How To Think About Money

The way we think about our money influences the rest of our lives. The way we see ourselves and our money has an effect on the car we drive, the house we buy, the amount of debt we take out, and the amounts and types of investments we make. How you think about money will also influence your family, friends, and those around you. Would you rather spend your bonus on a big screen TV and surround sound system to watch the game with friends or movie night with the family? Would you rather spend it taking your family on an adventurous vacation they won’t soon forget? Neither is right or wrong, but the way you spend it will influence your life and other decisions. A special thank you to Level Up Financial Planning not only for sponsoring this episode but for being patient as BJ dealt with his near accident this past weekend. Lucas was very patient and understanding and he’ll treat you with the same kindness and respect when working to help you make the most of your money. Episode Breakdown Wrong Ways Looking Forward to a Big Tax Refund This is one that gets a lot of people, even those who make a good paycheck. It is a sign that you are having too much withheld from your paycheck. Basically this is a no interest loan to the government with money that you could have for your own purposes. You would be better off paying less into the government and putting that money into a low interest savings account. Not Having SMART Financial Goals Reviewing, SMART stands for specific, measurable, attainable, relevant, and time-bound. A good formula to use is: I plan to save {amount} for {item/trip/etc} in {time-frame} by {method}. Goals may be further out such as saving for a house, or retirement. Saving whatever is left at the end of the month is a mistake. Budget savings first, then monthly bills, then fun things. The Wrong Motivations to Make Decisions Most mistakes with money stem from having the wrong motivations behind the decisions we make. Ego-driven decisions cause you to buy unnecessary, expensive things just to give the appearance that you are doing better financially. Emotion driven decisions lead to impulse purchases such as buying a new car after getting a big bonus or a raise. Fear driven decisions are acts of desperation that things like selling off long term investments because of a downturn in the market. Not Fully Understanding Your Options Under-thinking your choices is willful ignorance, make sure you do your research before major purchases or decisions. Impatience is another culprit of poor decisions, it’s one that car salesmen use all the time. Over-thinking your choices is the opposite end of the spectrum and can lead to analysis paralysis. Simple solutions are usually the best as complication tends to lead to confusion. Avoid the Hedonic Treadmill This the idea that no matter how much more one gets either financially or in other areas you stay the same level of happiness. The more money you make or have to spend the more your expectations rise meaning you have no long term gains in happiness. Studies indicate that people have a happiness set point and while at certain times we can be happier or less we’ll tend to return to that average. For example, buying a new car will make you happy initially when you purchase it but it will quickly become the new normal and you’ll return to your average happiness. Raising your happiness set point is a lot more complicated than having or not having money. Correct Ways Start With The Basics Build an emergency fund to cover you basic expenses for 3-6 months then continue to add until you have 6-12 months in case of a recession. Pay off high interest revolving debt such as credit cards as soon as possible,