Budgets and Relationships

In Marshall Goldsmith's book Triggers, he discusses the advantages of structures and by having them, we maintain control over our environments which are often unpredictable and full of variations. Goldsmith says successful people do well with creating structures, yet a lot of people don't when it comes to interpersonal behaviors.

"Structure is fine for organizing our calendar, or learning a technically difficult task, or managing other people, or improving a quantifiable skill. But for the simple tasks of interacting with other people we prefer to wing it —for reasons that sound like misguided variations on "I shouldn't need to do that."

Although a budget provides structure for spending, your interpersonal behaviors will often collide with your budget. Planning to spend $50 on a nice evening dinner is great. Your boundary is set. You have a plan and you can execute that plan with relative ease. That is, until the environment in which you planned to spend that $50 changes.

Suppose now you're going with friends who want to go somewhere nicer. Without the structure of your interpersonal behavior, you might agree to a restaurant that is easily going to reach $100 rather than the $50 you had originally planned. Rather than struggle through the idea that you might upset your friends or that they might judge you for not splurging on occasion, you give in.

Interpersonal behaviors can break through your structures more easily than anything else. As you budget each line item you have to consider contingency plans where relationships are involved. A completed zero-based budget is not the end of your planning —it's only the beginning. This is because you have to consider how your budget may be at risk when areas of your life that don't have structure influence your spending. 

Consider how the areas of your budget where you struggle most are impacted because of interactions with others. Simply identifying a risk is often the best way to avoid it.

May you be blessed with a good balance between money and relationships.

Money and Emotions

If you've spent any time with people in the finance industry you may have heard the term "behavioral economics."  It's actually a psychological term used to describe the ways people go about making decisions related to money. Maggie Baker, PH.D., goes into more detail about the various types in Chapter 4 of her book, Crazy About Money: How Emotions Confuse Our Money Choices and What to do About it.

"Although behavioral economics deal with thinking processes, what is fascinating to discover is that, at base, people are trying to protect themselves from the emotion of loss with deceptive thinking strategies. Loss of any kind is an emotionally charged event that we as normal human beings go to great lengths to avoid, not only in our thinking and in our feelings, but in our actions. Clearly, no one likes to lose money (or anything else, for that matter)." 

 Here's a short list with my summary of each behavior that Baker goes into more detail about.

  • Loss Aversion - When we anticipate pain from potential loss we take extreme measures to avoid it.
  • Sunk Hole Fallacy - Choosing not to cut your losses because you've already put a lot of money into a bad investment.
  • Status Quo Bias - Choosing to not make a new choice because of fear that making a change might be turn out to be worse.
  • Mental Accounting - When we value the same dollars differently depending on the context we find ourselves in.
  • The Anchoring Effect - When we allow a specific number from a past experience to stick in our head as a quick reference to judge the value of future experiences.
  • The Endowment Effect - The tendency to overvalue what you have but undervalue the same item if someone else owns it.
  • The Herd Instinct - Making quick instinctive decisions based on what others are doing.
  • Confirmation Bias - When we look only for information that conforms to our preferences.

May your financial decisions be informed with rational thought and managed emotions.

Emotions Amplify

Maggie Baker, Ph.D., reminds us in her book Crazy About Money: How Emotions Confuse our Money Choices and What to do About it, that "our emotions determine what is amplified in our life." There are 9 basic emotions that we are born with.

Negative Emotions

  • Fear - terror
  • Anger - rage
  • Anguish - anxiety
  • Sadness - grief
  • Shame - humiliation
  • Dismell - disgus

Positive Emotions

  • Interest - excitement
  • Enjoyment - joy
  • Surprised - startled

May you balance your emotions with reason and understanding in all of your decisions.