Are you in the habit of buying things that look nice and might give you some sense of joy? Do you find yourself struggling to meet larger financial goals? Maybe you struggle with the age old dilemma of needs vs. wants. Here are a couple of stories on how to approach financial decision making.
The first story involves a couple in their early 30s has a mortgage balance below the average for their stage of life due to prepayments. They have no other debt other than the mortgage (YES mortgage is a debt), They have worked hard to pay off debts as they wisely used a financial gift, and at present have only one vehicle. The lower mortgage balance, wise use of a little extra money, and only one vehicle by choice makes them unusual in their peer group.
This couple sought the advice of a financial planner to gather all the pieces of their financial situation to get a sense of the big picture. They are again unusual in being aware of their cash flow and very organized with all their financial information. They want to plan for the decreased income for maternity leave, and to set a course for their long term goals. They are well on their way because they truly understand the value of planning and sought advice to achieve their goals.
Please if you will indulge me to go off on a related rabbit trail. When I was shopping for a newer vehicle I checked out dealerships. The second time I was shown a brand new small truck with manual transmission, an unusual choice and what I badly wanted. The salesman had me sit in and walked me through the financing were I to purchase it. Needless to say I was very tempted and gave it 10 minutes thought as to what it would be like to own this unheard of luxury. But in the end like the couple I mentioned I decided I won’t afford it. Not can’t afford it but won’t. Won’t, as in will not, which involves will power.
This couple exercises will power and common sense which is why they will achieve their goals while others may not.
In a recent professional magazine there was a review of a book dealing with how people purchase material possessions with the expectation it will make them happier. According to Harvard professor D. Gilbert this is a fabrication, because we are ‘hopelessly inaccurate’ about predicting our future happiness The process of our decision making with respect to buying material wants is called prospection and the cycle of continual purchases without some balance of saving means a person could die with many toys but broke nonetheless.
Is there hope for a better future that isn’t built on the false security of credit, material possessions and debt? Will future generation have true financial success?
Another young woman who’s 20 wants to buy a used car. She decided how much she would spend to buy it but then I went one step further. I had her list the ongoing expenses related to car ownership calculated on a monthly basis. Our estimate for monthly expenses was $322. Then she used an online calculator to estimate car insurance which turned out to be double my estimate of $100. She was flabbergasted at how every single day whether she drove the car or not she’d be paying $14. She has grudgingly decided to delay her purchase.
So do you know someone that has a money disorder? What is the money script you act out in the theatre of your life? What is your definition of living within your means?
Sources: Mackenzie Professional January 2011, Advisor.ca Final Words