Managing Money
Jul. 17th, 2009 01:41 pm![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
ailbheSome people are good at it, some people are ok as long as there's plenty of money, and some people are dreadful at it. I have never really worked out what makes people so. I know people from poor backgrounds and wealthy backgrounds in all categories, as well as people from varying degrees of comfortable backgrounds.
Some people seem to learn to manage money by living in fear of poverty (raises hand) and some people seem to learn by good example (raises hand) and some people seem to learn by being involved in the financial planning and management of their families as they grow up (like good example but more hands-on) (raises hand again) and most people probably have some combination of all three going on.
But the part I can't work out is what makes people who know what bad management does, up to a point (a point between stress and hunger, say) nonetheless continue to manage badly. What do Groups A, B and C learn which group D can't seem to? Let's not assume that group D are delusional, or want to rely on other people in their lives to pick up the pieces - let's assume that their desire and intention is to be able to spend only 252 pence in the guinea and not forever hanker after the half-a-crown that isn't there.
Some people seem to learn to manage money by living in fear of poverty (raises hand) and some people seem to learn by good example (raises hand) and some people seem to learn by being involved in the financial planning and management of their families as they grow up (like good example but more hands-on) (raises hand again) and most people probably have some combination of all three going on.
But the part I can't work out is what makes people who know what bad management does, up to a point (a point between stress and hunger, say) nonetheless continue to manage badly. What do Groups A, B and C learn which group D can't seem to? Let's not assume that group D are delusional, or want to rely on other people in their lives to pick up the pieces - let's assume that their desire and intention is to be able to spend only 252 pence in the guinea and not forever hanker after the half-a-crown that isn't there.
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Date: 2009-07-17 02:50 pm (UTC)Level 1: rent, usual cost of food, utilities, expected vet bills, some movement of money into a savings account that holds enough for a large emergency vet bill, because helping a sick animal is more important than TV.
Level 2: things that aren't required for life but you'd be hard pressed to live without, like cable or seeing friends; other things that regularly come out of your bank account and it is non-trivial to stop, like charity donations.
Then you add up the things in level 1 and 2 per month or week, whichever period of time includes one cycle of whatever incomes you have. Then you take away that total from the amount of money you will get in that period of time. That's how much spare money you have.
Then everything else comes out of the spare money. If you have a negative amount of spare money, take things out of level 2 in the short term and make a plan for how to change things in the long term so that the list of things you can afford to have, includes the list of things you think you should have - preferably not by borrowing a big pile of money that you have to pay back later with masses of added interest.
The key is to put the "but don't I deserve X" thoughts aside and do the sums to find out what you can afford. Then when you have done the sums, you can hand control back to the part of you that decides what you should have, so it can make informed decisions. The world will not arrange itself so that you have enough money to get the things you think you should get; that's your responsibility. Like the kitchen analogy: you deserve chocolate cake, but you are the person who has to make the cake and clean the kitchen.