You pay your bills on time. You try to save as much as you can. You even follow the advice you read in the books and hear on the radio about how to keep your finances in check.
But you're still not getting ahead.
Well, sometimes, it's the unchallenged, mental assumptions about how we're handling our money that rise up and bite us in the keister.
You see, in the course of our daily work around here, we not only work with tax forms and legal/financial documents a TON … but we also get a regular crash course, via those documents, on how people (our San Antonio, Boerne, Texas hill country clients, mostly) have arrived to the place where they actually have something to *protect*.
In short, we get to be around a great many well-accomplished families and individuals from San Antonio, Boerne, Texas hill country.
So, perhaps it's odd to you, but I've learned to pay attention to the little lessons I can learn from my clients, and from people of means around the country.
I've discovered a few things along the way about what keeps people from the kind of accomplishment and means that so many of them are looking for, at least when it comes to their finances.
Let me know what you think…
Michael Essick's Common Financial Mistakes (Part 1)
"Remember that not getting what you want is sometimes a wonderful stroke of luck." – Dalai Lama
In the course of working with clients, I've identified some financial mistakes I see (as well as ones I've made myself!), which can be fixed.
These are the sorts of financial mistakes that don't normally show up in balance books, but are revealed after looking at overall trends. In some ways, they can be VERY difficult to fix … but that's often because we aren't even aware we're making them.
Once we gain that awareness, however … well, you begin to notice that your finances are "suddenly" in a much better place. At that point, it's easy. Because all it takes is thinking a little differently…
Self-Sabotage Trap #1: Wrong Mental Accounting
Definition: Tendency for families to divide money into separate accounts based on subjective criteria.
Typical Example #1: Treating $100 you received as a gift from Grandma, differently than a $100 bill earned.
Typical Example #2: Having money languishing in a savings account earning 0.25%, while carrying high-interest debt to pay off at 12%.
Cure: Funnel income, no matter the source, into one savings account.
For any "found money", such as a tax refund or gift from Grandma, quickly decide where that money is best utilized.
As for expenses, occasionally change how you pay. If you always pay with a credit card, try cash. This will get you remembering that all of it, for the purposes of your mental "books", should be lumped into one monthly bucket.
Self-Sabotage Trap #2: Subtle Price Anchoring
Definition: Our tendency to relate the value of a purchase to a price point which, rationally, should have no bearing on the amount spent.
Typical Example: The "rule of thumb" to spend two months' salary on an engagement ring.
Typical Example #2: A realtor will tell you that "in 2015, this house was going for $500,000 — and is now listed at only $350,000!" … causing you to think this house is undervalued.
Cure: For big ticket purchases like a house, car, or engagement ring, ask a friend whose financial values you respect for their input.
For everyday purchases, avoid looking at the MSRP or sticker price.
Can I afford this today?
What do I really want to spend?
What is this really worth to me?
Marketers are experts at this sort of price-anchoring, and we really should know better … but yet we still fall prey to it. Try not to let outside sources set up the comparison by which you should be considering such large purchases.
There are a few more big ones, but for the sake of brevity I'll save those for another week.
But do let me know: is this helpful to you?
And what more could we do for you, to help? Shoot me back an email through the button at the top of the page. I read every one.
Until next week,
Michael A. Essick, CPA, PLLC