Awareness Archives | Empathic Finance

How to break the belief that it’s only okay to spend on your needs

You have much more control over what you define as wants and needs than you think.

Some people have a lot of trouble spending money.

I’m talking about the people who see spending as a “bad thing”, who feel shame when they have to part with their money.

For these people (and raise your hand if this sounds like you), money becomes a morality issue, and a very binary one: “spending is bad, not spending is good.” And this bleeds over into the self, in the way that we so often feel like we are what we do: “If I spend a lot of money, I am a bad person, and if I spend a little, I am a good person.“

That struggle is real. Imagine if every time you were confronted with a purchase, it was tied how good of person you were? (Many of you don’t have to imagine this.)

Unpacking this isn’t something one can do in a single blog post (or even a bunch of them); it’s something that’s done over time with a coach that specializes in the emotional side of finance.

But, I can offer you something to contemplate, which can have the effect of short-circuiting this train of thought, and lead to you to potentially relate to your purchases in a more less-judgmental way.

It refers to how we look at our “needs” versus “wants.”

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Remember: income and wealth aren’t the same thing

Awareness

Managing your money effectively matters so much more than your income.

Which is better to have, high wealth or a high income?

The question isn’t a good one, and lacks nuance, but it’s a good test, in case you think to yourself, “aren’t they the same thing?“

Nope.

You could be excused to think that if you possessed a high income, you’d be wealthy. I mean, it seems as obvious as the Monty Hall problem.

And, if you’re familiar with the Monty Hall Problem (in case you don’t know, it’s the brain teaser with the doors and the car and the goats), you know that what is obvious is also wrong.

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Why your goal is to not care about credit cards (if you even care today)

Awareness, Radical Finances

As you build wealth, the reasons to use credit cards fall away even more.

Recently I wrote about my own revelation that, while I love collecting (and using!) frequent flyer miles, eventually, with my own financial goals in place, I won’t need to care about them.

And the same goes for you too.

This is about allowing oneself to think bigger. What happens when you are financially successful? What happens when you have some real wealth? We spend so much time in the shallow end of the pool, working on our frugal strategies, that we can easily forget about that there’s a goal we’re working toward, which is to have more than enough. To be financially at-ease.

And so, what makes sense in your debt-filled, penny-pinching days may not make sense when your home is paid for and you’ve got income to spare.

But when you follow this train of thought through, another financial crutch starts to fall over: using credit cards.

When you have wealth, why bother? Let’s unpack this.

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Why you need to work with a digital fiduciary

Awareness, Decisions

It’s not just your financial advisors who need to be fiduciaries too. We need to be able to trust people’s online words and suggestions as well.

Trust is hard. How do you know who has your best interests in mind?

We found this out very shockingly in the financial crisis of 2008, when it turned out that people on Wall Street, mortgage brokers, and basically everyone was acting in a way that put their own best interests above (and in conflict with) their clients.

But we have a fiduciary responsibility -No, no we don't!

This led to a discussion and resurfacing of the term “fiduciary“, quite probably the most obscure way of saying “not going to actively screw clients over”.

Saying that you’re a fiduciary was actually a discussion point. This blows my mind. That there needs to be a word to describe working in your client’s best interest—and that some people to this day don’t consider themselves one—is more than a little dispiriting.

Now, I’m a financial coach, not a registered financial advisor, CFP, or anything like that, so my whole purpose is that I succeed when you succeed, and not merely about making money, but about your relationship with money.

But I still say that I’m a fiduciary. Because, in the most professional way, duh.

A recent experience made me wonder if we need to expand the concept of fiduciary to the digital space too, for the bloggers out there.

Because trust is hard on the internet too.

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How could you make $100,000?

Abundance, Awareness, Decisions

I’m challenging you to think big about your income, so big that it’s beyond what you might ordinarily think is possible.

The median household income in the US, as of 2018 is around $63,000.

The median personal income (since households typically have more than one income-earning person in it) is a little more than half that, so around $34,000.

