Your emotions make most of the decisions in your life and
our logical brain tries to create sound reasoning to support your emotional
decision.
Control: We have the elution that we control things we
actually have no control over. If we submit to the fact that our emotions are
in charge and we control far less that we think we do you can begin to put in
place a framework of a financial value system that will drive our actions.
The problem with making emotional financial decisions is we
often evaluate those decision later with logic.
How do you
know you are making an emotional based decision?
Excitement
Sadness
Anxiety
Anger
Ways to
control your emotions when making financial decisions
Don’t rely on your “gut”
Pause and come at it from a different angle
Write it down – Pros and Cons (pen to paper
awakens the logical brain)
Get external opinion – hire a professional
(lawyer, agent, accountant)
Don’t marry yourself to an outcome – make it
about the process
Solution:
Have a value system based on overarching rules that you can rely on for your
decision making process.
Car loan: maximum 3 year
Mortgage: paid off in 15 years
I will never pay for a service I can do myself
I will not commute more than 30 minutes
Borrowing money for things that go down in value
is not an option
Credit cards are a form of payment never to be
used for credit
I will never use the equity in my house as a
source of money
Replacements decisions are based on an items
functional utility
If you do figure out a way to survive on minimum wage you actually have a superpower.
When does it make sense:
To build a career or it leads to greater prosperity
Semi-retirement
Supplemental income
Summer employment
Concerns with living on minimum wage:
Not a long-term solution – deprivation will catch up to you
Living on the financial edge for an extended period of time will wear you down
Raising a family would be a challenge
Credit could be your undoing
Location is important – if you can’t solve the income equation work on the expense side
You will not be able to build wealth
Are you really being deliberate?
Why guilt free spending is important?
– deprivation is not sustainable
– bring change into your life
How much should you be spending guilt free?
– relative to your income
Spending considerations:
– on a regular interval
– not on life’s necessities
– not automated spending
– be deliberate about it
– make sure it is aligned with your priorities
– no room for personal agendas (not significant in value)
Sources of guilt free money:
– allowance – make it part of your budget
– gift money
Personal Finance Myths We like to make excuses; easier to blame others then ourselves. We all, like eating, have the ability, for thee majority, to earn, save, and spend.
1.“Personal finance is too hard.” — news flash, a lot of the most important things we will ever embark on in life are really hard. Anything worth having, anything worth being good at is always going to challenging, But its how willing you are to fight to achieve what you want to achieve is the true measure of strength and resiliency. Change will come from a place of discomfort.
2. “Personal finance is easy… just don’t buy anything or spend any money, I’m set…” — things happen, clever marketing ads get shoved in your throat in all sorts of subconscious ways, its harder then ever not to spend money
3. “My parents are bad at it which means they didn’t teach me how to get too at it.” — the moment you stop letting someone else dictate how good or bad you are and will ever get at something is the moment you relinquish control. Control and permission to excel at something and be great. You are not your parent’s legacy, instead you can foster your own legacy at leading an incredible personal financial life. Yes, you may not have been dealt an incredible hand, but you own how you play that hand out. I will also in the same breathe be the the first to admit that my parents are incredible with their finances, that everything I know and everything I told true is because of them.
4. “People with a financial background have an upper hand.”
5. “Personal finance is a place you get to.” — in reality, it’s a journey not a destination and you have to be kind, gentle, and patient with yourself as you grow and go through this journey
6. “There’s a “right” way to do personal finance” — and by right way we mean there are right strategies to take on i.e. spend less then you earn, but the things that work for your neighbour, friend, etc. might not work for you. It’s easy to get caught up in the perfectionist side of things, that if you live your life according to the success plan that worked for someone else it’ll work for you, however in reality our lives are all so unique.
7. “I’m older now, its too late.” — its never too late
8. “Caring about personal finances is only for those with lower incomes.”
9. “If I made more money I wouldn’t have any financial worries or problems”. —Don’t look for external solutions to an internal problem
10. “Everyone else around me is living large, why can’t I?”
11. “It feels like my debts will never get paid off, why even try or start?”
12. “I tried the personal finance thing and it didn’t work.” — Trust yourself — trust yourself that you’ll have the ability to succeed
13. “My spouse takes care of the personal finances so I don’t have to.” — faulty approach, important to delineate roles, but also as important for both partners to have a pulse on your joint personal finance situation and be jointly involved (regardless of who may be the primary/larger bread winner of the family unit). Each partner serves as a sounding board, your accountability partner. Ensures your immediate/short term actions align with your long term goals.
14. “Thinking about personal finance is too restrictive — budgets, curbing my spending…”
15. “I’m not wired that way.” — its not about math, its something you need to learn, something you should embrace getting good at
16. “Personal finance is something I can ‘dabble in’ whenever its convent for me” / “I have a bad habit on spending money on things I don’t need.” — no, personal finance is a way of life and a way of living, not a habit to be broken and then commit to next week or next year when you think it’ll be easier.