My finances are a mess. It’s been 1 year since I last reviewed my retirement portfolio. 4 years since I set a monthly budget. Each month, we bleed cash on lots of little things – birthday parties, clothes, gymnastics, a new chair, new workout equipment, the latest book by Orson Scott Card, etc. And then there are the big things, tuition for the kids’ school (accounting for nearly 1/3 of my paycheck), our house, and food. During the school year, we regularly spend more than my wife and I bring in, only catching up during the summer when there is no tuition and I teach an extra class or two for an extra few dollars. Those 3 months re-fill our checking account so that we can make it another year. Rinse and repeat.
I should know better. I have read a two dozen books on personal finances, including Rich Dad, Poor Dad, The Richest Man in Babylon, Think and Grow Rich, and The Millionaire Next Door. The principles are the same, spend less than you take in, invest the extra money in assets that pay a regular positive return, take those earnings and invest in more assets that do the same. This continual reinvestment creates compound growth in both assets and income. Wealth follows.
And yet, I can’t even master the first step, spending less than I take in. I know I must, but I struggle mightily to make it happen. Why not? Because my financial system does not take my personality nor my passions into account. And so I fail.
It’s not that we’re poor. Yes, we probably get a little caught up in the rat race, with a hint of keeping up with the Jones’. My current salary isn’t trivial, within the top 20% in my area. Retirement accounts – I have 3, a Roth IRA, a rollover IRA, and a 401k. Besides my house, I also own one investment property. More by accident though. We bought the house in 2008 right at the beginning of the financial crisis, but couldn’t sell it in 2011 for a $40,000 loss. Our choice was to foreclose or rent. We choose to rent it.
We do all of our banking online and I set up weekly reminders to pay bills. I suppose that would be a good time to check my budget, but I often skip that step. Well, I skip paying bills sometimes too. Cause let’s face it – it sucks paying bills. I do pay the bills eventually, but occasionally late.
For a while I could get away with this system because I made enough that we always had some wiggle room. But as food prices have gone up, as tuition has gone up, as spending on regular everyday living went up, that lax system started to fail. The only reason we haven’t ran out of cash this spring is because of an unexpected gift from my parents (Thanks Mom and Dad!)
Where did I go wrong? Why am I struggling with something this simple when I “know” better? After a couple months of introspection, I finally realized there were two problems. First, I have grown content with my life. For 15 years, I worked hard to improve my standard of living, constantly scheming, planning, and working to improve it. That has forced me to keep my finances in order. But now I have reached a place where most of my needs are taken care of, where I’m happy, where I’m content. Getting to the next level financially seems daunting compared to how easy it would be to just keep doing exactly what we’re doing now. So I have lost my motivation to actively work on my finances and budget.
Second, I want my system to work without lots of stress or thought. Right now, I am only accountable to myself. My wife doesn’t give me a hard time about our finances. In fact, she prefers to leave all of the financial decisions up to me. So I have no one really to be accountable too, except myself. Now that might sound great, maybe even ideal for some families. But given my lax motivation, it’s not helping me set a budget, much less keep to it. It certainly isn’t helping me to look for better investments. And with summer just around the corner, I can tell myself to chill out, we’ll make up the difference then.
Financial success starts with yourself
In order for my financial system to succeed, it needs to account for who I am – my passions, my fears, my strengths, and my flaws.
I need to stop trying to force myself to set a budget without setting up some system of accountability if it fails. I need to stop pretending that will power can overcome my problems and start instituting automatic limits on spending. I need to stop investing in others and start investing in myself and my family to increase my motivation.
Now that I understand what to stop doing, I can start to develop a financial system that will help me and my family succeed. In the next couple blog posts, I will share what I discovered and how I implemented a system that works.