I don’t know how much you make, but let’s assume that you’re somewhere near the median. (You’re obviously greater than the median in good taste and attractiveness, but we’re talking about income here. 😘)

There is a pernicious reinforcing situation where you can be led to believe that you are deserving only of the money that you make. “Those other people, they can make more, but I couldn’t possibly make more than $50,000. It’s just not possible in my field.”

Indeed, I have long held a theory that the amount of money we make is often tied to the amount of money we believe we deserve to make.

I’m not going to go all The Secret on you and claim that this is true. I wouldn’t be that forward.

I will say that, at least in my case, I used to believe that I was a poor person. Not that I was poor, but that I was a poor person. One was a situation, one was an identifier.

And now, I don’t believe that I’m a poor person, and I make more money than my 20 years old self would have believed possible. I’m not the only person for whom I’ve seen this transformation.

Cause or effect?

But let’s put all that aside for now. Let’s test your preconceived notions of what you believe is possible.

Let’s talk about $100,000.

Because you have to make that next year.

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Do you really want to know what other people do with their money?

Awareness, Connection

In my last job, there was a grassroots push to publish everyone’s salaries.

A document was circulated in a clandestine fashion, and everyone was encouraged to enter their own salary details. This went around for a little while before it was summarily put down by the legal department, claiming that such a thing violated some law (I can’t recall which).

The reasons for pay transparency have a lot of merit. We live in a very biased society where we pay people very inequitably, often linked to personal characteristics like gender. Shedding light on these biases may help them become less tolerated or acceptable.

But while it could do us all good to know what people earn, does it do us any good to know what people spend? I mean, day-to-day spending.

Some say yes. But I’m skeptical.

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Is the 15% rule for investing before tax or after tax?

Awareness, Radical Finances

Once you’re out of debt, you’re ready to start saving for retirement.

(Before you’re out of debt, you’re probably better off just focusing on that, though I think an exception is fair for extremely large debts like mortgages).

A good rule of thumb is that once you’re ready to save for retirement, 15% of your income is a good amount to save.

Sure, the FI/RE movement wants you to save 97% of your income while subsisting on moss and lichen, living on a rock in the middle of the woods while harvesting rain water.

But back here in the real world, let’s stick with 15%. Personally, I’ve found that showing off extreme feats of frugality is actually counterproductive, since it can lead to feelings of futility and hopelessness, not motivation.

You can do more, I just wouldn’t recommend less.

But 15% of what? How do you calculate this 15%? Is it gross or net?

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I’m going to FinCon, because you are not a money nerd

Awareness

I admit it, I’m a money nerd.

I read money blogs, read books about finance, and think about how people can change their relationship to money, more or less all the time.

Which is why, for the third time in a row, I’m attending the annual FinCon financial media conference, which this year is in Washington DC.

Because if there’s one thing I’ve learned from working with my coaching clients, it’s that they mostly don’t have any interest in being a money nerd.

Which is just how it should be.

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If you’re looking forward to payday, you’re probably doing it wrong

Awareness

I overheard a conversation recently about how someone was looking forward to payday, because they had “run out of money”.

As always, I tend to wince when I hear people make financially questionable assertions: student loans are “good” debt, “I can buy it because I can afford the payments“, don’t pay off your mortgage too fast because you’ll lose the tax deduction.

But this one makes me a little bit sad. The context made it clear that “out of money” wasn’t really much of a euphemism, at least as far as their account was concerned. I wish I could have asked, but it didn’t sound like there was any float in this person’s account.

Payday has a lot of emotional connotations, especially from history. People would get paid on Fridays, and banks would stay open later so that everyone could deposit their checks. If people didn’t get to the bank in time, there wouldn’t be any money over the weekend.

None of that is true today, of course. And yet, some of us still hold true to the idea of payday being significant.

But I’m here to tell you that it’s not. It’s irrelevant. At least, if you’re looking at money the way I do. And I think I’ve got a better way.

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