Three Absolutes that Belong Together
On every performance appraisal form I have worked with, a question has been asked about the use of financial resources. That question was an opportunity to talk about money strategy with my team of employees.
Whether we work in an office, work at home, or don’t work at all, most of us have never been formally taught how to make strategic decisions about money.
My experience is that many folks tend to make one of three global assumptions, and their choice of assumptions becomes their de facto strategy for financial decisions both at work and at home. The three global assumptions are these:
- Money is meant to be spent. You have to spend money to make money.
- Money is meant to be saved. The more you save, the more you earn.
- The best bet is to ask someone else — get advice, or “persmission,” from someone who knows.
All three assumptions are useful — but only when taken together.
Taken individually, the three assumptions above become absolutes without balance. When we rely on only one of three, that assumption often works the opposite from the way a strategy should. We tend to use our chosen one of the three to avoid having to think through a decision. We turn the above assumptions into rationalizations. Each one of the three keeps us tied to the belief that only some people know how to deal with money decisions, and we’re not in that group.
If we look at a decision and at each assumption, we can develop a framework for how to approach money decisions.
Sample Decision: Do I need the latest upgrade for my computer?
Money is meant to be spent.
That’s a nice thought. It’s also a nice way to empty a bank account. Fast adopters tend to favor this assumption.
Money is meant to be spent when it will give us a greater return than not spending it will.
The key here is whether the new upgrade will pay for itself in productivity, quality of life, or other tangible or intangible benefits. In circumstances such as this, here are some of the “go or no go” questions.
- What benefits will this purchase bring me, my clients, my family? Are these benefits worth more than the purchase price?
- Will this purchase bring me more time, more productivity, more ability to serve my clients, more efficiency, more quality of life? In other words, can I turn this purchase into money; use it to lighten my workload; or to improve or better balance my life?
- If I wait to buy this item later, what will I lose while I wait? What opportunity am I giving up by buying this item now?
- Do I have the cash flow to pay for this? If I’m putting this on charge card or increasing my debt, what is the real cost of what I’m buying when I include the interest and finance charges? — Are the benefits still a good return at that price?
Money is meant to be saved.
Saving money is good. So is spending it wisely. Slow adopters and folks who don’t like change — two different groups — sometimes save when they should spend. A friend of mine calls this “thinking poor.” They are often caught without the right tool for the job. This can mean more work at a lower pay rate.
I repeat, money is meant to be spent when it will give us greater return than not spending it will.
Here are some of the “go or no go” questions for folks whe are biased toward not spending.
- If I don’t buy this now, what extra work will I be doing? What opportunity to become more efficient will I miss? Is the cash value of the opportunity greater than letting the cash stay in my account?
- What will it cost to save the money? Would making this purchase be an investment that would gain me more time, more productivity, more ability to serve my clients, more efficiency, more quality work, more quality of life?
- What will I lose, if I continue to put off purchasing? Am I saving money at a long-term cost?
- Is my money just sitting in an account, when it could be working for me? If I bought new tools and equipment, would I be more efficient? If I hired part-time help, would I be able to handle more and higher-level work, or spend more time living my life?
The best bet is to ask someone else.
Actually the best advice is to be that someone else.
Money decisions are like other decisions. They require looking at options and possible outcomes. In the end, every money decision comes down to one basic premise.
Money is meant to be spent when it will give us greater return than not spending it will.
I know. I know. This is the place where you say. “Okay, Liz, the horse is dead.”
Sorry, I thought the horse was still twitching.
Truth is, if you can explain how spending money on what you want will deliver a tangible or intangible return that people care about, they will spend their money to invest in what you propose. That’s not selling, that’s helping folks reach their goals.
Solid strategy is simple and makes sense.
–ME “Liz” Strauss
If you think Liz can help with your business, your brand, or your blog, check out the Perfect Virtual Manager on the Work with Liz!! page in the sidebar.
Jesse Petersen says
One sure thing is that computer technology is never an investment…so it’s a matter of productivity as I see it.
If it brings income, that is the closest you will come to it being an investment, but the depreciation quickly negates any ideas of it holding that status.
