Before we even get started, I wanted to note that this article is about your money, but we need to take a little journey into the realm of productivity first. So, just bear with me a little bit.
Recently, I had the pleasure of reading Ed Batista’s excellent article on productivity in Harvard Business Review. Entitled The Most Productive People Know Who to Ignore, the article’s main point is that people who are most productive with their time and energy succeed at least in part due to their ability to decide which people are actually giving them things worth thinking about and which people are just adding irrelevant “noise.” They stop paying attention to the “noise” and focus instead on the others.
Batista lays out the problem at the start:
After we prioritize, we act as though everything merits our time and attention, and we’ll get to the less-important items “later.” But later never really arrives. The list remains without end.
Our time and attention are finite resources, and once we reach a certain level of responsibility in our professional lives, we can never fulfill all the demands we face no matter how long and hard we work. The line of people who want to see us stretches out the door and into the street. Our to-do lists run to the floor. Our inboxes are never empty.
What trips up so many of us is imagining that we can keep lowering that threshold—by working harder, longer, “smarter” (whatever that really means) in the futile hope that eventually, someday, we’ll get to the bottom of that list.
This is a very familiar refrain for those of us who are constantly juggling a huge list of activities and priorities on a daily basis. I know that there are certainly times when my to-do list seems essentially endless, with more stuff filling it up than I’ll ever have time to achieve.
How does Batista propose to solve this problem? He offers three steps.
The first step is to reframe the issue. Viewing a full inbox, unfinished to-do lists, and a line of disappointed people at the door as a sign of our failure is profoundly unhelpful. This perspective may motivate us to work harder in the hopes of someday achieving victory, but this is futile. We will never win these battles, not in any meaningful sense, because at a certain point in our careers the potential demands facing us will always outstrip our capacity, no matter how much effort we dedicate to work. So the inbox, the list, the line at the door are in fact signs of success, evidence that people want our time and attention. And ultimate victory lies not in winning tactical battles but in winning the war: Not an empty inbox, but an inbox emptied of all truly important messages. Not a completed to-do list, but a list with all truly important items scratched off. Not the absence of a line at our door, but a line with no truly important people remaining in it.
The next step is to stop using the wrong tools. We expend vast amounts of energy on “time management” and “personal productivity,” and while these efforts can yield results at the tactical level, they’re futile when it comes to the strategic task of triage. Remember: this is not about making a list but deciding where the cut-off point is and sticking to it.
Finally, we need to address the emotional aspect of triage, because it’s not merely a cognitive process.
Actively ignoring things and saying no to people generates a range of emotions that exert a powerful influence on our choices and behavior. This is precisely what makes triage so difficult, and until we acknowledge its emotional dimension, our efforts to control our workflow through primarily intellectual interventions are unlikely to succeed.
The first step? Figure out what’s actually important and focus on that. The second step? Use better tools for making decisions. The final step? Pull emotions out of the equation.
This is a great solution for productivity. It’s one that I use all the time. I’ll often skip over less important tasks and sometimes not even do them at all if they ever intrude on the genuinely important things. I’m constantly trying to hone my ability to figure out what’s important and find tools to help me focus on those important things. Even more important: I try to take emotion – and the sense of “pleasing” people – out of the equation and figure out what I do that actually has impact.
The funny thing? This whole thing almost perfectly describes my approach to personal spending, an approach that has helped me to pay off a mortgage, eliminated tens of thousands of dollars in additional debts, and put me well on the road to financial independence.
Let’s break it down.
Figure Out What’s Important and Focus on That
Without an intense focus on the things you want to achieve in the future, personal finance seems like an aimless mission. If the future is vague, it does not seem truly important, and thus the urgency of short-term wants will easily trump it.
A big part of personal finance success is a strong recognition of what you want for the future so that it becomes truly important to you. Once you have a grasp on that importance, it becomes easier to discard the short-term pleasures as they become mere obstacles to your long term goals.
Here’s how to get there.
Think about where you want to be next year, in five years, and in ten years. Where do you want to be in the future? Remember, you’re not trying to visualize where you’ll probably be, but where you could be if you make strong personal, financial, and professional choices.
