Personal Finance and Life Priorities

A few days ago, I was in the midst of a back-and-forth email conversation about organizing a to-do list. I was making an argument on behalf of the importance of knowing the relative priority of your tasks when getting things done. I’m just going to share the key part of the email – it’s long, but I think you’ll find it worthwhile – and then discuss the ideas within it in a money context:

Let’s say, this evening, you have four things on your to-do list:
+ Make a healthy supper for your family
+ Help your daughter with her math homework
+ Sign up for the 401(k) at work
+ Revise a proposal for a new work project

If you’re looking at things in the short term – what’s most important in terms of today and nothing else – you’d probably rank them like this:
1. Make a healthy supper for your family
2. Help your daughter with her math homework
3. Revise a proposal for a new work project
4. Sign up for the 401(k) at work

On the other hand, if having the best life a year from now is most important to you, you’re probably going to rank them like this:
1. Revise a proposal for a new work project
2. Help your daughter with her math homework
3. Make a healthy supper for your family
4. Sign up for the 401(k) at work

If you’re focused on what’s most important five to 10 years from now, it’s probably something like this:
1. Help your daughter with her math homework
2. Revise a proposal for a new work project
3. Sign up for the 401(k) at work
4. Make a healthy supper for your family

On the other hand, if your time scale is more along the lines of 30 years down the road, your list might look like this:
1. Sign up for the 401(k) at work
2. Make a healthy supper for your family
3. Help your daughter with her math homework
4. Revise a proposal for a new work project

The ordering of that list changes drastically just by changing the time scale by which you order the importance of the items. What if you organized that list if you put your family as your highest priority? It’s probably something like this:
1. Help your daughter with her math homework
2. Make a healthy supper for your family
3. Sign up for the 401(k) at work
4. Revise a proposal for a new work project

You’d probably order it differently if you prioritize your career success. You’d probably order it differently if you prioritize early retirement and financial success.

Successful time management – at least in terms of figuring out which among a series of things needs to receive your focus right now and which ones can be put off – has a ton to do with what you prioritize. If you prioritize today, your list is going to look way different than if you prioritize your long-term future. If you prioritize your hobbies, your list is going to look vastly different than if you prioritize your personal health. Figuring out which of those things you really do prioritize is going to influence your to-do list a lot.

This same exact phenomenon – your life priorities shaping how you use the resources available to you – pops up regarding every resource you have in life: your time, your money, your focus, your energy, your skills, and so on. We’re all faced with nearly unlimited options for using those resources and it’s often difficult to use them in a way that truly reflects our priorities.

A few quick observations:

Using our time, money, energy, etc. in ways that aren’t in alignment with our life priorities ends up carrying some strong negative baggage after a while. People often recognize when they’ve made a mistake – or a series of mistakes – in terms of prioritizing the things in their life. Even when we don’t consciously recognize those mistakes, they often build up into a sense that there’s something truly amiss in our lives. In fact, I’d go so far as to say that this very thing is a source of a great deal of unhappiness in modern life.

The most common mistake people seem to make is overemphasizing the short term and neglecting the long term. People do this all the time. It’s why people don’t save for retirement. It’s why people don’t sacrifice a bit of time each week to get into better physical shape. It’s why people eat a lot of unhealthy foods. In each case, the short-term priority is winning out over the long-term one, which means comfort and mild happiness today but a lot of unhappiness down the road.

The other common mistake people seem to make is to take steadier things for granted. If something seems steady and reliable in your life, you tend to take it for granted. If your marriage seems stable, you take it for granted. If your kids seem well-adjusted, you take it for granted. If your job seems stable, you take it for granted. This often subtly pushes you toward prioritizing different things and not prioritizing the maintenance that needs to be done to maintain that stability. That’s how marriages often crumble, jobs become less reliable, and parent-child relationships begin to stall.

Let’s focus on the financial implications of these ideas. You have a certain amount of money that you bring in and certain demands on that money. How do you decide which demands to prioritize and thus use your money on?

It’s not an easy question and it really drives to the personal nature of personal finance. Not everyone is going to have the same priorities in life. In fact, priorities among people are going to be quite different, and that’s completely fine.

However, I will say this: financial problems and personal unhappiness are almost always the result of simply not prioritizing your money use very well. Almost always, financial troubles and a sense of being unhappy about your money and your financial state boils down to your spending simply not matching your real priorities.

