Monday, January 7, 2013

Financial Guilt for the New Year

In my quest to critique everyone else’s financial goals (an example here), I move now to the Big Cajun Man who recently tossed out a few financial resolutions. Here is a paraphrase of his list (you’ll have to click through to his blog for the funny parts I left out):

1. Stop spending so much.
2. Be more honest about our money.
3. Stop being so hard on myself about money.
4. Write down every purchase.

I would call this a guilt list rather than financial goals. Many people have guilt lists like this about money, their weight, working out, and other areas of their lives. The problem is that all this guilt doesn’t help people very much.

For financial goals to actually help you handle money better, you need to begin with a clear picture of where you are financially and where you want to be. Numbers must be attached to this picture. Then you can define specific goals (again with numbers) that take you from where you are to where you want to be.

The goals are likely to be related to spending, saving, debt levels, and income. Here are some examples:

1. I will limit my spending on restaurants to $100 per month.
2. I will save $250 per month in my TFSA.
3. I will reduce my line of credit balance by $300 per month and not increase any of my other debts.
4. In addition to my regular pay at work, I will earn at least $400 per month doing odd jobs in my neighbourhood.

Without the specific times and dollar amounts attached to the goals, you’re just making yourself feel guilty with little benefit.

9 comments:

  1. Guilt, resolution same difference isn't it?

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  2. @Big Cajun Man: Unfortunately, that's true for many people. But if you really want to improve your finances, guilt isn't the best way to go.

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  3. @Michael:
    Though your suggestions are useful goal, they are not what he meant. I certainly agree that goals are only worth anything if they are actionable and measurable. I see a possibility to re-state his points and make them actionable. Instead of his guilt admitting statements, I'd suggest:
    1. Create an annual budget.
    2. Record purchases over $10 and allocate the rest of costs to "other". If "other" becomes painfully big - investigate it more accurately.
    3. Punish/reward myself for (not)adhering to it every month.

    @ Big Cajun Man:
    (I suppose you meant "same meaning")
    don't kid yourself: "guilt" is just admittance of a problem, "resolution" is a responsible decision to eliminate the problem.


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  4. @AnatoliN: I understand that Big Cajun Man didn't intend to be offering actionable and measurable goals. My point is that such resolutions do little other than produce guilt when you break them.

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  5. His resolutions are not measurable, thus they are broken at Jan 1 (except #4). He does not have to wait 12 month to start feeling guilty :)

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  6. I make an effort to save my $250. a month in the prior year for my TFSA. That way I pick my investment's late Dec. or early Jan and and make one or two purchases of stocks or ETF's to lower my trading costs and have the growth (I hope) start early. If you buy monthly thats quite a lot of purchase costs over 12 months...

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  7. @Paul: I like your approach to keeping trading costs down. As long as you're not tempted to take the TFSA cash out to spend it's a good idea to let it build up to the point where you can make a larger transaction. As long as you're not building debt at the same time as saving in your TFSA, you're making financial progress.

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  8. I would adopt the goal examples that you have set. I think it will be much easier for me to determine if I stick to the goal or not. As they say, when you create goals they should be SMART.

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  9. @Paul: you can avoid transaction costs AND invest small amounts at TD Webbroker.

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