One would think that personal finance is mathematically simple. I mean, math is math, and numbers, as they say, don’t lie. In fact, personal finance math is some of the easiest math there is. You learn the basics in grade one. Addition, subtraction, and by grade two you are already multiplying and dividing. That is all personal finance is, anyways. Your bank account minus your expenses. Your balance plus your paycheck. Your debt times your interest rate. Simple, right?
Then why is it so much harder than it seems? I am not even talking about stocks or mutual funds or RRSPs. Why is making the simplest personal finance decisions so hard? What food to buy, organic or inexpensive? What bill to pay, cable TV or MasterCard? What do I do with my tax return, save or spend?
Personal finance math is difficult not because the math is complicated, but because it is personal.
Let’s look at those examples again. Organic food or inexpensive food, which is the right choice? From a math perspective, the answer is easy. You buy the cheaper food that serves the same function. If you need bananas, buy the cheaper bananas. It is simple, basic, comparison shopping. From a personal perspective, the question changes. It is no longer about the money, it is about what food is going into my, or my child’s, body. It is about what I am supporting with my money, local small business, or multibillion dollar corporations. It is about who I am, not what is in my bank account.
Furthermore, some people are in a place financially where they do not even have the luxury of asking that question. Their bank account only allows them to purchase what will get them to next week. In that case, buying food becomes much more than a simple subtraction equation. It can become an internal battle of opposing forces, money against morality, sustenance versus principle.
Do you pay for the cable or the balance of your credit card? Again, personal finance gurus, myself included, will encourage you to spend your money wisely, to avoid debt and pay off outstanding loans before indulging in entertainment. But what if having cable is what provides you sanity? A little Ellen in the afternoon is all that keeps you from going mad, and so abandoning your TV feels like abandoning yourself. What if your whole life you didn’t have cable TV, and even though you can hardly afford it, being able to watch the game from your own house makes you feel rich, even when you are not.
Do you invest your tax return? Of course! Unless you happen to have just received news that the cancer has indeed spread, and you don’t have quite as long as you had planned. Perhaps that money is better spent going on one last vacation with the family, or financing the experimental drug testing that would be otherwise unaffordable.
We in the personal finance world often offer advice based on what is the right thing to do, and arguments develop over which plan might squeak out a few more pennies here or there. And while our advice is often good, and true, and beneficial, it is just simply advice, as we do not know your personal situation, and only you can make those choices properly for yourself.
What personal finance choices have you made that go against conventional wisdom?
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Alan Schram writes about personal finance and his encounters with it in his everyday life. Alan is recently married and is looking to save money on expenses and reduce his debts.
I love to use my money to make more money.
Investing in your RRSP or paying down mortgage or debt is important to me.
I always figure out the long-term cost of something (benefit – cost).
.-= Steve Zussino´s last blog ..Living Well – Save $2.50 on Motrin Liquid Gels- Coupon (Ends December 31) =-.
I actually bought a Mazda RX-8 as a second car instead of buying a cheap-low-gas-consumer car such as a Versa or a Civic.
Reasoning behind my purchase: the car is too damn cool and I can afford it.
Then, I went to see the Montreal Canadiens twice at the Bell Center during the current playoffs. I surely could have used this money to make a lump sum payment on my mortgage but does my house cheering as loud as 21,000 people after a goal?
You are right, life is full of compromise that are not necessarily leading to rational decisions!
.-= Panda Mike´s last blog ..The Big Fat Greek Wedding Mess =-.
I am a big proponent of the daily latte (or other drink) that is so commonly harped on in personal finance books. I spend my lunch break at a local coffee shop and for $3, I get free wifi, newspaper, and air conditioning for the hour. You can’t beat that price! If you become efficient with your internet use, that 1 hour may be all you need and you can cancel your home internet bill.
Our family eats at restaurants more often (about four times per month). As recently as a few years ago we went out to a restaurant maybe once per month. But as I get older, I realize that we have to enjoy life too.
As the old adage goes, you can’t take it with you!
All the best,
Len
Len Penzo dot Com
.-= Len Penzo´s last blog ..5 Crazy Ideas That Resulted in Million Dollar Paydays =-.
I’m not a fan of the daily latte style of thinking. You don’t have to be extremely frugal to have a decent savings account built up. If you are like Panda Mike and like cars, you should buy it (assuming you can reasonably afford it).
I actually just published an article about how the “daily latte” factor isn’t as great as those personal finance books say.
http://www.finantage.com/read/is-compound-interest-all-its-cracked-up-to-be/