According to a recent study by the American Psychological Association, 73% of Americans say money is the number one cause of stress in their lives[1]. Could 73% of Americans really be living in a state of constant financial crisis? Of course not. I believe there’s something else at play here. Nearly three in four Americans list money as their number one source of stress because money decisions are difficult, and most people don’t have a framework for making these decisions effectively. For many the solution is to hang in there until they make “enough” to afford all of the things, but often times that day never comes. While setting a goal to increase income is a useful part of any financial strategy, learning how to make the best money decisions possible with what you have can do more to reduce money stress. After all, there are always limits to how much money you can make, and there are literally infinite ways for you to spend it (the US government is an EXCELLENT example of this). Money decisions can also be tough because they’re influenced by your personal biases and experiences, and most of the time you’re probably not even aware of it. Getting crystal clear on what’s most important to you is the most effective thing you can do to begin the difficult but rewarding work of defining what is BEST for you in a sea of good options. Categorizing your choices in terms of best vs. good can help narrow down those difficult decisions without all of the stress.
How to Find the BEST Option in a Sea of Good Ones
The key to consistently making the best possible money decisions (and decisions in general) is getting as clear as possible on who you are and what’s most important to you. Unfortunately, most people don’t take the time to think about what success looks like for them, or how they’d like their lives to be different in the future. More often than not, folks pick a career when they’re young, do their best to save a portion of their income, and… that’s about it. Even in rare cases when they are clear on what they want, they almost never map out what they need to do (or not do) to achieve what’s important to them. In order to make the best possible money decisions, you need to do both. Think big about who you are and what you want, and think about the specific, measurable steps you’ll need to take in order to move towards your desired future state.
Unfortunately, there are no shortcuts when it comes to seeking clarity. We have to do some quiet reflection. One of the most helpful tools I’ve discovered to facilitate meaningful thought is George Kinder’s “Three Questions”. One helpful way to cultivate clarity is to block out some time on the calendar and work through the questions below, whether by talking through them with your partner or writing a response to each question on your own. My wife and I worked through these questions while we were on a road trip to Colorado one Summer and we talked for hours about what we wanted. We learned a lot about each other and enjoyed great conversation.
George Kinder’s “Three Questions”[2]
1) “I want you to imagine that you are financially secure, that you have enough money to take care of your needs, now and in the future. The question is…how would you live your life?”
2) “This time you visit your doctor who tells you that you only have 5 – 10 years left to live. The good part is that you won’t ever feel sick. The bad news is that you will have no notice of the moment of your death. What will you do in the time you have remaining to live?”
3) “This time your doctor shocks you with the news that you have only one day left to live. Notice what feelings arise as you confront your very real mortality. Ask yourself:”
a. “What did I miss?”
b. “Who did I not get to be?”
c. “What did I not get to do?”
Once you’re clear on who you are and what’s important to you, then you can start developing meaningful goals to help you move closer to those things. Once you have clear, written goals, your financial decisions start to become more consistent and focused. Good options seem nice in a moment. BEST options move you (and your spouse if you are married) closer to the goals you created. Your vision and your corresponding goal will make it much easier to know when to skip that destination wedding with a particularly large price tag (even though it’s a good thing) because it just doesn’t align with what’s most important to you. This process of exploring priorities, creating goals, and aligning your resources with those goals is how you move from good to best in your financial decisions.
Sometimes you’ll need to go even further than discovering what’s most important to you and explore the “why” behind a given money decision. Particularly, if you’re not making meaningful progress towards the goals that you and your spouse created. Two helpful questions to ask when deciding on a purchase, gift, or investment are, “What am I trying to accomplish with this purchase?” and “What alternatives are available?” These questions will quickly reveal if what you’re considering will help you accomplish what’s MOST important to you. If what you’re wanting to purchase doesn’t move you toward your goals, there’s a pretty good chance it’s not the BEST option.
Conclusion
Being constantly confronted with multiple, seemingly, good options is stressful. Making good money decisions is important for minimizing this money stress, but it’s not easy. Anchoring your decision making on predetermined goals can help you determine why you are considering the options that you are, and if any of those options are better than the others. In order to consistently make good decisions, it’s important to get clear on who you are and what you value most and then develop meaningful goals. There are a number of self-help resources available to help but ultimately, a real financial advisor can help you do the hard work of defining your goals and aligning your financial resources and your actions with them.
[1] American Psychological Association Online “As tax deadline approaches Americans say money is number one cause of stress.” (March 31, 2004), available at www.apa.org/releases/moneystress.html.
[2] Kinder, George; Life Planning for You: How to Design & Deliver the Life of Your Dreams; (Serenity Point Press, 2014)