Despite that title, it has, in fact, been a relatively smooth first week of tax filing here at Peter D. Arnold, CPA. Cape Cod clients have been streaming through our doors, and we’ve been enjoying our little mini-reunion with so many longtime friends.
Now, there’s plenty to say about that Super Bowl, the advertisements (apparently, they’re all Tide ads), the halftime show, etc. But I’ll let others weigh in there. I’m a Cape Cod tax professional after all.
But, given what happened with the stock market on Monday, I feel that I should make these quick financial points (which is closer to my area of expertise):
1) The Dow is not the economy. Good or bad.
2) Saving is almost always better than spending.
3) Fretting about the ups and downs of one market indicator will make you very tired. Don’t play that game.
Moving on, and somewhat relatedly, I posted a recent Note about retirement mistakes, and it stirred up some email responses, as well as conversation with clients in-person.
But it made me realize that in order to think clearly about retirement, taxes, or any kind of financial decision we need to be blunt with … ourselves.
That’s a difficult task, even for the best of us. But I have thoughts for you.
5 Tips To Think More Clearly About Financial Decisions For Cape Cod Taxpayers
“Where you grew up has no bearing on where you decide you are going to be today.” – Dan Kennedy
Working with my Cape Cod clients’ finances over the years has given me a bit of a crash course in human behavior. Often, I’m floored by the generosity I see displayed by many Cape Cod clients — even those without significant means.
Other times … well, I think that we all could use the reminder that our human flaws show up very clearly in our family’s finances. The fact is that we ALL deceive ourselves, from time to time, about what’s really happening within our wallets.
This habit of self-deception threatens our financial stability. Instead of spending $10, we spend $30. Instead of recognizing that we *want* that new shirt, car, or fine dinner at a restaurant, we lie to ourselves until we are convinced that, for one reason or another, we *need* that new shirt, car, or fine dinner. The massive credit crunch a decade ago can partly be blamed on a nation full of people who convinced themselves that a $800,000 home was necessary — even though a $350,000 home was more than sufficient. We must learn to live within our income … and this sometimes means that we must stop lying.
So, I’ve compiled a short list of ideas on how to stop lying to ourselves, and to instead face the truth when making purchase decisions.
1. Have (and stick to) a budget. Is this purchase in my budget? For example, your family budgets a certain amount each month to spend on clothing. You’ve agreed that this amount is sufficient to meet your needs. So you set this amount before facing a purchase decision. If during the month you want to exceed the budget because Kohl’s is having a fantastic sale, then you are now lying to yourselves. You aren’t saving money by exceeding your budget during a sale. In fact, now you have to dip into savings to pay for your overspending.
2. Set a per-purchase spending limit. A wise man said, “The four most caring words for those we love are, ‘We can’t afford it.'” Take some time with your spouse to set what I call a “What I can spend without having to ask my spouse if it’s okay” spending limit. Some spouses have decided that neither one of them is allowed to spend more than $100 at any given time without calling and asking the other one if it’s okay (this does not apply to groceries). Let me tell you right now, these limits have stopped many from making a lot of unnecessary purchases.
3. Replace bad habits with enjoyable, inexpensive activities. Shopping or overspending is a habit that we have likely formed over years. Since our brains are programmed to react in a certain way in specific situations, any change is met by resistance. The existing habit is simply more comfortable and natural. To help change your behavior, replace the bad habit with another activity.
For example, instead of going to a Cape Cod mall to pass time, go to a local park with a soccer ball and spend some time with family or friends. Start or re-start a hobby. Your new hobby might even be a low-cost home business in which you make money!
4. Make sure that the reason you tell yourself you are making the purchase and the *actual* reason you are making the purchase are the same. Ask yourself, “Why am I really making this purchase?” Am I buying this dress for my wife because I love her and want to show my appreciation, or am I trying to prove to her and the world that I am a good provider? We lie to ourselves to cover our true motives. If the real reason you are making a purchase isn’t in line with your principles and budget, then don’t buy it.
5. Take stock of, and enjoy, everything that you already have! Develop gratitude for what you already have in your life. Purchasing new things is often a sign of ingratitude for what life has already afforded us … or a sign that we feel deficient in some area.
Overcoming bad habits and addictions is a process that requires concerted effort. Face each day one at a time, and stop lying to yourself! Don’t believe the story you’ve created in your mind that justifies unnecessary and financially harmful purchases.
To your family’s financial and emotional peace …
Peter D. Arnold, CPA