Personal finance sounds so simple, doesn’t it? I am an accountant by profession. I enjoy working with numbers, tracking progress, and working in spreadsheets. From that standpoint, personal finance is mostly made up of simple arithmetic. I know that I bring home a certain amount and that so much goes toward non-discretionary monthly bills (the must-have’s), so much goes toward discretionary monthly bills (the nice-to-have’s), so much goes toward groceries and other monthly spending, so much goes toward retirement savings, etc. I can do the math. I can see where the money is going. I can see the slow but steady progress of our finances improving. But there is a lot more to personal finance than math and numbers. There is a reason the first word in personal finance is “personal”.
Beyond The Numbers
When I make spending decisions, is it really about the math? To an extent, yes; but not really.
I know that when my mortgage payment is made that I need to subtract that payment from our checking account balance. I know that more than half of the mortgage payment is going to interest, taxes, and insurance, with a small portion going to pay down the principal. But what I think about most is that making that mortgage payment gives my family a place to live. It gives us someplace to call home.
I know that a portion of every paycheck I receive is deducted and put into my 401k. I know that by making these contributions consistently over my working years the balance will grow significantly by the time I reach retirement. My wife still laughs when I tell her that we’ll have a nest egg well above $1 million by then, based on maintaining my current contribution levels. I know the math behind it: how the sum of my contributions, the employer match, and compound interest over 40 years can really add up. But what I think about most is that making those contributions will give my wife and me a future where we aren’t relying on Social Security for our retirement years (if it even exists by then). I think about a future that is secure, where we can focus on things like spending time with our friends and family without worrying about running out of money.
Last night I went to the Dairy Queen drive-thru and bought my wife and I each a blizzard. From a purely financial (math) aspect, was this the best use of our money? No. Technically I could have put that money toward one of our loans or put it in savings. But we really enjoyed sitting at home eating our blizzards while our little boy was sleeping. It was one of those once-every-once-in-a-while treats that make life a bit more enjoyable.
It got me thinking. Focusing on the math is not the key to successful personal finance. It certainly is an important component of personal finance, don’t get me wrong. The numbers do matter, and you can’t ignore them. But if that’s all you think about, you’re leaving the “personal” out of personal finance.
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yourlifeforless
May 7, 2012 at 4:52 pm (UTC -4) Link to this comment
Good point. It’s so easy to get caught up in the numbers (especially as an accountant, I’m sure!) that we forget about the personal nature of money. It’s important to step back and look at what that money is buying, like you have done with your mortgage payment. It’s hard to put a dollar value on having a place to call home.
Jill Porter
May 7, 2012 at 6:47 pm (UTC -4) Link to this comment
That’s a really important point you make and it’s why I encourage people to personalise their spending plans, or budgets.
If you go on a very strict diet and eliminate your very favourite foods; you are bound to fail! If however, you build in some of them occasionally, it is much easier to stick to your plan.
It is exactly the same with spending plans and budgets. Make sure there is some money set aside for discretionary spending, for fun, for treats, it will keep you focussed on the goals, not what you are missing out on.
thefamilyfinances
May 7, 2012 at 6:53 pm (UTC -4) Link to this comment
Thanks for the comment. I know that’s something I have to force myself to be more aware of. My wife has to remind me sometimes that I have to enjoy life and not spend all my thoughts on finances, lol.
Jill Porter
May 7, 2012 at 6:54 pm (UTC -4) Link to this comment
Your wife is a wise woman!
Katie
May 7, 2012 at 8:57 pm (UTC -4) Link to this comment
You make a very valid point. You have to a good balance in your financial life. While it is extremely important to save for retirement you don’t want to let your whole life pass you by and not have enjoyed it.
MyMoneyDesign.com
May 7, 2012 at 9:25 pm (UTC -4) Link to this comment
I couldn’t agree more with this. That Blizzard you bought with your wife was probably the best investment you made that whole day. Sometimes taking my kids to see a movie that I think is terrible but they think is really great is my best investment of the day. Why? Because that’s what matters to them! These are the small things that they will remember – you spending your time with them in small ways. This is such an overlooked aspect to personal finance.
thefamilyfinances
May 7, 2012 at 9:44 pm (UTC -4) Link to this comment
Katie & MyMoneyDesign: Thanks for the comments. My wife has been reading this and giving me a big “I told you so” in agreement with all the comments, lol.