Stop Answering Personal Finance’s Biggest Questions Automatically

Stop Answering Personal Finance’s Biggest Questions Automatically

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.

Like what you see and want to keep up with the latest on Life as a Hat?  Find us on Facebook–a “like” will make sure every post finds its way to you.

Advertisements

On Being Free

On Being Free

Life as a hat is about finding your path, but before we get started, I want to make something clear.

I’m not here to help direct you to your perfect career or the right hobbies to make you marketable.

Don’t get me wrong–I would love if becoming more free led you to find the interests that make you happy and make you money at the same time. The goal here isn’t, though, to put you on a path to the right 9 to 5 for the next forty years. I want you out of the 9 to 5 (or, 7 to 6 with commute for most of us.) I want to give you freedom, even when you’re not yet sure what you’ll do with freedom when you have it.

That brings us to Life as a Hat’s first post. What is freedom, why do we want to be free, and how do we get there?

I started thinking about freedom when I was a few years out of college but hadn’t felt like I found my “calling” yet.  I had skills, but I didn’t have passions.  I had interests, but I didn’t have ambitions to monetize them.

I’m starting to think that’s okay.

It turns out, some pretty smart people agree with me.

We’re ambivalent about work because in our capitalist system it means work-for-pay (wage-labor), not for its own sake…  For most of us, a paying job is still utterly essential — as masses of unemployed people know all too well.  But in our economic system, most of us inevitably see our work as a means to something else: it makes a living, but it doesn’t make a life. — Gary Gutting, The New York Times

So, freedom.  When I talk about it here on Life as a Hat, I mean the ability to make choices without wondering how I’ll put food on the table. I mean “F*ck you!” money–the ability to leave any situation where I’m being taken advantage of, whether that’s on the job or in a relationship. Freedom is being able to say that I choose where I am and whom I’m with because I want to be there.  Freedom means the people around me can trust that I want to be there with them.

Freedom sounds pretty damn good to me.

It doesn’t come by magic, though, or by ambition, or by the right Etsy page, or the right credit card, or the right connections at the right farmer’s market.

We get freedom when we cultivate habits and skills that remove us from the bondage of trading hours of our life for money.  That’s it.  

I’m not free yet.  I’m not even close.  I’m learning, and I’m trying, though.  I’m starting on my path.

And I want you to come with me.