Give this idea some time to develop. Think about it for a while, then come back to that idea again later. Add as many details as you’d like, as long as they’re positive and inspiring and make you want to have that dream.
Maybe your vision involves no longer working for a living. Maybe your vision involves starting your own business, or making a career shift. Maybe your vision involves a house in the country with a little fishing pond in the back. Figure out what it is that you want the most and visualize it.
Many people tend to avoid this task, especially over the long time scales, because they think that their life won’t be anything like what they envision. They’re probably right, but that doesn’t alter the reason for doing this in the least. The purpose of doing this is to give yourself some semblance of a direction. It sets you up to make positive moves today, this week, this month. Almost all of the positive moves you make will help you no matter where you wind up in five or ten or fifty years. $100 in the bank is helpful no matter where you are in ten years, after all.
So think about it. Think about where you’d most like to be next year. In five years. In ten. In twenty.
Keep those plans front and center in your mind and review them mentally a few times a day. You want these pictures to be as fresh as possible, so call them up at least once a day. Think through what you’re working for this year and for the next several years and what it will get you in the end.
Doing this all the time lets that picture gradually change as you change. Details that you were once passionate about but have since cooled on can fade into the background, while new things can emerge and become a part of those pictures.
You want a living, breathing picture of where you’re going that reflects what you want right now, not what you wanted a few years ago. The best way to keep it alive and fresh is to think about it regularly.
I recommend doing it daily; that’s what I do. It’s usually part of my thoughts when I’m doing something like taking my kids to martial arts practice or taking a shower.
Whenever you approach a purchase, ask yourself whether it helps you reach those goals. This is the first question I ask myself with most of my purchases. Is this item really going to help me move toward that great picture I have in my head? Or is it just a distraction and a short-term thrill that doesn’t really help me get anywhere?
Having my big plans up to date and fresh in my mind makes this question a lot easier to address. If my goals are out of date and out of touch with where I’m at now plus they’re not very fresh in my mind, it’s easy to overlook them when I’m thinking about buying something. However, if they’re true to what I most want in life and fresh in my mind, they’re easy to call up when I’m making up my mind about a purchase.
Use Better Tools for Making Decisions
Another major aspect of gaining control over your use of money is to use better tools for money management. Many people rely on their debit card and their own sense of intuition as their primary tools for money management. Let’s be honest – that’s just begging for disaster.
There are many, many tools and strategies out there that you can use to get a much firmer grip on your finances. Here are three that I consider to be absolutely invaluable.
Build a real budget. Many people think of budgeting as a boring task where you try to make your own spending match up with a bunch of categories that are difficult to personally relate to. If you’re doing budgeting that way, I would agree that it’s a waste of time.
Instead, try this approach. Pull out every credit card statement, bank statement, and bill that you have from the last few months. Sit down with those items and go through every single dime you spent.
First, split those purchases into essential and non-essential purchases. Essential purchases are things like the rent, your utilities, basic food and water, basic clothing, and so on. Everything else is non-essential, including extravagant clothing, restaurant meals, entertainment spending, your cell phone, your cable bill, and so on.
When people do this, they’re often shocked as to how much of their money vanishes down the hole of non-essential spending.
After you’ve done that, group the spending into categories that make sense to you. What categories and groupings do you see? You’ll probably have a grouping for each of your major hobbies. You’ll probably have a food-related grouping or two. Just start putting those expenses together in ways that make sense to you. Don’t worry about “perfect” categories that match some budget template somewhere.
Once you’ve done all of that, look at how much you’ve spent in each category. How much of that do you actually remember? How much of that actually provided any degree of long-term value in your life? How would your life be better if you’d spent half of the money in that category on repaying debt or saving for retirement instead of the forgettable things you actually spent it on?
Use that budget to give yourself a clear limit on incidental spending each week or month. The next logical step to take when you have that budget prepared is to use it to actually alter how you spend money.
One effective strategy in this regard is to simply put a spending cap on some of the truly non-essential areas in your life. This doesn’t mean that you eliminate all spending in the less important areas, but that you put a tight cap on how much you spend on those areas each month.
