The World Spins Madly On

Surprisingly, I'm not a numbers person. When I do sums in my head I actually visualize colored bars of varying lengths that represent the "size" of the numbers, and then I mentally manipulate those colored bars. True story.

Dancing colored bars have their limits, so of course I'm totally fascinated by programs that visually model complex data. The World Bank Data Visualizer uses colored bubbles to show how population, life expectancy and income per capita have changed by country from 1962 to present. Watch the bubbles chase each other! It's not the World Cup, but you might still find yourself chanting "USA! USA!" as China and India race us across the board. Thankfully, the World Bank chose not to set this to an annoying vuvuzela soundtrack.

Before You Cut, Spend

There’s an old business adage that says you can’t manage what you don’t measure.

It’s surprising how many people ignore this advice when it comes to budgeting for discretionary expenses. In designing a monthly plan they simply write down what they think they should spend rather than taking some time to figure out what they’re already spending.

Why is this? In my experience resistance to measurement stems from two things.

First, people want to rush through the budgeting process. Sure, I like to linger over a bank statement like it contains the drama of a Jane Austen novel, but I’m wired a little differently that way. For most of us, budgeting is something we do in response to financial stress – we want to do it as quickly as possible in order to fix a problem.

Secondly, reflecting on past purchases contains all of the anxiety of spending with none of the pleasure. Those numbers in aggregate often seem astronomical (“I spent HOW MUCH on coffee last month?”) and trigger a backlash of self-judgment that can short circuit the whole process.

So people guess. They come up with idealized numbers that are not necessarily a reflection of their actual behavior. In doing so they usually fail to account for what they need or value, and down the road their budget fails accordingly.

Provided there is no cash flow crisis, I usually recommend that people track their spending for a solid month before we even discuss what expenses to adjust. A baseline measurement of your routine is valuable not only because of the data generated but also because it gives you the opportunity to work on another important budgeting skill – being able to engage consciously in financial activities and tolerate the feelings that come up when doing so.

A healthy budget is not a problem to be solved. It is a statement of purpose that reflects where you want to allocate your resources. There is nothing wrong with spending $200 a month at Starbucks provided that experience is meaningful to you and the rest of your financial choices fit around it. The challenge is whether you can look at that behavior and own it without self-judgment.

If you want a slimmer spending plan that still gives you optimal quality of life, start by going about your normal routine and simply recording when, on what, and how much you spend. A month of measurement is an investment you make in your long-term financial wellness.

You're Not Broke(n)

Of all of the different ways that people describe their financial woes, the one that always raises my hackles is “I’m broke.”

Broke is a state of having little or no money. But there is a deeper connotation, which is that there is something broken in one’s financial life or one’s ability to earn enough money. “Broke” indicates an internalized attitude of insufficiency, which is about as motivating as a blanket of wet felt.

Terminology is important. It frames how we experience our financial lives, both mentally and emotionally. “I am [x negative descriptor of self]” is a particularly toxic frame, because it takes an external, temporary state (in this case, of depleted cash flow) and makes it a character statement.

When we see ourselves as broke we ignore or devalue the money we do have and how we choose to allocate it. Managing cash flow is a series of choices. You can choose to own those choices and stand in your own economic power (even owning your mistakes), or you can choose words that disempower you and reinforce a sense of personal failure each time you run out of money.

Look at the difference between saying “I’m broke,” vs. saying, “You know, I can’t afford to do that right now because it’s not in my budget, but let’s plan to do it next month.” The first one is a non-starter. Want to do something with me? Well you shouldn’t, because I can’t and I don’t have any idea when that will change.

The latter statement expresses healthy choices, boundaries, and it furthers the relationship with the person to whom you're speaking. Sure, it’s a little wordier and may feel a bit awkward at first, but when you’re using financial behavior to transform personal attitudes, words matter. Plus they're free. Use the good ones.