For the past five years, I’ve served on a committee that distributes financial aid to those with short-term needs. During that time, I’ve noticed a few patterns that lead people into financial trouble and into situations in which they need to ask for help.
Often, it’s a mix of things they could and couldn’t control. Typically, a stroke of bad luck—such as a health issue or job loss—is what pushes them over the edge, but leading up to that was a pattern of small choices that left them vulnerable and without much of a safety net, if any.
This isn’t everyone, of course, and only reflects the experiences I’ve had in my neck of the woods. However, the pattern is consistent enough for me to confidently draw some lessons from it.
By the time people reach out to my committee for help, they are typically under a lot of stress. In fact, I notice that the people who call us are usually often sick as well. I’m sure that that’s partially why they struggle financially, but I do wonder whether the reverse might also be true: that the constant stress is hard on their bodies and leads them to get sick more often. Research from the Malaysian Journal of Medical Sciences suggests that this is a real possibility.
Either way, the cycle of stress and sickness, sickness and stress, is one you want to avoid, no matter which way the causality runs. The good news is that by making a few consistent changes, we can significantly increase our financial peace of mind and hopefully sidestep stress and illness altogether.
4 Small but Strong Financial Decisions
A few small financial practices can make your future more secure.
1. Use 1 Card for All Nonessential Spending
This is a piece of advice I don’t hear too often, but it is one I love. One of the biggest frustrations I have with budgeting is that so many of your expenses are fixed, and there’s not much you can do about them. My solution is to focus all of my effort on nonessential spending. I have a separate checking account funded for the whole year, and track my spending like a hawk in just that one category. If my nonessential spending is under control, I know that pretty much everything else will take care of itself with minor oversight.
2. Don’t Spend a Dime More Than You Make
The modern financial system has made it all too easy to spend more than we have. We take out loans, put things on credit cards, or spread payments over many years. All of these systems enable overspending your income, which is the cardinal sin of personal finance. Spending more than you make is trading tomorrow’s peace of mind for a bit of pleasure today, and it’s not a fair trade or one that leaves you better off.
3. Save and Invest a Small Amount of Every Paycheck
Unless you are very well-off, there’s rarely a time when you feel ahead of the game financially. By that, I mean that you’ll never feel that it’s easy to save or invest—there’s always something else you could be doing or spending money on. As I’m sure that you’ve heard, the magic of investing is in the compounding of money over many years, and so the earlier you start, the better. To save and invest a little bit of each paycheck is one decision your future self will thank you for a million times over.
4. Run Large Financial Decisions by a Trusted Friend or 2
The worst financial decisions tend to come from our blind spots. We either don’t know a better way or we allow our impulses to guide our decision-making away from what we know is best. The best thing you can do to avoid this is to make it more natural to talk to your friends about financial matters.
Normalize sharing what you’re thinking about and bouncing ideas off each other. Wealthy people seem to do this more naturally, but I think that it’s a practice the rest of us ought to practice regularly as well. We’d all be better off and less likely to make major mistakes with the guidance and positive peer pressure that close friends can provide.
Peace of mind over your finances is one of those things you probably don’t appreciate enough until it’s gone. Having been around so many people crushed by their past financial choices or left vulnerable to events beyond their control has made me more proactive about the choices I’m making today, while times are good. I hope that you’ll consider these tips if you’ve been coasting down a path without thinking about where it might lead you.