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The Softer Side of Personal Finance

September 24, 2013

In my last post, one of my readers left a very interesting comment. He pointed out that the basics of personal finance are pretty easy to understand, but that people fail to actually implement them.  I agree that all one needs to really understand the basic concepts of personal finance are an elementary school education (and this is being extremely generous), but given this, why is it that so many people find themselves under piles of debt, then proceed to add mounds and mounds of debt to the already crushing pile?

Debt and Obesity – There’s more in common than you think!

Let’s think about that last analogy for a second…does it remind you of any other major issue facing the U.S.? The first thing that came to my mind was obesity. On the surface, its astounding that this is such an issue – move more,and make sure that you consume fewer calories than you burn, then repeat, every day, until you get to your ideal body weight. However, for anyone that has ever struggled with weight,  you know that it is not that easy. Sure, the concepts are easy to comprehend, but enacting them takes more than self-control. There are 99 reasons why you can’t make it to the gym today and there are societal pressures everywhere telling you that you deserve that cookie or that dinner out or that extra cocktail at happy hour. Many people chalk up failure to lose weight as a simple lack of control or denial, but those of us who have battled with it can tell you that it has nothing to do with will power or denial. Instead, it has everything to do with emotion. It has to do with self-esteem and self-worth. There are 99 reasons you can’t make it to the gym because you prioritize everything else over yourself. You can’t ignore those societal pressures because you don’t have a strong enough sense of self or enough compassion for yourself to say that your health is more important than someone’s expectations. You are terrified of success. You don’t think that you deserve the life or the attention or the love that you think you will have if you are healthy. About 1/3 of the US population is obese, yet rather than deal with the underlying issues causing this, we focus instead on treating superficial symptoms. Educating people about nutrition is important and encouraging people to exercise is essential, but you also have to deal with the root cause. Losing weight is hard, it is rarely linear, and requires a lot of emotional strength.  When you feel like progress is slow or non-existent, knowing how to eat right or exercise isn’t going to motivate you to get up at 5:30 am and go to the gym. What is going to motivate you is loving yourself enough to say that you are not going to let anything, not even yourself, stand in the way of taking care of yourself.

Now think about debt – there are hundreds of “needs” that cost money to acquire, and there are societal pressures everywhere telling you that you deserve that luxury car, that expensive house and that shiny ring.  People judge you (or you feel like they judge you) if you don’t have the newest gadget, the designer labels or enormous house; just like people judge you (or you feel like they judge you) when you don’t indulge in the cookie or extra drink (because, according to them “one won’t kill you.”) People who observe others in debt chalk it up to denial or lack of self control. People who are in debt chalk it up to bad luck, excessive taxes, high costs of living and myriad other reasons. However, just as with obesity, debt is largely linked to emotions. Why did you buy that huge house you couldn’t afford – was it because you “needed” the space? Was it because you grew up with nothing and now that you have a job you “deserve” it? Or maybe you grew up with everything and there is no way that you should have to settle for less than the best? Now think about these counterpoints:  Aren’t you just as a lovable and successful if you live in a one bedroom condo as you are if you live in a 10 bedroom mansion? Is the size of your engagement ring reflective of how much your partner loves you? Are the number of toys your child has a reflection of how much you love them?

I’m pretty sure that there is no diamond on this earth large enough to reflect how much my husband loves me and I’m just as sure that every Toys R Us in the world doesn’t even come close to measuring the love I have for my son.  I’m also pretty sure that my house, my clothes, and my things, do not define me. They not make me more or less worthy of love, and they do not make me more or less successful.  I expect that paying off $100K of debt will be very similar to losing 100lbs of weight – it is not going to be easy, there are going to be many months where progress isn’t visible or change isn’t happening as fast as I want.  But just like losing weight, success at shedding debt is really founded on a strong sense of self and emotional fortitude.

The Softer Side of Personal Finance – My Experience

I addressed my emotional baggage related to money by asking the questions I asked you earlier. In doing so, I realized that my spending was fueled by my desire to fit in, to project success and to feel worthy. I mentioned this in another post, but I’m an extrovert, and I crave external validation; however, to really be able to tackle our finances I had to figure out how to be happy and maintain my sense of self without external validation.  Luckily for me this all coincided with having a baby – to date, being a parent is the best way to get over the need for external validation. No one tells you that you are doing a good job (in fact, you’ll here a thousand reasons why what you are doing is wrong), and you go through phases of doubt about your decisions, but at the end of the day, you do your best and you cut yourself some slack for being human.

