Wednesday, June 18, 2008

Can Good Financial Habits Be Bad Life Habits?

I was reading some sample chapters from a not-yet-published self-help book that pointed to these two things as being negative traits:

  • Worrying too much about things that might or might not happen in the future
  • Over-analyzing what you have done in the past

I'd argue that to achieve financial security, worrying about the future and analyzing the past are exactly what you MUST do! You have to think about how you're going to support your planned lifestyle in retirement and other financial goals, and I believe that tracking and analyzing your past expenses is a crucial part of planning for the future.

This got me thinking about whether the characteristics of good money management might somehow lead to bad life management, but doesn't it seem odd that that would be the case? Perhaps the "too much" and "over-" are the key factors here: doing anything to an extreme can be a problem, even if it's something that is good in moderation.
Also, there is no right answer to how to live your life or manage your money. Some people would argue that taking risks is an important part of living a fulfilling life. Taking risks can be dangerous financially-- but it's also necessary to some extent, as risk-free investments tend not to perform at a level that would protect the spending power of your savings from inflation. Some people might also argue that it is okay to spend money or even go into debt to do something that might be a once-in-a-lifetime opportunity, something you'd feel regretful about for the rest of your life if you didn't do it. Other people believe that there is no such thing as a once-in-a-lifetime opportunity, or not one worth going into debt for. And what about the age-old question of whether you should save for a rainy day, or live as if every day could be your last? Without having the ability to see into the future, who knows?

How do you feel about this issue? Do you ever make choices that seem like the right thing to do for your "life," i.e. your emotional or physical well-being, but the wrong thing to do for your finances? And is there anything you do that is a smart choice financially but somehow negative in other ways?


Anonymous said...

I think you're right, and the problems would be over-analyzing and over-planning. But "over-" is different for everyone. There's a big difference between stressing out over things in the past, which can't be changed any more, and noticing what happened, so you can avoid similar problems in the future. You can make yourself sick about your next move or move with too little information about yourself. But you can think seriously about what you really need from a clear understanding of your own personality, characteristics, and earning power, and move on that knowledge. And that thinking takes time.

In my youth, I did some stuff career-wise that looked dumb to everyone else, like giving up a teaching job that, if I had stuck it out for 25 years, would have had me retiring at age 46 with $90,000 a year in 1976 dollars. But I hated teaching kids in the classroom, didn't think I was any good at it, didn't WANT to do something I saw I wouldn't be good at, and decided I'd rather be poor doing something I loved and was good at.

It was a decision that required a lot of thinking and angst, but not, I think, over-thinking; it took time to come to a clear-headed assessment of myself, especially at the stupid age of 21. Well, I was indeed poor a long time, and even now, as I approach ten years after that original 46 year old goal, and probably 14 years to retirement, I'm making about a third of what I would have made if I had stayed. But I worked out what to do, from an understanding of myself, and I did it, and although it's been stressful, I am glad I did. And later, when I was in really bad financial difficulties, I figured out what to do again, and did it. And, and, and ...

If you can't let things go, though, you can make yourself crazy, and achieve nothing. If I hadn't made the decision, and then said, "Okay, that's over, on to the next thing," I would never have been able to do it. Sometimes you make mistakes, and any decision you make might be one. But you can't go through life avoiding mistakes. You're going to make them anyway. And most real mistakes are fixable. As my college choir director used to say, "You might as well make nice loud mistakes; they are more convincing."

You have no choice -- nobody is going to take care of you but you. You have to do it yourself, with lots of thinking, analyzing, planning, and probably worrying. But there's no choice.

Anonymous said...

I think that it's something a lot of us fight with. Because spending too much time dwelling on your debt or focusing on it will make you completely miserable. But spending no time learning from the past or planning for the future will leave you ill-prepared.

Perhaps the key is planning instead of worrying (and knowing when you don't need to think about it at all) and learning from the past instead of beating yourself up.

Probably better for your money management, too.

Easier said than done. :P

Sicilian said...

I think it is a personality trait. . . . I can remember worrying in first grade about the first day of school. . . . worrying hasn't had a negative impact on my life. . . . . I think I make sound money decisions because of my concerns.

Anonymous said...

There's definitely a balance between seizing the day and planning for the future, and that balance looks different for each of us.

I have a few rules I've followed for a long time: put the maximum in a Roth IRA every year; don't touch the money in my non-Roth stock portfolio; and pay off the credit cards every month. Beyond that, my financial decisions depend on what makes the most sense at that point in my life.

For example, next summer I'm going to Europe for a month and even though it will be expensive I know that for me it's going to be worth far more than what I'll spend. (I'll use part of the money I'd saved for grad school, which won't impact my ability to pay for grad school as long as I keep on eye on my spending.)

The next couple years are all about exploration and putting myself out there, and while I'm entirely unencumbered (no spouse, no kids, not even a cat) I'm going to take advantage of the freedom and do things that might be more complicated later.

Anonymous said...

Yes, good financial habits can be bad life habits. Take my husband for example. He's a police officer and has a good, stable job with job security, great benefits, good pension, etc. He was offered an opportunity to work part time for a start-up business that is actually growing in leaps and bounds. So he works part time at nights and weekends, and gets paid well enough so that it adds up to an additional $500/month for us. BUT, he's feeling the stress of not wanting to disappoint the owner of the business while struggling to spend time with me and our two preteen boys. He now thinks if he doesn't make at least $500/month, then we're going to go bankrupt or something. I work full time too, and together we earn about $115,000 gross. We live modestly and within our means, so we're not struggling. But he's always telling me "we need the money." I tell him we didn't need it 18 months ago before he started working this second job, but he's convinced himself otherwise. This part-time job could evolve into all sorts of things when he retires from the PD, but that's not for another 10 years or so, and by that time, our boys will be grown and who knows what can happen between now and then.

So for people who a a little OCD, this can become a real problem. I've become more financially responsible in our 20 years of marriage, but I still like to buy things...mostly necessities and a few treats here and there. This has often been a bone of contention in our marriage.

I could go on and on, but suffice to say that if being frugal drives you to the edge of insanity, then it's a bad life habit.

Now excuse me while I go bid on that cute little black dress on ebay...

Anonymous said...

I always say, "Moderation in all things" and this is no exception. Plan for the future, but don't stress when you can't change anything. Live today as fully as you can (whatever that may mean to you), but don't forget about tomorrow.

That said rather easily, it's much harder to put into practice. I make my budget, so that I know exactly where I am and where I want to be 1,5,10 years down the road. And then I don't worry about the house downpayment, or retirement. It'll be there when I get there.

Anonymous said...

This is something that I struggle with all the time, and I agree with the other comments that were made. You have to strike a balance between living in the moment and making sure that you will be secure in the future.If you "seize the day" too much, you're going to go into debt, as I did in the past. If you're too frugal you'll never take advantage of opportunities and will have a difficult time forming/maintaining relationships and having fun. And I think this is a particularly difficult balance for women to strike, who tend to a) use material goods to validate themselves and b) feel pressure from society at large to impress with appearances.

I especially like the comment from the woman who said that she has certain financial rules she follows every month but otherwise lives in the moment. I think hers are sensible rules and, after I've paid off more of my debt, I think I will adopt similar financial rules.

The bottom line is, no amount of money will buy happiness but some money is necessary to provide feelings of security and comfort. We all need to be careful without sacrificing our spirit.