I’ve been on a personal finance kick lately. My 3 previous posts were on the financial hierarchy, financial influencers (‘finfluencers’) and the issue with ‘fun’ finance. And that has all lead to this post.
If we’re being very honest with ourselves, we know that in its very core, good money management is boring. We know that most likely, it’s not going to be winning on speculative assets, risky gambles and stupid luck at horse races. It’s going to be understanding and applying to the financial hierarchy. Consistently. And that is incredibly boring.
Good money management is knowing where your money goes, whether that is optimal and redesigning it if it isn’t optimal. It’s tracking and self-discipline; learning and adjusting. It’s doing the research and applying it. It’s being able to complete ‘level 1’ of the financial hierarchy for a while, before being able to move onto the next ‘level’.
And although I put this in very gamified language, there’s little fun, and often little dopamine, to be had in ‘the money game’.
Now I don’t try to make it sound dreadful, but for most people, the spendthrifts and the daredevils, this is not worth getting out of bed for in the morning. Like I said, this isn’t fun. And the reason for that is that good money management tends to be incredibly future focused. Because before long, when income = expenses, we’re going to try to crack that down and start working on having money left. Whether that’s for debt repayments (eliminating future costs), fixing your credit score (future borrowing), savings (future spending) or investing (future wealth). All these goals are future focused, albeit some more short-term future than long-term future focused. But all the costs (not being to spend the whole lot) are incurred now. The regimen needs to exist now.
Whether you apply SMART goals, start with goals and move to habits, read every amazing piece of work on this blog, or find yourself a LEGITIMATE finfluencer with a holistic approach to money management (if you hear the word ‘crypto’ more than 5 times, run…), something’s got to give. Some people might be able to start very differently – they got money management habits from their parents, community or culture, but that is becoming increasingly unlikely.
Back to the boring stuff. What makes it so boring? Well, the fact that it is so goal/habit focused, with an eye towards the future, with most (if not all) costs incurred now. For the human brain, a recipe for disaster. As such, it’s not the understanding of finance or just good money management that is boring, it’s the actually having to stick with it.
In the grand scheme of things, the financial hierarchy and affiliated tools are not difficult to understand. Reading the ‘Barefoot Investor’ although a challenge due to his ‘bro speak’, is not challenging in terms of concepts and actions discussed (also nice to know: the BI is not a behavioural scientist, but due to his work as a financial planner does understand a lot about human behaviour and perceptions towards money!). He knows, as much as a behavioural scientist would, that having to do things constantly, consistently and sometimes consciously, is a drag.
And I think this is where a lot of social media based ‘financial advice’ misses the boat. They try to make finance exciting, move from investing in ETFs (yawn) to highly speculative assets (exciting!) – completely forgetting that most people have risk preferences (mostly averse) that aren’t conducive to highly speculative assets – at least not if they fully understood the risks associated.
And sure, there are finfluencers which are much more budgeting focused. They bust out excel sheets within excel sheets – colour coded too! – and talk you through the process. You then often can have the sheet for free (which is nice of them) and can apply it yourself.
In the beginning this is still (somewhat) ‘fun’. At least it’s exciting to see if this will work. If you get it. If you can hack it. And then you manage to meet the goals outlined in the sheet for the first time. Success! Dopamine releases. This is a good time. You do it again, still exciting, but a bit less dopamine. And a third, and a fourth… You see where we’re going.
It's highly ironic, and maybe a waste of 700 words or so that I do not have a solution for this. The thing with money management is, that despite it being standardized in terms of the financial hierarchy and co., that making it fun is highly individual. The standard behavioural science recommendation would be to build habits around your money and move things from the conscious to the unconscious domain. Then the decisions have been made for your (by your past self, in a moment of cold logic and clarity). But that doesn’t really negate the fact that you’re ‘stuck’ with the boring consequences. Oh well.
The hardest part of money management is that it’s boring. Meaning it’s a behavioural science game at the end of the day. And behavioural science we know about!
