Putting money in its place

Tell your money where to go. Don’t ask where it went.

~ Unknown

We spend a lot of time here kicking around different ideas on how to manage your money. What’s the best way to spend it, save it, and invest it? It’s all about controlling your money rather than letting it control you.

From the beginning, I intended the “balance” part of Balance Junkie to be a bit of a double entendre. It refers to the quest for a healthy financial balance sheet as well as a well-rounded life balance sheet. Putting money in its place means paying enough attention to it to manage it wisely, but not enough to let it become more important than it is. Today we take a look at how to balance these dueling propositions.

Your money: Micro-management

The term micromanagement usually has negative connotations. It implies that we’re paying too much attention to details. That can definitely be a problem in personal finance. Sometimes we get so determined to do the right thing with our money that we forget the reasons we took up the challenge in the first place.

Still, letting the pendulum swing too far in the other direction isn’t such a great idea either. Just like letting our closets, desks, or kitchens become too messy can impair our quality of life, neglecting basic financial maintenance can allow problems to needlessly creep into other areas of our lives. Financial maintenance at the micro-level can include the following:

• Track spending: use a pen and paper, spreadsheet, or software program. It doesn’t matter. Just know where your money is going. Whether you track it to the nearest dollar or a hundred dollars isn’t as important as just doing it.
• Budget: Once you understand where your money is going, it’s time to control the flow. Can you increase your income? Can you cut back spending in some areas and redirect that capital to something you value more?
• Saving: Paying yourself first has almost become a cliché in the personal finance realm, but it’s still one of the best ways to reduce money stress.
• Investing: Now that you’ve saved some money, why not put it to work for you? We debate here all the time on the best way to do that. Regular readers know that I think there are lots of ways to create a balanced portfolio. Your way is the best way, whether you’re invested in a Bank CD or a growth stock. As long as your net worth chart is more or less headed higher, the rest is irrelevant. There’s a great asset allocation plan out there somewhere for every personality type you can imagine.
• Retirement planning: One of the main reasons to keep on top of your financial progress is to make sure you’ll have enough money saved to support yourself once you decide to stop working – or are no longer able to work – for income. As my friend Jim Yih says, saving for retirement is simple, not easy. Most people who are close to, or in retirement say that the one thing they regret in terms of retirement savings is not starting sooner. If you haven’t started planning for your future already, now is the best time. If you’re Canadian, look into RRSPs, TFSAs, and any pension plan your employer might offer.

Strategies for spending, saving, budgeting, and investing are a dime a dozen, especially since the dawn of the internet. The hardest part can be finding the one that works for you and making it into a habit. You’ll know you’ve found it when you realize you’re thinking a lot less about money and a lot more about the people and pursuits you value more than money.

Should you learn as much as you can about your money options? Sure. Read all the good books. But once you’ve learned what you can, don’t be afraid to toss out the rule books and write your own.

Your money: Macro management

So you’ve basically automated a few strategies for looking after the important minutiae of your financial life. Don’t forget to pull back and look at the BIG picture now and then. Money isn’t everything. If it wasn’t required to buy food and shelter, it wouldn’t be anything. Like everything else, it carries only the value we ascribe to it.

Money has no intrinsic value. It’s just the tool we use to gain some of the things that do. While it’s really important to put money in its place in terms of allocating it to the goals we value the most, it’s also important to put money in its place in the context of our overall lifestyle. Where does money fit into your life? Do you think it takes up too much space, not enough, or just the right amount?

Here are a few signs you may have let the balance swing too far in favor of micromanaging your money:

• You’re forgetting important dates like birthdays, anniversaries, and holidays.
• You’re always thinking about money and how to get more of it.
• You think that if you just tweak your portfolio one more time, you’ll be set.
• You’re exhausted from putting in extra time at work to earn more money.
• You haven’t enjoyed one of your favorite pastimes in over a month.
• You’re not happy.

Of course, the list above is only slightly tongue-in-cheek. I’ll just offer a quote I’ve used before. It’s one of my favorites and it always reminds me that if I’m not happy with the way things are, I can take action to change them:

You’ve got a lot of choices. If getting out of bed in the morning is a chore and you’re not smiling on a regular basis, try another choice.
~Steven D. Woodhull

I write about money every week. It’s easy for me to become too focused on the micro picture. I have to make a regular and very conscious effort to remind myself that I started writing about money to help people master it enough to forget about it for a while.

Do you ever find yourself micromanaging your finances? How do you get yourself to put things in perspective and take a more macro view?