Think about it. Almost always, when you’re frustrated about not having enough money for something in your life, if you look a bit closer, you’ve probably already spent some money recently on something that’s relatively less important. You don’t have enough to pay the gas bill, but if you think back to the last few weeks, you bought a few beverages at the gas station and went out to a pretty lame movie and you paid your Netflix bill, too.

Another challenge is that people almost always overvalue their short-term wants over their long-term needs. HBO has 42 million subscribers in the United States, for example, but 76% of Americans have no emergency fund of note and no retirement savings. That means that there’s a pretty large number of Americans out there without any emergency fund of note or any significant retirement savings who spend a chunk of money each month to maintain their premium cable package with HBO included. If that’s not a shining beacon of putting short-term priorities over long-term ones, I don’t know what is.

Those two factors combine into a pretty tough picture. People constantly overvalue the short term as compared to the long term, and then they don’t even rank short term priorities very well. They’ll spend money on short-term things and sacrifice any investment in vital long term things, but then their short term choices are so misprioritized that they wind up in some pretty difficult spots.

This brings me to my central point: Most personal finance problems are resolved if people step back and spend some time thinking seriously about the real priorities in their life and then take action on them. Here are some things to think about when considering how you prioritize spending.

What kind of life do you want 10, 20, or 30 years from now? Are you doing anything right now to ensure that life?

I’m going to be blunt: if you’re not doing anything right now to ensure the life that you supposedly want in the future, then you’re accepting that you’re not going to have that life in the future. Great things in life only happen if you work for them and sometimes go through some discomfort for them, and if you’re not doing those things, you’re not going to have the great things you want.

Here, I’m looking entirely at the big life goals that people always envision for themselves. Those visions are always different, but they almost always include an optimistic future of some kind. Maybe you’re imagining a better job. Maybe you’re imagining a happy retirement. Maybe you’re imagining running your own business.

Whatever that vision is, if you’re not working for it right now, it’s very unlikely to happen.

If you’re not saving for retirement right now, a beautiful retirement is very unlikely to happen.

If you’re not paying down your debts right now, a debt-free life is very unlikely to happen.

If you’re not saving for your child’s college education right now, helping them significantly for college without going into debt is very unlikely to happen.

Your success in those things is judged by your action, not by your wishful thinking. If you want to retire with some money in the bank, you’ve got to take action. If you want to have a down payment for a house, you’ve got to take action. Thinking about that future doesn’t really mean anything at all.

What if you don’t take action? If you’re not taking action, then that future you’re dreaming of is exceedingly unlikely to happen. Instead, a much less optimistic future is likely to occur, one where you’re in the same boat you’re in right now, except you’re older and have less time to do anything about it.

You have to give your future a very high priority if you want to have a great future, because your future self probably won’t be very helpful. That means taking financial action now to have the things that you want.

What actually matters most to you in your life today? Step back and include the things you take for granted.

How much do you value having a roof over your head? How much do you value having running electricity? How much do you value having those things if you suddenly lost your job?

Compare that, honestly, to how much you value your most frivolous expenses. Is it more important to you to guarantee electricity and your ability to pay the rent for a few months if you lost your job? Or is it more important to have a year’s worth of premium cable channels or Netflix? Is it more important to you to have gas in your car or a bottle of Gatorade from the gas station cooler? Is it more important to you to own a Lexus instead of a Toyota or to not have a complete panic attack if your washing machine breaks down?

I find that a bit of negative visualization helps a lot here. Simply remove a key element from your life and see how much worse it becomes. What happens to your life if you remove, say, the transmission from your car? What happens to your life if you don’t have soda in the fridge? What happens to your life if you don’t have the income from your job?

The worse a picture is, the more important it is for you to protect and preserve that thing you removed.

This is all leading to another key point…

One powerful way to start prioritizing your money use is to appreciate what you have rather than lust for what you don’t.

A big part of how we make our spending choices comes from what we focus on. What do we think about? What draws our attention? Are we drawn to appreciating the things that we have? Or are we drawn to wanting things that we do not have?

If you intentionally focus yourself on the abundance of things that you have, then you’ll find that your spending choices will slowly move toward preserving the things that you have. Building up an emergency fund begins to make a lot more sense. Saving a lot for retirement begins to make a lot more sense. Those types of smart financial moves are oriented toward protecting what you have; spending more and more money on more and more stuff and more and more “special experiences” is all about wanting more and more.

