Is your money controlling you rather than you controlling your money? Then read on for the five best lessons from personal finance bloggers I’ve learned this year.
Some of you who have been with me for a while may have noticed that I have very few posts about money (and the ones that are are inextricably linked to organization) for a blog that has home management as one of its core themes.
There’s a simple reason for that – I probably wouldn’t be someone you’d go to for money advice.
There’s a lot of things in my life I’ve done wrong with money. Some people would say having my first child at 19 when I was a full-time university student with no assets and no job was a bad money decision – credit cards were always in use and money was always tight. But I made that work and my kids never missed out on anything.
The real money killer was the two divorces. When you get divorced, not only do you lose half your assets and half your possessions, you then have to pay for everything yourself. After my second divorce, I really wanted to keep my children in a nice home in the same area as before, and as a result my mortgage payments were over 60% of my net income at one point. Not easy and I guess not sensible either, but again I made it work.
Near the end of last year, with my mid-40s looming, the kids no longer financially dependent, and no further divorces planned (ha), I decided to get smarter about money. Luckily I have always planned for retirement so that is taken care of, but I wanted to be better with the short to medium term stuff.
I started seeing all the Babystep pins on Pinterest, which led me to Dave Ramsey, which led to me committing to listen to an hour a week of his show. In a world which says if you can’t afford it now just pay later, his approach was confronting and then intriguing.
Then I saw a tweet from Adventure Rich which linked to a round-up of 17 personal finance articles they thought were worth reading again.
I went through and read every one. I clicked with three or four of the bloggers and I signed up to their email lists. I’d already heard about Rockstar Finance, so I signed up for that too and made the commitment to read at least one article from that every day.
It’s been an eye-opener for sure. In my journey so far, these are the top five things I’ve learned.
Understand where you are on your financial hierarchy of needs – Mad Fientist
The Mad Fientist’s financial hierarchy of needs borrows from Maslow’s concept. Imagine a pyramid. You have five levels of the pyramid.
The bottom level is survival. At this level, you need to use your income, and possibly even go into debt, to pay for essential expenses. You then progress through to sustainability (where your income covers all your expenses) to accumulation (where you can now also save) to independence (where your investments generate your income). You end up at ultilization, where you can “spend / give in fulfilment of life’s purpose.”
The key thing to understanding the hierarchy is to fully grasp that you can’t progress to a level until you have achieved the immediately preceding level.
The hierarchy had value for me as I could see clearly where I was and where I should direct my energies next. It also made me realize that most people don’t move much beyond sustainability or accumulation because of lifestyle inflation as I’ll mention below. It’s simple math – If you keep increasing your expenses then you won’t be able to accumulate at the level you need for independence.
Be an adult – not a child – Dave Ramsey
“Children do what feels good. Adults devise a plan and follow it” are the words of the great Dave Ramsey.
I actually heard Dave mention this on a show, but also found it referenced here. This quote really resonated with me, in part because I realized that it doesn’t just apply to money. When it comes to matters of food and exercise, there are times that we tend to go for the child option (sit on the couch with a chocolate bar) versus the adult option (go for a run and steer clear of junk-food).
In these times, and times we blow our budgets, it’s because we’re letting the child be the decision maker, and the decision is usually based on emotion as opposed to logic. Being hungry, angry, sad or tired are all situations where we can let the child win. We also let the child win when we make our money decisions more about others than ourselves (but more on that in a minute).
I’ve found it useful to repeat this quote when I’ve thought about both making a purchase and also assessing what motivation is driving the desire to purchase. This is especially around food which is 90% of our unplanned expenses. For example, “I’m tired and late, so I don’t feel like cooking dinner. I’ll get takeaways instead,” is a child speaking. “I’m tired and late but I’m going to stick to my financial plan, so I can either cook what I’d planned, or I can do something basic like have a sandwich,” is an adult speaking.
Practice serendipitous waiting – Frugalwoods
Serendipitous waiting is a concept coined by Mrs Frugalwoods. She explains it here:
“Embracing the [makeshift] solution and waiting for something better to come along is what I like to call serendipitous waiting. I can’t tell you how many times we’ve needed something (like a table or a woodbox or a chair or a coat or maternity clothes) and simply by waiting patiently, the item has come our way–usually completely free of charge.”
We have become so conditioned to instant gratification. Want a movie? Stream it. Want some music? Download it. Buy it, ship it, give it to me now!
But what would happen if we waited?
I’ve had versions of serendipitous waiting happen several times this month.
I knew leading up to our Christmas holidays (which last about six weeks for us school teachers) that I would love nothing more than to create the garden at the back of our house. We finished building our home a year and a half ago but in this section we hadn’t gone much past spraying for weeds.
However I also knew that it wasn’t really possible. Our house is cut into a bank and the bank wasn’t even – the gap between flat and slope narrowed just after our vegetable patch. We needed a digger to even it out and until that got done, the bank couldn’t be planted. We didn’t think we could afford it.
In addition, we needed wooden edging to create the borders for the three back gardens. I had no idea how much that would cost. I did email one place for a quote just so I knew what I was looking at, and they told me they couldn’t even come out to look for two months.
So I decided I would just start anyway, without the edging. I used string line and weedmat pins (items we already had) and marked the shapes and prepared the ground.
And then my husband got a belated birthday present of garden vouchers. I spent hours scouring the internet to find the plants we wanted at the cheapest price and was able to purchase approximately 50% of what we needed in total with those vouchers.
I was outside planting those plants and noticed that the neighbors, who were about to start building their new home, had someone out there cutting down some trees on their section and had a digger to help with the chore.
As I was working, the man, who turned out to be the daughter’s dad, came over for some water. I asked him whose digger it was (his) and for a bottle of whiskey he said he’d come and even out the bank for me.
