This is a behavioral post. I love to reflect upon my decisions when it comes to money, particularly my bad ones. I see something arising that could be a problem when it comes to manufacturing spend and controlling your personal finances.
In college I wracked up some credit card debt, just poor decision making on my behalf. It took me many years to clear it off because I ‘lost touch’ with it. I worked on cruise ships around the world, and never saw a bill or demand letter, until I came home for a break and had a pile of them. But then I would leave again, and leave them behind me. From a psychological perspective the biggest problem that I had was that I had no pressing need to pay it off, and since it wasn’t staring me in the face it lost its relevance to me.
Once devalued as a priority like this it would sit and fester, and in the end I paid many times the original principal after interest and fees. The only way to truly “own your finances” when it comes to paying down your debt, ensuring you don’t get into any more debt, or to increasing your savings is to have a true ability to view everything accurately at all times.
There are tools out there that help people visualize their financial position, such as Mint.com, and they can be great things for your personal finances. However all they do is present your position, and if you don’t accept its strengths and weaknesses it has no value. Whats more, if you start relying on a crutch like Mint, then start throwing in manufactured transactions you stop believing what you see, it loses relevance, and you lose connection with your finances.
The slippery slope
Once you lose connection with your finances, and your tracking methods ‘aren’t real’ it is very easy for poor decisions to slip into your game plan. People who manufacture spend are always looking for the next big thing, and either applying for new cards, or new services to earn more. The game is filled with people with alarmingly high success rates, and blogs increasingly lower the entry bar. I really don’t think it is a leap of the imagination for people to get way out of their depth very easily.
The combination of losing touch with the reality of our spending and our ability to meet those obligations, coupled with a barrage of luxury lifestyles and clique like groups are encouraging bad financial behavior.
The answer is not better tracking software. The answer is discipline, systems and structure. You need to lean less on software, as your mind can discount it before you realize it has happened.
I am completely in favor of optimizing money, points, taxes, lifestyles to the maximum, but in order to play the game well, you need an iron like will. You cannot trust tracking software, you cannot follow the crowd. You must keep a constant eye on the game you are playing and ensure that it is played at a level you can manage. This is even more true if you go through a period of financial change, such as losing a job, moving home, or becoming a parent.
When you are living in a land of smoke and mirrors, be careful not to lose sight of yourself.