yet. Limit consumption and get the things you want as inexpensively as reasonably possible.

    • Simply Rich Life says :

      Thanks Joe, you’ve described the real challenge of it! Having huge debts is a relatively easy emergency to deal with for most people, but building wealth is a more subtle challenge with many distractions. If you have the wealth mentality then you can understand when it’s ok to waste money (as we all do) without going too far.

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