Before I start this post, I want to thank all of your for the incredible response to the Life as a Hat launch and to extend a hello to any new readers who came from my Apple Announcement series (Part 1 and Part 2.)  I’ll turn an eye back to cell phones and personal finance soon, I promise, but today, let’s take a break from everything Apple to talk about an even more vital “A-word” in our lives: Automation.  That’s right, we’re doing vocabulary today.  It’ll almost be useful enough to make up for the headline.

Automation, or rote behavior, is one of the biggest factors at play in your financial success or failure.  As a former middle school teacher, I know how important repetition is, so let me just say again–

Automation, or rote behavior, is one of the biggest factors at play in your financial success or failure.

And for those in the back of the room doodling–

AUTOMATION, or rote behavior, is one of the biggest factors at play in your financial success or failure.

So, what’s automation?

When I say automation, I mean the purchases you make throughout your month without any thought.  We all understand that the gym subscription that takes $70 from you account every month is automation in action; I’m not here to waste your time with what you already know (you should really cancel your gym subscription if it isn’t bring you joy, though.) I want to expand the definition of automation until it includes the four biggest expenses of most of our months: housing, transportation, utilities, and food.

All of us have the big four, but most of us don’t think about them beyond our month to month defaults.  We live where we live, it costs what it costs.  It’s these choices, though, that define the flow of your monthly income.  We grow our wealth by either earning more or saving more, and the big four are the places where savings pack the most punch.  By putting more thought into our big four, we can change the course of our financial future.

So how can you stop seeing housing, transportation, utility, and food costs as automatic, and unchangeable, expenses?  The best method I’ve found is active interrogation–sitting down with your big four expenses and making them justify their cost.

Put your brain where your money is:

  •  First, take out a paper and pencil and write your four expenses in columns across the page.  A digital spreadsheet would work just as well if you prefer, but I personally value the weight of the pen in my hand when I’m dealing with weighty ideas.  The four expenses you’re about to investigate constitute some of your biggest budget hits, and they deserve the deliberation the analog world offers.
  • Calculate the monthly cost for each category and note it below its name–don’t cheat yourself when it comes to your own money.  When you calculate transportation, for example, include your car bill, your insurance, your gas, your toll costs, any figures that play into the ways you move from place to place.  When you calculate your food costs, take an honest look at your grocery bills, your morning coffees, your dinners out.  If you’re not tracking these expenses yet, there are posts coming soon to help, but I highly recommend adopting a habit of logging and reviewing all purchases ASAP.
  • Write out the underlying assumptions that go into the amount you spend.  If you need a model, you might consider something like this…Rent:  I assume that I need to live within 10 miles of work.  I assume that a large apartment complex will give me the most safety.  I assume _________ neighborhood will give me the opportunity to socialize with friends and walk to the amenities that make me happy.  I assume that I cannot live with a roommate.  I assume that I need a 1 bedroom floor plan.  I assume I need a parking spot included with my rent.  I assume…
  • After you’ve written as many assumptions as you can muster, honestly evaluate each one.  This is again where time and deliberation are important.  Some of the assumptions will hold weight for you.  If one does, you’ll feel it deep in your bones and know it’s worth the hours of your life you trade for it.  Some of the assumptions, though, will strike you as off.  Maybe you could switch from a one bedroom to a studio without a major hit to your quality of life, maybe you could add a roommate, or maybe you could take the bus (and enjoy it more) than supporting the commuting costs associated with your car.  Circle the assumptions that seem wrong or off to you.
  • On the back of your paper, write out the assumptions you question.  Jot down a few notes about what seems wrong and then create an action plan to address the assumptions that don’t make sense.  Break your action plan into steps that make the change realistic and achievable to you.
  • Get to work implementing your action plan and changing your automatic big four spending to a well thought-out system that makes more sense for your finances and your goals.

A word of warning–this is HARD work.   Depending on your personality, the interrogation might not be the sort of project that you can knock out in an afternoon, and the solutions you find will certainly take time to implement.  That’s the whole point, though; the biggest monthly purchases we make, and make again and again, should have an excess of thought and care behind them.  You’re worth the work this is going to take.

One last thing, Hatters.  This process?  It doesn’t end.  Over time, your big four will become automatic again.  When you realize it’s been too long since you’ve given them thought, break the pen and paper back out.  Not every interrogation will call for sweeping changes, but they will all give you valuable insights into your own behavior and the reasons behind it.

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One thought on “Stop Answering Personal Finance’s Biggest Questions Automatically

  1. What a great exercise. I particularly like number 3, underlying assumptions. I have so many assumptions about where I live (it’s on the expensive side), but I’ve justified it by being close to work, activities I like to do, sense of community, etc. I really need to reevaluation. Nice post.

    Like

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