The following is an excerpt from The Secret Language of Money: How to Make Smarter Financial Decisions and Live a Richer Life
In the end, your actions are the language in which your money story speaks. Whether you choose to buy or not, to save, to invest, or to decide not to decide, your money behaviors will be the final expression of your beliefs, and will determine your financial success. Some of the following guidelines are restatements of suggestions you’ve encountered earlier in this book; some are new.
1. Keep your money mission statement always visible and in focus.
Your money mission statement defines the essence of your financial goals and the principles and ideals underlying them. It proclaims the meaning, use, and value of money to you, including short- and long-term plans. Keep this statement where you can see it often— on your desk, on your wall, on your computer—and review it periodically, refining it as needed, to make sure that it accurately orients your decisions with your purpose and philosophy.
2. Have a plan.
Create a strategy and a fully informed, well-structured financial plan, with provisions for saving and investment that are in alignment with your money mission statement, based on facts rather than on emotions. Periodically review your plan to make sure it reflects your purpose, your values, and your most up-to-date information and advisements from counsel you seek and trust.
3. Stick to your plan.
In times of trauma, crisis, or circumstances beyond your control, stick to your plan. In times of elation, unexpected growth, and great success, stick to your plan. When you are most prone to overreact, stick to your plan. When you recognize procrastination or failure to act or react, stick to your plan. When your plan isn’t working well, review whether you are fully executing the plan; if you are, then review the current validity of your plan. Once you are satisfied that your current plan is solid—then stick to your plan.
4. Seek out suggestions, critique, advice, and expertise.
Consult with people knowledgeable in specific areas. At times this may be difficult emotionally, when it would seem easier to consult (read collude) with someone who will mirror your views and agree with your opinions. The search for validation aims to maintain your comfort zone and avoid change. Consulting a mirror for advice is what the wicked queen does in Snow White. Leave the mirror for touching up makeup; for your plan, consult objective experts. Seek those expert in areas other than your own, and those with different points of view. Listen from another’s perspective, while not abandoning your own. Use that new information from a flexible and informed position. In addition to a financial advisor and other experts in specific fields, consider using the services of a coach, mentor, or mastermind group; they can provide invaluable perspective on how (and whether) your actions, decisions, and ideals are all in effective alignment, and if they are not, can help you reassess and realign.
5. Estimate expenses in detail.
Studies at the Robert H. Smith School of Business at the University of Maryland found that people spend less when they have to estimate expenses in detail. Don’t ballpark what your life and the things in it will cost. This is not a ball game, it’s your life. Get down to hard numbers.
6. Establish priorities.
Prioritize plans and pursuits based on core ideals and needs. Money and finances must be balanced with family, work, health, friendships, leisure, making a difference in your community, and taking care of yourself. Neglect or imbalance in one area may generate overcompensation in other areas. Priorities are not static; they are not something you can figure out on a weekend and then set aside for the rest of the year. (Remember the penguins.) You will likely reconfront, refine, and even redefine priorities every day, and make decisions based on your fresh answers to the fundamental question: What is really important?
7. Align your internal ideals with your financial goals.
Your ideals, the internal model of who and what you are, generate the unspoken assumptions on which you operate. Clarify your external goals to be certain that they are consistent with your ideals. The clarity and consistency of your principles and goals can be called on at times of emergency or confusion to help bring the big picture into focus. Be certain there is a fit between your internal and external goals, that what you want to accomplish is consistent with your ideals. This consistency can provide an organizing structure and direction to your ambition.
8. Distinguish needs from wants.
A need is an essential requirement, a necessity for mind, body, or spirit. You can get sick if you don’t have enough of what you need: nutrition, touch, rest, or security. A need can be satisfied. You can also get sick if you have too much of what you want (for example, Mexican food, alcohol, sexual freedom, solitude). Wants (wishes and desires) are replaceable with other wants, but a need cannot substitute for another need. And you can never get enough of that which you don’t need.
9. Determine what is good enough.
The pursuit of perfection results from not having a standard of what is good enough. “More” is not a goal. More money, like perfection, is a quest never satisfied. For perfectionists, failure may even be a relief, ending the relentless and impossible pursuit of perfection. The undefined pursuit of “more” is a guaranteed plan for failure. As playwright Neil Simon said, “Money brings some happiness. But after a certain point, all it brings is more money.” Having an endpoint lets you know when you arrive, when you can feel satisfaction, when you can experience effectiveness and mastery at reaching a goal.
10. Know what reaching a goal will do and what it will not do.
Monetary wealth can provide pleasure, luxury, and financial security, but it may not make your marriage better. It is important to know what achieving a goal will do, so that you have the clarity to distinguish what it will not do. A common mechanism for keeping hope alive is stopping short of a goal so there is no need to confront the illusion that reaching the goal will provide all the hoped-for solutions. Reaching a goal will not undo the past, or make other troubles go away.
