CFO of Life #112: Your Money, Your Rules: Challenging Conventional Wisdom

The topic of money is super loaded and many people try to avoid it, which in itself is bad behaviour, but we can’t judge anyone for it.

While it is ineffective, it is something that most of us have grown up with. This is indicative that the behaviour is not only present but embedded in society and within all generations.?

We are at a point of time when many of those societal norms are changing, hence why I want to bring this topic to your attention.

I believe that taking the time to showcase all the problematic and stereotypical behaviours and how they impact us can help you shape a better future!

To help with that, we will cover these 5 stereotypical behaviours:

1. Ramen budget and extreme frugality

2. Lavish lifestyle and no planning

3. Financing everything and never running the numbers

4. I can’t be bothered about it, I make enough

5. Growing up, I didn’t learn about money and now it is too late to do so

If this is your first time reading this blog, my name is Simeon Ivanov (Si-Me-On). I write this weekly blog about personal finances called CFO of Life. My aim is to bring you on the journey towards becoming the CFO of your Life. I hope you find something useful and feel compelled to join me here.?

Before we start, let me level with you. Those stereotypes are present everywhere, within every country and every person and are closer to what you call a mental model of dealing with your finances. Mental models are just a shortcut that we have built to asses any situation that we engage with. It is a reflex which makes us make split-second decisions consistently and coherently.

Now that we have the basics set, let’s get into the thick of it:

?For me, the stereotype of people who stay on a ramen budget is the behaviour when people ‘Save it all, spend nothing and enjoy nothing”. Some people need to do that to cover debt, save for a downpayment on a property or cover a big expense.

I have seen way too many people stress out and save at least 40%-50% or even 60% of their salary and live in misery. They put all their money away for a rainy day, and neglect their current self. Which often results in many problems, stressful days and sleepless nights! All because of a fear of the worst-case scenario (whatever it is), which usually never happens.

?For me, this is the scariest scenario as people prepare for the worst and neglect the good. It is quite normal for extreme savers to downplay the good times, to reject spending on themselves and to constantly do the bare minimum. I have been in a situation where I feared money, where I was constantly preparing for going back to $0 in my bank account.?

There was a point when I realised that everything was good and that I no longer had to fight with life and I could start enjoying it more. After that, I kept my good habits of saving, but allowed myself the freedom to live and enjoy life. As a rehabilitated supersaver, you have no idea how much better life is when you can start to live a little.

On the contrary, I lived with someone who was a “Save none, spend it all and enjoy as much as you can” type of person. That roommate had quite a fun life and did a lot of fun things, went to all the nice places and met a lot of great people. But their finances were a mess and they had no savings, no budget and frequently scraped by with little left at the end of the month.

That jet-set lifestyle is often a facade for people who don’t know them closely, it is something they do to show people how great they are. Unfortunately, my housemate is not the only person who’s fallen for this, I have seen many people work themselves to exhaustion to afford (name any luxury item). All this is just so they can show the world how much they have, but have nothing and live on the bare minimum.

If you are someone who can afford luxury and has a huge bankroll behind you, then all power to you. Unfortunately, most people who spend frivolously can’t afford it and only stop when reality hits.

This is the category of people for whom I am most worried for, those are the “Spend it all today, and pay for it tomorrow people!” They usually rush to decisions, buy all the things spontaneously and fail to plan for the future, which always comes back and bites them.

Don’t get me wrong, debt and financing are two spectacular tools to have with your personal finances. But they are also the quickest ways you can get to bankruptcy. Just a few small loans can snowball into a huge mess that takes you years to get out of. One bad auto loan can easily push your budget to the limit and leave you with no money to spend on life.

Most of the time when people get saddled with lots of loans, it is not out of bad intentions. I find it hard to believe that they don’t want to change their situation, however, It is possible to get out of that swamp and there are many useful guides on how to do so.

The best advice I can give you is to think hard and wide when taking out a loan and if you absolutely need it. Most importantly, do all the calculations and make sure everything checks out. If it does, then go for it.

?They say ignorance is bliss, but I have seen my fair share of people who make a lot of money and still struggle with their finances.?

In many case, that is because they made too many bad decisions which put them in a bad place, but in many cases, it is all because they ignored everything and let it all go wild and free.?

?A big salary is a big ego boost and not everyone can deal with that, especially if it comes out of a sudden. It can cause you to quickly and easily start spending way above your needs, your wants and your budget. Essentially, it can push you to steer away from all best practices!

?At the same time, it is easy to go around this, all you need to do is introduce some checks and balances. So you will be within the bounds that will prevent you from overspending on things you don’t need. So you don’t go into too much debt and you don’t fall into the rat race!

As long as you have those, you can ignore the rest and enjoy life!

?This is my favourite category as I was once this type of person!?

?My family did not talk about money as we were doing well, we were not limiting ourselves to anything (in moderation) and had all that you could ask. But as if it was overnight when it all shifted around 08 with the financial crisis. Suddenly, we didn’t have that much and it all became apparent as we started limiting ourselves. And the hardship years that followed taught me that learning more and more about money helps you rather than harm you.

?It was a journey that took a lot of time, hardships, limitations, stress and observations, but brought a lot of benefits. That is why I know that this is the category of people who can only benefit from learning more about money. That is also the type of people whom I write this blog for, the people I imagine learning and gaining this knowledge and then making better life decisions.

?If you see yourself in any of these behaviour types, don't be offended. There is nothing inevitably wrong with them, as long as you understand why you engage in that specific behaviour and what its downstream effects are.

?You can also use this as a retrospective to understand what you could be doing better and what could be pulling you back! Not only that, it is a great time to reflect on yourself and prepare for the new year which is swiftly approaching!?

Post #112 in the series CFO of Life #si #personalfinance #CFOofLife