“Our dilemma is that we hate change and love it at the same time. What we really want is for things to remain the same but get better.” – Sidney J. Harris
Two years ago I embarked on a mission to clean up my debt. I made some tough decisions and some smart choices and, by the end of the year, my debt mountain was $36,000 smaller. Last year, I decided to alter my focus and turn my attention to saving as much as I could while still maintaining a steady attack on the debt and by the end of the year, the debt mountain was smaller, my savings had grown and I’d realized my goal of taking a trip to Hawaii. Then life threw me a curveball and, when the dust settled a couple of months later, I found myself married and a homeowner; two things that I’m really happy about but which definitely hadn’t been on my goals list for 2016!!
We knew when we bought the house, that it needed some work so we put money aside for renos but, as anyone who’s done a renovation (or watched as many episodes of “Love it or List it” as I have) knows, by the time we’d thrown in a few extras and paid for things that we hadn’t planned for, we were over budget, ankle-deep into the line of credit, and more than a little bit stressed about it.
Let Logic (not Emotion) Drive You
Whatever your money dilemma, it’s important to approach it from a logical and objective perspective. I usually start by challenging myself to define my problem (and the possible solutions) as simply as possible. This helps me take the emotion out of the issue and focus on the heart of the matter. Then I try to get away from short-term thinking which often means forcing myself to take a step back and look at things from a much broader perspective. To do this, I ask myself the questions: 6 months from now, will this matter? 12 months from now, will this matter? 5 years from now, will this matter?
For example: In my current situation, my challenge is that we consciously took on debt in order to complete a project, with the intention that it would be totally cleaned up within the next 4 months. My dilemma is that, I was hoping to be able to free up enough money to do pay my share by reducing spending but realistically, in order to get it paid off on time, I also need to cut my savings rate by 40% so I can redirect the money to paying off the debt. Even though, emotionally, I don’t want to cut back on savings because it makes me feel vulnerable, realistically, doing so for four months won’t have a dramatic impact on my long-term goals. 6 months from now, I’ll be a little behind, but 12 months from now, I’ll be able to get myself back on track which means 5 years from now, it won’t have impacted me at all.
When I work the dilemma through, it helps me understand why I’m struggling, what emotions I have attached to the situation and logically what the impact of my actions will be. That makes the decision making process and the action planning far easier. It’s a process I use for a lot of challenges, not just financial ones, and I find it really useful for getting things in perspective and formulating a solution that I feel good about implementing.
Don’t Underestimate Your Financial Psychology
While I knew somewhere in the deep recesses of my brain that I couldn’t maintain my highly aggressive saving schedule indefinitely, somewhere along my path to financial sobriety, my money personality seems to have transitioned from Avoider to something that dangerously resembles a Saver and so the thought of scaling back my savings rate to something more realistic actually made me quite anxious. When I was a kid, I never had a problem saving when it came to goals that mattered. However, I think that somewhere along the way to adulthood, my drive to save was pushed aside by my desire to travel, live independently and wear great shoes. Back then, those desires combined with some poor choices and a chronic misunderstanding of debt eradicated my drive to save but now, because I’ve made it such a priority, the thought of reducing my savings rate scares me. This is partly because I know that I’m playing “catch-up” on the saving that I should have been doing in my 20’s and 30’s but I think it’s also partly because I’m worried that even though my plan is to scale back my savings temporarily in order to pay off debt, with all the new expenses that go along with owning a home (and my love for all things home and garden), I might never be able to get back to saving as much as I’d like to.
Striking a Balance
One thing that seems to be at the heart of many money issues is this conflict between logic and emotion. We understand the need to save but choose to give in to the desire for stuff; we know that there needs to be a balance between planning for the future and living in the moment but sometimes the scale swings too far in one direction or the other; our logical side says that it doesn’t make sense to commit money to saving when we’re carrying debt but seeing our savings account grow at a slower rate makes us worry about not hitting our goals. Taking a step back, approaching the situation logically and taking the time to formulate a realistic plan that we can feel good about implementing can help solve most dilemmas and get us back on track.