At a certain point, I say it is a necessity to update your stuff to keep up with the times and ensure compatibility with everything that you need to succeed.
ME Strauss says
Good morning! Great to see you!
I guess you could say computer is a short-term investment in your productivity. 🙂
But you’re right about the depreciation and its speed. There’s a scale of balance at how fast to buy new technology and it depends, I think, on the individual’s needs.
Some folks need to be immediately current. Some folks can wait until the new generation is out and buy as soon as the last new generation gets repriced. Some folks can wait even longer than that.
Me? I’m a writer . . . for the longest time all I needed was a good display, a keyboard that met my personal needs, and speed that kept up with me. Now that I’m blogging I need more memory, more speed, more graphics, more, more, more, . . . 🙂
Just kidding. 🙂
Jesse Petersen says
If you want that much more, you should start playing games…though I fear your writing productivity would suffer greatly. 🙂
With our cars, it was another matter. They are both over 7 years old, but with them being paid off, it was well-worth the money to get major repairs done on them because they only equal about 5-10 months’ of payments that we would have to make on purchasing a “new” vehicle for either of us.
My ultimate opinion on the money matters is simple: keep it all in perspective. Everything.
ME Strauss says
Actually, my machine is running well right now, but I hear ya!
When I learned how make money decisions at work. It spilled over into my life just like into your cars. At one time, I thought I’d never be able to negotiate for a new car, then there I was doing what I did at work — it was absolutely the same.
Michael Schaffner says
Your right, you should not use any of these 3 concepts as the sole approach. The real thing to look for is value and to do that you have to look at benefits (money is meant to be spent), cost (money is meant to be saved) and risk(best to ask someone else). We should look at maximizing value, that is, achieving benefits that warrant the investment of the cost and taking on of risk. The right value proposition (benefit/cost/risk balance) is different for each decision and for each person making that decision. That is why, for example, a new computer can be a high value decision for me (or my company) and a low value decision for you (or your company). If there was only one “correct” answer you wouldn’t need people to make financial decisions.
ME Strauss says
Thank you so much for that analysis. You have so enhanced this post.
During my years as a manager, I met so many people who looked at money decisions as a mystery or something that they would never know how to do — these were totally intelligent, remarkable people! They just believed that money worked by different rules.
Your comment is gift to me and to them, because it explains so concisely how money decisions are really a case of just thinking through the options.
Thank you, again!
I just read your interview on DailyBlogTips.com and this is the first post I’ve read on your blog.
Both of them I have found to be profitable, and I think that something you said in the interview should go down into the ‘blog quotes history book’, “Breathe. Know that the Internet has no eraser.”
ME Strauss says
It nice that you read Daniel’s interview. He’s got a fabulous blog and so enjoyed doing that with him. Thank for the lovely words and welcome to Successful-Blog.
You’re not a stranger here anymore. 🙂
Liz, you complete left-brainer!
While I agree that focusing on and quantifying the tangible benefit gained by making an investment is a vital step in the selling process, I also know that this information is usually window dressing for the real, personal, and emotional reason for making a decision.
Lovaglia’s Law states that the more important the decision, the less likely people will be to use this rational approach! But that doesn’t mean we shouldn’t try.
Great post, and thank you for it!
ME Strauss says
Right! I’m left brainer like that horse is still kicking. 🙂
That’s why I had to learn the left brain way of learning things. If I was really left-brain this stuff would be so obvious to me. 🙂
I’ve learned to test things . . . like the sound guy in the rock band. Testing, constantly testing. My left brain keeps my right brain honest in such things. 🙂
You and I resort the data the same. 🙂
I was kidding with you. You’re a true whole-brain thinker (which is what makes your stuff so powerful)!
As for me, I’m having a good day when I rise above r-Complex reptile-brain thinking! 😉
ME Strauss says
I’m so laughing. I love it when you come by and talk to me. Reptile-brain thinking. hmmm Does that mean that your brain likes to sun itself on rocks?
If you read the post linked in my first comment, you will see that yes, my brain DOES like to sun itself on rocks (how else would I come up with that stuff?). And why else would I live in the Valley of the Sun?