Tell Me Lies

Tell me lies, tell me sweet little lies.”
— Fleetwood Mac

We all lie to ourselves.  We lie about our weight, our attractiveness, our intelligence and our finances. To quote my favorite financial writer, Jason Zweig, “everything you ever thought you knew about yourself is wrong.” Because your future requires money, you need to know the truth.

As painful as it may be, the first (and probably most important) step is to figure out how much money you really spend. For most, budgeting is a miserable experience. It’s easy to procrastinate and move it down the to-do list. Cleaning gutters probably sounds like more fun.

Most believe that they need to add up all of their household expenses from mortgage payments to movie tickets, but there is a better way to grasp the your spending reality  A more effective method is to simply total up all of your household income, then subtract taxes and savings.  What remains after this is a better indicator of your actual spending.  

The next step is to document everything. Create a spreadsheet of assets and liabilities. Your assets should include investments, bank accounts, real estate and other items you own that have tangible value (I personally do not include my cars, and household items).  Liabilities include mortgages, notes payable to others, and other debts; include all of that pesky credit card debt.  I have a spreadsheet that I update twice a year (and after last year, I am worth less now than I was a year ago).

Now that you know your expenditure truth, it’s time for a plan to make your actual spending match up with what you can really afford. You may find that you spend too much and your debt is too high. Write down (and actually write it on paper – it helps) what you must spend and find a way to pare back those things that are not necessities. This will not be easy.

After getting your spending under control, it’s time to start saving more. Consider setting up an automatic savings program at your bank, or you could use a “rounding” service like Acorns.  These services will “round up” purchases you make with a credit or debit card and, put the money into a savings and investment account.

To make sure you follow your plan, consider sharing what you are trying to accomplish with someone close to you to create a personal commitment.  Go through every detail carefully, make sure they understand what you are trying to accomplish, and why you are making changes.  Have that person agree to call you out when you make bad choices, or go “off plan.” 

We are all masters of self deception and are often unaware that we are lying to ourselves.  Lying to ourselves about financial matters can hurt our future and that of our family. By creating a fiscal scorecard, developing a discipline to fix shortcomings, and asking others to hold you to a plan, it’s possible to fix our behavior and create a more secure and enjoyable future.

Tom CockComment