Nov 17th, 2008
The Not-So-Easy Part of Personal Finance
As we discussed yesterday, it’s simple to improve your personal financial situation, but it’s not easy. The concepts are not difficult–we discussed some yesterday, in particular keep in mind the usual “spend less than you earn”–but the practice is what is.
To change the example a bit, a budget–or a savings plan, or an asset allocation, or all of these–is the easy part of dealing with your finances. Having the discipline to follow the plan is the difficult part. Going back to the comparison to losing weight–it’s easy to have a meal and workout plan. It’s not necessarily easy to eat that way and workout that way.
What makes it so hard to follow the plan? Any kind of change in behavior is difficult. Ever try to do something different, like watch less television or eat out less? How about something that’s an even larger struggle, like stop smoking? Changing what you do is very difficult for many reasons. We’re creatures of habit; we’re used to living a certain way, a certain lifestyle; a lot of things we don’t directly correlate with spending money are certainly related. One of my friends who now lives in Houston is coming into town in a few weeks; I have every intention of meeting up with her and her family and some other friends, but that will, in all likelihood, involve dollars I haven’t budgeted.
Compared to some other behavior changes, however, you don’t have to be perfect working on your finances; we all have slip ups. My purchase of a Wii bundle for my niece last month? That was a slip up, but I’m making up for it by running a tighter spending allowance this month. And small changes can make a difference; $50 a month is not a ton of money, but it’s $600 a year, and enough of that kind of saving can make up a lot of dollars over time, especially combined with compound returns or compound interest.
While this article doesn’t address ways to stick to your plan–there are many and we’ll discuss them (and have already)–it does make the distinction clear: having a plan is only half the battle, no matter how great the plan is; sticking to it is the other half.
Sticking with the plan is indeed a very difficult task. It’s one of the most important thing to keep in mind in financial planning. But when we’re talikng about money, you should keep your head on the game. It is always best if we have enough resources and information in making our financial decisions. Managing personal finance s very important so planning is key in reaching your financial goals.
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