Finding Financial Balance
This is a guest post from J.D. Roth, who blogs about money at Get Rich Slowly.
Over the past few months, I’ve been wrestling with the role of money in my life.
Often I’d find myself standing in a store, holding a stack of CDs, say, or maybe several magazines. Inside, I’d be arguing with myself, almost as if there were an angel on one shoulder and a devil on the other. Most of the time, the devil won. I’d buy the stack of CDs or the magazines. And I’d use credit to do it. I was a compulsive spender.
Eventually, two friends helped me to realize the path I was on. I began to read personal finance books, I started a personal finance blog, and I converted to the “religion” of frugality. I learned to pinch pennies.
This new-found thrift was exactly what I needed. It helped me to get out of debt and to begin building wealth. I even opened my first savings account, and have now built a sizable emergency fund. Best of all, I’m maxing my retirement savings every year.
Going to extremes
But something happened along the way. As I converted from spendthrift to, well, thrift, my relationship with money changed — but it didn’t improve. I went from a man who spent too much to a man who spent too little.
Again, it took outside intervention for me to realize I had a problem. Writing at Get Rich Slowly last year, I complained about the cost of movies. I complained about the cost of milk. I complained about the cost of hot chocolate. “You’re not being frugal,” my readers told me. “You’re being cheap.”
That was a wake-up call. I realized that I was still struggling to develop a healthy relationship with money. I had not achieved balance.
And balance is what’s required. I believe that thrift is a virtue, and I don’t intend to abandon it. But thrift can also be a vice if taken to an extreme. It’s not wrong to spend money on yourself, if you can afford it. Money is a tool, and it should be used to bring us joy, when possible.
The balanced money formula
One tool that I’ve embraced since last autumn is the balanced money formula from Elizabeth Warren and Amelia Tyagi in their excellent book, All Your Worth: The Ultimate Lifetime Money Plan.
Here’s what it looks like:
As you can see, when your financial life is in balance, you’re allocating enough for savings and needs, but you’re also setting some aside for the things you want.
This idea is simple, but it was a revelation to me. No more spending too much on wants, but no more pinching pennies, either. I’ve begun to allow myself to spend more money on myself lately, and my mental balance has improved substantially. (Note that my spending is not extravagant; I can well afford these indulgences.)
More than money
For me, the quest to achieve financial balance is about more than money. It’s also about meaning. Money is important, yes, but it’s not the only thing. Recently, I’ve been too focused on my finances. This is probably because I’ve spent the last three years writing about money every day! Whatever the case, I’m coming to realize that money is a means, not an end.
Each of us has parts of our lives that feel unbalanced. When we experience this lack of equilibrium, it’s important to do something about it, to make changes. From my experience, however, the most effective changes are small — they’re incremental. When we overcompensate for an imbalance, we sometimes just make ourselves miserable in a different way.
How do you seek financial balance? Do you have any tools or techniques that you use? For you, what’s the relationship between money and meaning? How do you measure success?
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