Again, as I mentioned above, I find that negative visualization really helps with this kind of prioritization. If you start imagining what your life is like without things like your loved ones or your favorite daily experiences or without your ability to see or without access to the internet or without the ability to feel warm sun on your skin, you start to see that your life is pretty empty without those things. The purpose isn’t to dwell on a sad picture, but to remind yourself that you have this awesome thing that you enjoy very much. You already have a great life, and seeking more and more won’t really improve it.

What about drive? Yes, undoubtedly, some people are driven by external desires. They work with an intense focus on having a particular thing and they’ll work hard to get that thing. However, the truth is that it rarely brings lasting happiness. Achieving an external goal feels good, but it doesn’t take very long for your happiness level to go right back to where it was.

Artificially inflate long-term plans in importance, because your mind already inflates the short term.

Another useful strategy for better prioritization of life is to consciously overinflate long-term planning. In other words, when you’re thinking about what to do with your money, you should intentionally give more weight to things that won’t pay off for a while.

Why is that? Our minds constantly inflate the value of short-term things. It’s what we do.

I like to use the analogy of comparing the tip of my thumb to the size of the moon. If I hold out my fist at arm’s length and stick my thumb up in the air, the tip of my thumb is about the size of the moon. Obviously, it’s a perspective issue – my thumb isn’t the size of the moon – but that’s not what my eyes see at first glance. At a quick glance, those things look to be the same size.

The same exact thing happens when comparing short-term things and long-term things in our own life. Short-term things are like our thumb, while long-term things are like the moon. The short-term things seem bigger than they really are in comparison to the long-term things (or, if you want to take the other perspective, long-term things seem much smaller than they are). Often, we think of long-term things as being important only in an abstract way – we don’t really think of retirement as a “real” point in our lives, though we know that it will eventually happen. Things beyond a certain point don’t feel “real” to us because our minds are wired for the short term.

That doesn’t mean that long-term things aren’t real. Unless we are very unfortunate, we will live to an old age and, in that old age, we are exceedingly likely to not have the physical capacity that we have right now. Thus, it makes a great deal of sense to use that physical capacity we have right now to protect that older version of ourselves, and that means saving for retirement.

As noted above, however, most people don’t do this. Why? They fall into the perspective trap. Small things today seem as important or more important than gigantic things several years down the road. If people were easily able to step out of the perspective of today, they would realize the enormous nature of retirement compared to, say, the desire to buy an extra bag of cookies at the store.

The solution I’ve found that works best for me – and works really well for others that I know – is to spend time reflecting on these things until you can get a better perspective. That doesn’t happen easily, so the best shortcut is to simply inflate the importance of long-term things. It’s not a perfect solution, but it definitely works.

When you’re comparing the desire to buy a bag of cookies at the store versus starting to save for retirement, just think about your life from the perspective of yourself at retirement age. Your choice as to whether to start retirement savings probably determines whether you’re living in a nice house or living in a tiny apartment. It probably determines whether you have the freedom to visit family or have to stay at home. It probably determines whether you have good meals or have to live on a steady diet of nothing but lentils.

Then, bring that life into today. Your choice really is between that bag of cookies or a nice house. The only reason it doesn’t look that way is because of the time issue.

To me, buying a bag of cookies today only really makes sense if it’s merely taking away a completely superficial treat later on. If I’m not saving very adequately for retirement and if I don’t have a strong emergency fund, I probably shouldn’t be buying unnecessary stuff, because that bag of cookies will be paid for dearly in thirty years.

This doesn’t mean you shouldn’t ever splurge today. It just means that if you’re not preparing for the future at all, you’re splurging so much today that you’re making tomorrow miserable. The most effective way to stay mindful of that is to visualize that tough future and compare it to the most frivolous of your splurges today.

Final Thoughts

The recipe for good life perspectives is simple. Think about your future. What do you want from it? Make it as real as you can today. Recognize that your little choices today match up with much bigger impacts down the road. Then, make choices that give you a good life now and a good life later on.

Most of this happens within your mind. After all, you are the one who, in the end, has to decide between retirement savings and today’s perks.

What will you choose?

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