I didn’t always have a whole lot of self-esteem when I was younger. You see, I was a skinny kid growing up and I was a little self-conscious about it.
So, late in my high school years, I started to work out. I made some nice gains, but it wouldn’t be until I took control of my dietary habits in my late 20s until the progress would really take off.
It took quite a while for the hard work to show outward progress. What took even longer was the mental part where I didn’t see the skinny kid in the mirror anymore. While, outwardly, the results of my physical efforts were becoming apparent, my self-esteem wasn’t going to cooperate for quite some time.
Nope. It would be a little bit later before yours truly would start moving past some social anxiety issues (though, some are still there) and other activities that confident people partake in.
I’ve noticed a similar pattern in my financial situation. Let me explain.
I’ve always had a “cushion balance” in my spending account that harkens back to the days when we had to balance checkbooks without the assistance of fancy software. While I was heavily in debt, any amount above $200 at the end of the month would be added to the debt that I was focused on paying off at that time.
When my debts were largely paid off, I started investing in a Roth IRA and a taxable investment account. And, any amount over my $200 threshold at the end of the month would go to those investment accounts to help get them kickstarted. This practice was OK while I was just starting out and the amounts were somewhat small.
But, today, my debts are gone (except for a mortgage on my home) and my savings/investment rate is in good shape, as well.
So, recently, I’ve come to realize that my old money rules might be impacting that whole “enjoyment” aspect of my life. Just as my self-esteem took awhile to catch up to the control I had taken over my personal life, my wealth-esteem was also taking its sweet time.
Over the years, I’ve realized that everyone has a thing or two they don’t like about themselves. (Yes, I had to actually learn that; I thought it was just me for longer than I care to admit.) In my younger days, I let those things I was self-conscious about affect how I behaved; it took some time for me to move past that when I addressed the issue.
When it comes to how we feel about ourselves, what we should do and how we measure our improvement is more intangible. But, with our money, we have account balances and savings rates to show us how we’re doing. But, there is some emotion that goes along with how we handle our money. (My self-esteem issues likely contributed to some of my money problems, for instance.) We may spend too extravagantly when it looks like the financial coast is clear and go back into debt, robbing from our future once again. Or, like I was doing, we could maintain a too tight grip on our money because we don’t want to risk going back that bad debt situation that we came from and not enjoy the benefits of the work we’ve done.
So, how do we make sure we don’t stifle the fun part of our lives when our finances are no longer as skinny as they once were? For me, I went with something like this:
- Set goals to be out of debt (except mortgage) and have a certain savings rate.
- I had already eliminated all debts except for my house when I created this version of my plan. Before that, I just kept trying to increase my savings rate anywhere I could.
- I also want to add that I worked on increasing my savings rate while also paying off debt; I didn’t go with a pure Dave Ramsey approach. That may not have been the best strategy as far as the math goes, but it worked for my personal psychology.
- The savings rate I set is 20% of my income. You can set it however you like, but I would suggest at least 15%.
- Once #1 is accomplished, the spending account plan is as follows:
- I kept my $200 cushion in place for my spending accounts as an amount to not drop below. Consider it a self-imposed minimum balance.
- I added another $200 as a “free spending channel” (I need to work on the name). In other words, after all monthly bills are paid, I can do whatever I want with a spending account balance of $200-400 until the balance reaches my minimum of $200.
- After all monthly bills are paid, any spending account balance above $400 gets used to either pay down the mortgage or gets invested. (Hopefully, the investment accounts will improve my cashflow further, and I can amend this plan, again, in a year or so.)
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