I just finished The Index Card by Harold Pollack and Helaine Olen. It’s a really good personal finance book for those who need to understand a handful of simple steps you need to take to get your finances in order. I love the idea of narrowing down your financial philosophy so that it fits on an index card or a single sheet of paper. That’s just the beginning, because you still have to control your behavior and implement your philosophy, but the hardest thing for most people is just getting started.
Some stats from the book made this abundantly clear:
Almost three out of four of us say our finances cause us stress on at least a monthly basis.
One-third of those in relationships say money is a major source of conflict with their significant other.
Fifty-five percent of people with investable assets worth between $50,000 and $250,000 say they fear outliving their retirement savings.
Sixty-nine percent of us answered “never” when asked how often we balance our checkbooks.
A little more than half of us manage to pay off our credit card bill in full every month. The rest of us? Take the financial Boy Scouts out of the picture, and the remaining households owe an average of more than $15,000.
…a third of us will pay the minimum [credit card payment] almost every month.
Whenever I see this kind of information I’m always searching for the behavioral reasons for why this is the case. Seth Godin wrote a great post last week about deconstructing urgent vs. important, which I think is relevant here. Here’s a sample:
A six-year-old who throws a tantrum and refuses to go to school is escalating into the urgent.
Going to school every day is important.
Mollifying an angry customer is urgent, building systems and promises that keep customers from getting angry is important.
Killing the bugs in the kitchen is urgent, putting in weatherstripping to keep them out for the long haul is important (as is avoiding carcinogens).
Important means: long-term, foundational, coherent, in the interest of many, strategic, efficient, positive…
If you take care of important things, the urgent things don’t show up as often. The opposite is never true.
It’s easy to spin your wheels on seemingly urgent actions that aren’t important. This is part of the reason that people live paycheck to paycheck even though they earn a decent salary. It’s why so many people go into credit card debt. And it’s why people don’t save enough for retirement.
There are always going to be little things in the here and now that require our attention and we tell ourselves that we’ll start saving/pay off our debt/creating a budget tomorrow. Long-term goals are easy to avoid because they’re never right in front of our face demanding attention. So procrastination endures.
In The War of Art, Steven Pressfield says, “Procrastination is the most common manifestation of Resistance because it’s the easiest to rationalize. We don’t tell ourselves, ‘I’m never going to write my symphony.’ Instead we say, ‘I am going to write my symphony; I’m just going to start tomorrow.'”
Inertia makes it difficult to just get started with your personal finances. The goal isn’t necessarily to right the ship in a day; it’s to create a system that puts you in a position to slowly improve over time and focusing on the important things that really make a difference.
Personal Finances > Portfolio Management