When it comes to success and external validation, I’ve always known that my definition of success is not the same as a lot of people. I have never wanted to work a high-powered job and make millions of dollars – all I ever wanted is to have a family and to be able to spend time with them. I wanted to be PTA president and do things to help improve the lives and education of children. Luckily, I married a man that wanted the same thing and we always talked about how cool it would be if we could both retire and spend all day together with our son.   I’ve had several people tell me that I’d get bored or that we wouldn’t know what to do with all of our time, but in my heart of hearts, I know that they are wrong. I know that success for me and my husband does not mean a corner office with a seven digit paycheck. Success for us is having and enjoying a family.  For us to truly be able to tackle debt, my husband and I had to let go of everyone else’s expectations about success and worth,. We had to have enough faith in ourselves and each other to trust that we were right about what would bring us happiness; then do whatever we needed to do to achieve that.

The other component was taking responsibility for our decisions. Yes, we live in a high cost of living area, and yes, we pay a lot in taxes. But guess what, we made the decision to live here and we made the decision to stay, so we don’t get to whine about it.  We also decided to have a kid so we don’t get to whine about how much easier this would be if we weren’t paying the equivalent of another mortgage for childcare each month (that is a whole other issue which will get its own post).  We made some financial mistakes – we didn’t save as much as we should have in the past, we bought things we didn’t need, and spent tons of money on things to try and show each other just how much we cared. We spent a ton of money on our wedding, bought cars on credit and spent too much eating out at fancy restaurants. We made lots of mistakes and some of them I regret (e.g. cars) and others I don’t (e.g. fancy restaurants). But, at the end of the day, all of these decisions and mistakes helped shape us and allowed us to figure out what really matters to us. We can’t undo them, but we can learn from them.  There’s no use beating yourself up over something you can’t undo or change, and your mistakes are in no way a measure of your self-worth. So don’t try and bury your mistakes, accept them, own them, learn from them and move on.

The final piece in the puzzle is an urgency to change.  Change management practitioners always talk about having a “burning platform” that generates an urgency and a reason for implementing a change. I think this also applies to debt. Even if you come to the table with self-confidence and have learned the lessons of your mistakes, it will be hard to be successful if you don’t have an urgency to change your habits – if there isn’t some deep rooted motivator to get you to your goal.  For my husband and I, I’d say we’ve had two times in our lives where there has really been a sense of urgency related to money. The first was our wedding. We were both hell-bent on making sure we did not go into debt for our wedding. We had just over a year to save for it and in that time we saved enough to pay for our share (we split the cost with my parents) of the wedding and our ridiculously awesome honeymoon. It was amazing. But after we got back from our wedding, the urgency to exert self-control went away. We found out I was pregnant with our son, and our “urgency” shifted to preparing for his arrival.

Now we’re in our next phase of urgency as I approach graduation from my MBA program, and for the first time in our lives, we’re faced with serious debt. My husband and I both have a healthy fear of debt and seeing so much piled up has been terrifying. There are so many things we want to do, and see and experience with our family and we’ll never be able to do that if we try to dig ourselves out of this by using a child’s sand shovel instead of an excavator.  Money isn’t valuable for the things it can buy, it is valuable for the time in can buy you. I can spend $100 on a new pair of designer shoes or I can invest it.  If my time is worth $50 an hour, then I just bought myself 2 hours of time by investing it. If I can reduce my daily expense by $100, I just bought myself 14 hours a week, which amounts to 30 days a year.  That’s a whole month to pursue my happiness!  Now, reducing my expenses by $100 may not be realistic, but you get the idea. This is a secondary motivator that gives our goal of reducing debt that “urgency” factor – there are lots of hobbies my husband and I want to pursue and reducing our material consumption and eliminating our debt will buy us the time to do just that.

So that’s my story, but what is yours? What are your “burning platforms?” How have you overcome your emotional baggage?

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