And then my birthday drew close. I decided NOT to be surprised from my dad and instead asked him for some more garden vouchers. These vouchers enabled me to buy another 30% of the plants.
Now the bank was finished, I DIY’d a diamond patterned wire trellis on the bank. I just needed the jasmine to plant at the bottom – some 18 plants.
And then just yesterday a tax return of double what I expected enabled me to purchase that jasmine (and still leave a decent chunk for savings).
The edging still isn’t done but the rest of the garden is almost finished – I’m just waiting on some of those plants I ordered.
All in all, the only real expense has been the whiskey. Yes, it’s been a year and a half since we moved here, but only six weeks since I really focused on it, and it’s happened at minimal cost. And as Mrs. Frugalwoods says, “There’s grace, gratitude, and serendipity in allowing the universe to provide.” My new garden is testament to that!
At the same time, simply waiting to purchase things has also given me the time and distance to realize sometimes I don’t actually want the item I thought I did. We’ve started recording items we want in a journal with a date, and the requirement to wait a month before we purchase. In addition, we review the list every payday and consider what’s the most important. I’m surprised at how many things I thought were crucial have ended up crossed the list without any angst at all.
Ask yourself, if you couldn’t compare your [insert item of choice] with anyone’s else, would you be happy with it? – Frugalwoods
Okay another Frugalwoods gem here. I admit I went a bit crazy on her blog and also signed up for her Uber Frugal Month challenge which linked to many fabulous posts.
She makes this point: “If we live in the biggest house on our street, we’ll probably perceive that we’re the wealthiest, most successful people on the block. Conversely, if we live in a house at the other end of the spectrum, it’s possible we’ll feel our abode is subpar, no matter its actual size or beauty–the key is that in juxtaposition to our neighbors, it’s the littlest. Often, we don’t think we’re lacking in something until we compare our circumstances to someone else.”
My husband and I built a beautiful home. It’s been kitted out inside exactly as we wanted. We have a two person tiled shower in our ensuite that puts other showers to shame. Our kitchen is fitted out with retro Smeg appliances. We have shutters in the whole house. It’s our dream home (in fact it’s actually called Te Whare o Ngā Moemoeā – The House of Dreams in Māori in a shout-out to both Anne of Green Gables and my husband’s Māori heritage).
It’s also a comparatively small house by new home standards. We elected to have only three bedrooms and one main living / dining area. Our rationale was that we wanted the kids to have a room still, even though they’ve left home, but we knew from prior experience a fourth bedroom / office and an additional family room would not be used.
Despite this, as a McMansion started being built down the road in our small rural subdivision, I started feeling some pangs of inadequacy. I did not us want to be the poor neighbors in their “little” house.
In addition as the site next to us had their sloping section levelled off to create a massive flat expanse for their new digs, I had more pangs. We built our home at the bottom of our slope and though the view from the top is incredible, I’ve still yet 100% to work out how it might be landscaped. It’s definitely more challenging than a simple flat area, and will be more costly because of it.
But if neither of those houses had been in my face, I wouldn’t have cared. So I used Frugalwood’s words to stop myself cashing in an investment to get the slope terraced, and reminded myself that we built this house for US and our wants and needs.
I also recently had to say goodbye to my iPhone after it received permanent water-damage on a run on New Year’s Day. Rather than credit card a new one, which would have cost $1249 in New Zealand, I read reviews carefully, thought about what specs were important to me, and purchased a cheaper $400 Samsung one that met all my requirements and was paid for in cash.
Beware lifestyle inflation and hedonic adaptation – Millennial Boss
The idea behind lifestyle inflation is that the more we earn, the more we spend. Our lifestyle inflates to match our incomes. We earn an extra $5000 a year, so we start dining out once a week, or go on vacation. We don’t save or invest the money, and the gap between expenses and income remains exactly the same.
And not only is that a danger in an of itself, but soon enough we become victims of hedonic adaption.
According to Millennial Boss, hedonic adaptation is when we return to the same level of happiness (or unhappiness) despite major positive or negative events or changes. This relates to money because “we spend more money to get something a little better, and indeed it makes us a little happier. Unfortunately that feeling soon wears off though, and we are right back where we started.”
Increasing our spending does not make us happy in the long term.
In fact, I believe it can even make us unhappy. The more we have of something, the more we take it for granted. In addition, we can become more critical and less content when we do have that thing.
Think about it – if you buy a coffee every day on the way to work, as opposed to having it once a month, it stops being a treat. If you have a massage every month rather than once a year then you start getting critical – too hard, too soft…
I think this hit me hard because for years I’ve had an “ideal budget” targeted to my husband’s predictable pay increases. This budget never increased in savings and largely increased in discretionary spending.
So my only thought in earning more money was to spend it, and not even spend it on anything meaningful.
Value is often tied up with notions of scarcity. Therefore, if I want to keep things valuable and meaningful in my life, then keeping them scarce, or infrequent, is a good idea. This strategy will keep me being a victim to both lifestyle inflation and hedonic adaptation.
To sum up my five lessons from personal finance bloggers
In one month of educating myself about money, I’ve developed a changed perspective that I believe will serve my husband and I well moving forward (he’s also been reading many of the same articles so it’s very much a journey we’re both on).
I’ve realized that for many years I’ve been a victim of lifestyle inflation and purchased items because of what others think about them as opposed to what they can do for me. I’ve let my inner child be the driver when the adult who made the plan really does know best. Instead of waiting, I’ve sought instant gratification. I’ve had no understanding or awareness of my position on the financial hierarchy of needs.
Bottom line, I’ve let money control me, rather than me control money. But with these five lessons from personal finance bloggers, I’ve realized that I can change this, and that money can give freedom rather than entrapment.
A better life in five days
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