For me, I found it easiest to just group all of my avenues of non-essential spending into one big pool – basically, my collective hobbies – and then I limit how much I can spend on those categories as a whole each month. This “allowance” includes all spending on things like Kindle books, board games, gadgets, and convention travel.
If I want to buy a book, I know it’s taking away from other things that I might want to spend, but I also know that I’m not hurting my vision of the future at all if I keep it within my limits. That means that I pack more value into each of my purchases (meaning I skip over the lowest-value purchases).
Automate many of your financial moves. Another useful tool is automatic bank transfers, where your bank will automatically move money from one account to another, even at other institutions.
Automatic transfers take money away from a pool where you might be tempted to spend it – like your checking account – and puts it elsewhere, where it’s out of sight and much less tempting. One good strategy is to simply start an emergency fund at an online bank and have that bank pull $50 a week or $100 a month or whatever works for you out of your checking to fund it. You can fund a Roth IRA in almost exactly the same fashion.
Automation ensures that you will always be making a good financial move whether you’re thinking about it or not. That’s a very valuable tool.
Pull Emotions Out of the Equation
The third key for making better financial decisions is to turn off your emotions. Yes, all of us feel a little happy when we spend our money on something that we really want or care about, but when we let those emotions lead us, we almost always make mistakes.
I can’t stop my emotional responses, nor would I really want to. Instead, I’ve figured out a few ways to remove them largely from the decision making process when it comes to purchases.
Use the ten second rule to delete strong short-term impulses. The ten second rule is simple. Whenever I pick up a non-essential item in a store (or consider adding it to my shopping cart on a website), I stop for ten seconds and ask myself some real questions about this purchase. Do I really need it? Do I even really want it? Will my life be better in any way if I have it? Will I even remember this purchase in a day or two?
Often, those ten seconds I spent seriously thinking about the purchase provides enough clarity to convince me to put the item back on the shelf – and that’s really all I need. This isn’t a big existential thing – it’s just a realization that I don’t really need this item at all and that my desire is really just an impulse that doesn’t make sense if I think about it at all.
Use the thirty day rule to fight off lingering impulses. Sometimes – especially with bigger purchases – I’ll get fixated on a particular item for several days as I try to talk myself into it. This is true for things like board games or DVDs – purchases that are a bit bigger than a pure impulse buy.
My strategy here is to simply wait thirty days from when I first start really yearning for the item. I add it to an online wishlist and then agree that if I’m still pining for the item in thirty days, I’ll give it true serious consideration.
Almost always, my desire for the item is gone when the thirty day mark hits. I remember wanting the item, but when I actually ask myself whether I still want it… it turns out that I don’t. I’ve moved onto something else.
This does a great job of filtering the impactful purchases away from the ones that are still, in the end, pretty impulsive. I’m happy to spend my money on things that are really important to me but I’ve come to realize that an awful lot of my burning desires are pretty short term and that it’s a mistake to throw my money at those short term desires.
Find methods for channeling your emotions that don’t involve spending money. I find that I’m much more tempted to spend money when I’m tired or emotionally distraught than when I’m well-rested and things are going well. Difficult times lead to more spending mistakes because we’re usually suffering from decision fatigue at those times.
I’ve found that if I’m feeling worn out or stressed out, doing something like exercising or playing a board game with a friend takes the edge off of those negative feelings pretty directly. I feel very mentally refreshed after exercise and the joy of playing a game melts away short-term stress for me, too.
Sure, “retail therapy” might also provide a short-term stress relief, but unlike the other options I’ve mentioned, it comes with the long-term negative of having spent money on short-term impulsive things. Two days later, I’ll either regret or have forgotten about the purchases, but the lost money is still a negative for me. Other stress relievers are much more effective.
Figure out what’s actually important and focus on that.
Use better tools for making decisions.
Pull emotions out of the equation.
It’s not actually a complicated equation at all, but it really works. It works not only in terms of being more productive in your life, but also in terms of being smarter about your spending. It’s also true for things like parenting.
Incorporate those three things into your life and you’ll find that, over and over, it makes things better.