11. Don’t invest with your heart.
Never fall in love or hate with a stock—it won’t love you back. It doesn’t even know that you own it. Invest in the stock or bond of a company that you genuinely want to own, not in a “hot trend” or “good story.” Remember that if someone tells you it’s “a sure thing,” it isn’t.
12. Don’t use credit cards.
Numerous studies have shown that people spend significantly more (on average, 23 percent more) when using credit cards than when paying with cash or check. Credit cards make money an abstraction, as well as relegating payment to a future time. Pay in cash.
13. Consider the opportunity cost of your purchase.
Before you spend significant money on an item, calculate what it would be worth in five years if you were instead to invest that same money. And in 10 years.
14. Consider the absolute value rather than the anchor price.
Seventy-five percent off a jacket that’s overpriced by 300 percent is not a deal. A “sale price” is meaningless if it is anchored in an inflated initial price.
15. Consider the actual product and what you will do with it if purchased.
Will you really use it? For how long? One year from now, what choices will you be glad you’ve made?
16. Be suspicious of being “special.”
Special offers or other indications that you are in a select group—an inner circle of unique consideration—will make you buy more than you need. Special, exclusive, unique offers induce a desire to respond with gratitude—and with purchase. Be suspicious of special offers.
17. Simplify your symbolism.
Designer brands are marketed to symbolically represent quality, desirability, and the experience of having arrived. The symbolism of specialness adds cost. The qualities that we attribute to brands create a relationship with the brand that results in both desire and the commitment to pay more. Ask yourself whether you’d pay the same amount for a product if the logo were changed and nothing else.
18. Leave emotions at home.
Emotions hijack the logical brain, and along with it, reasonable decisions. Stress may seek relief through buying, hoarding, or purchasing out of other emotional needs such as insecurity or a desire to win approval. Make financial decisions independently of emotional decisions and distinguish between the two. Worry about the right things.
19. Shop alone.
The social contagion of shopping with friends induces a relaxation of usual constraints, as well as the desire to impress friends with a purchase.
20. Remember that you have the right to say “No.”
Don’t hesitate to say “No.” And don’t hesitate to say yes either when you are clear about what you want and need. The other person in your interaction also has a right to say no or yes. Don’t hesitate, for example, to make a simple request for a fee for service equal to its value.
21. You have to be free to say no before you can be free to say yes.
Unless you are free to say no, yes has no meaning.
22. Disengage from “what might have been.”
Getting what you always wanted in the past may not feel as good as you expected, because it’s no longer the past. If you attempt to reenter an old story and acquire what you missed in the past, it won’t work. “If only” fantasies erode the power of today. To keep a goal just out of reach maintains the “someday” fantasies associated with it. “I’ll lose the 10 pounds, and then I’ll be happy.” The weight-loss goal must remain elusive, or the hope of happiness contained in the loss of the last 10 pounds would be exposed as illusion. The unattainable becomes addictive. It is difficult to sell a stock that has declined significantly. The sale makes a reality of money loss rather than a theory of paper loss. The sale also banishes the hope of future gains. You have to relinquish a past position in order to move ahead. When you let go of the past, you reclaim your aliveness (and effectiveness) in the present.
23. Keep the big picture in mind.
A study by the Joseph Rowntree Foundation found that wealthy Londoners do not feel rich, because they never mix with people less affluent than themselves. When you take a good look at the global neighborhood and realize that half of humanity lives on less than $3 a day, it puts things in perspective. According to University of California sociologist William Domhoff, “In the United States, just 20 percent of the people own a remarkable 85 percent of the wealth, leaving only 15 percent of the wealth for the bottom 80 percent.” It’s good to keep the big picture in mind. The big picture consists of your own ideals and principles, and objectively organizing your life and decisions according to what you believe to be in your best interest. Whenever you might be caught up in details or in the grip of emotion, stop and ask, “What is in my best interest?” The next right step may not always be clear, but you can almost always be clear about what the next right step isn’t.
24. Strike while the iron’s cold.
A study from UCLA found that when purchases were interrupted by a conscious break in the buying process, purchasers became more objective and discerning about the need to buy. Neuroscientists at Emory University found that this delay disrupted dopamine release. A drop in dopamine after you buy is called “buyer’s remorse.” That same drop before you buy is called “coming to your senses.” There are few true emergencies in life. Most decisions involving money really do allow time for consideration. Weighing different factors, gathering data, and perhaps consulting experts works best to make most decisions. Rarely does any legitimate crisis demand that these steps be skipped. In between urge and action lies a gap: Impulsivity erases that gap, while emotional intelligence seeks it out. Create a contemplative pause—a space of time between choosing something and paying for it. Postpone all decisions based on impulse, frustration, or anger until you have regained objectivity. Calling a time out is a useful maneuver for emotionally charged matters. “Let me think about that, and I’ll get back to you,” is a decision. A wise mentor once told me, “Never speak more clearly than you think.”
25. You’ll never do anything important or fulfilling that will feel comfortable at first.
Growth and progress always feel uncertain in the beginning. At the point of jumping in the pool for the first time to learn to swim, you can either proceed despite your discomfort or abandon your task and immediately stop the anxiety. Anxiety signals that you are moving ahead into a new experience—it is not an indication of danger or inability. You have to proceed despite anxiety in order to master the task. If worrying about the future fills the present, both are diminished. A plan is only a guideline, not a certainty. The capacity to endure uncertainty is the essence of growth. The only familiar territory is behind you. Danish philosopher Søren Kierkegaard said, “Life can only be understood backwards, but it must be lived forwards.” Growth and change are hard. In fact, the only thing harder is not growing or changing.
While I don't disagree what he says, it seems needless overdone. It makes living a richer life way too complicated. It causes severe glaze over.
Particularly contrasted with the guidelines and thoughts expressed on this blog.
Let's see: 1. Spend less than you make.
2. Avoid credit card debt.
3. Pay yourself first.
4. Plan your career.
5. Start saving/investing as soon as possible if not sooner.
6. Balance your asset allocation and review at least once a year.
7. Spend less than you make--so critical it needs to be said twice.
Seven short declarative sentences, longest is thirteen words.
Posted by: BillV | November 18, 2009 at 01:48 PM
Bill, I like your version better. I know I can always get great financial advice here at FMF :)
Posted by: Roy | November 18, 2009 at 04:18 PM
FMF,
I thought you might recognize them. o;>)
Posted by: BillV | November 18, 2009 at 05:39 PM
>>>
and......don't get sick!! but that's left to fate.
Posted by: Greg | November 18, 2009 at 08:05 PM
BillV:
Right on! The author has obviously never heard of the rule I have always lived by, which is KISS. I especially like your "severe glaze over " comment, it's really appropriate.
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Keep it Simple Stupid.
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Has worked for me in so many ways.
Mechanical design - Simple designs are cheaper and more reliable than complicated designs.
Computer programming - Structured coding is easier to write & easier to understand than spaghetti coding.
Investment strategies - Simple very understandable ones work better than incomprehensible complicated ones.
When any plan or task starts to get very complicated it's time to start over.
The other change you made that is sensible is that you changed "Avoid Credit Cards" to "Avoid Credit Card debt". It's not the card that's a problem, it's the lack of discipline in using it.
I have one word of warning though - Once you become a really great saver, look for the best possible value in everything you purchase, and adopt the doctrine of frugality it's almost impossible to change later on in life when you reach the point where your investment income has reached the size where it can sustain you indefinitely.
Posted by: Old Limey | November 18, 2009 at 08:13 PM
Thanks Old Limey:
Kiss is a great life and Management tool. Worked for me. It is a similar but simpler version of Occam's razor: From wikipedia
"Occam's razor is the principle that "entities must not be multiplied beyond necessity" and the conclusion, thereof, that the simplest explanation or strategy tends to be the best one."
Btw, Your last warning is too true. My wife and I are in our early 60's and we are still saving. (Poor me, I know) I'm trying to convince my bride that when we hit 66 we need to spend our accrued savings. No tag days for us, thankfully.
we have been blessed. and Greg you are right about staying healthy; fortunately I have health care coverage post retirement. Without it, we may have been wipe out.
Life throws screwballs sometimes.
Posted by: BillV | November 18, 2009 at 09:42 PM
BillV --
:-)
Posted by: FMF | November 19, 2009 at 08:10 AM
BillV:
I was raised in a world where you had your shoes repaired, my mother darned my socks, and patched my shirts. During WWII in England she would take me down to the clothing exchange and change my worn clothes for someone else's worn clothes, only in a larger size. Your habits don't change into those of my grandchildren, where they want the latest of everything, change their phone every few months, and won't wear a T-shirt unless it has the 'in vogue' name emblazoned across the front.
With my habits, engrained over 75 years, there's no way in the world I could stop saving because my investment income far, far exceeds our needs and like the proverbial snowball rolling downhill it keeps growing. We have everything we want, it's just that our wants are very simple.
I looked up Occam's razor. It fits exactly with my thinking and explains why I am a big nature lover and environmentalist. Nature runs on the KISS principle and the laws of nature, i.e physics are usually also very simple.
Posted by: Old Limey | November 19, 2009 at 11:03 AM