What's the most inconvenient fact about money?
The fact that you don’t have all of it? Yeah, I feel that way too sometimes, but that’s not it.
That money can’t be conjured from thin air? Also inconvenient, but no, that’s not it either.
That stopping your latte habit won’t actually make you a millionaire? Terrible news, but pretty obvious in retrospect, so it doesn’t count.
No. The most inconvenient fact in personal finance is also the most self-evident:
Every dollar is the same.
Each dollar you earn is the same. Each dollar you own is the same. They’re the same size and the same color. They have the same historical figures on them. They buy the same amount of goods and services.
It’s a simple truth that has some very unfortunate implications. Because if every dollar is the same, then we have an equal responsibility to spend each dollar effectively.
Here’s what I mean: often, someone will pick up a part time job or side gig, and more often than not they’ll say, “this is just my fun money.” Or, “this job covers my restaurant budget.”
Wrong! Your side job is providing you with money. The regular, green-colored, historical figure-sporting kind. Nothing more. You can choose to spend it on fun, or you can choose to spend it on investments, but it enters your wallet no differently than your primary income.
I’m as guilty of this as anyone. Sometimes it’ll happen that I’ll work a bit of overtime and then I’ll go out to a fancy dinner with my wife. I’ll tell my wife: “it’s no big deal, my overtime paid for this meal.”
But unless I got paid in restaurant fun-bucks, I’m lying to myself. That money could have gone into investments, or into my daughter’s college savings account. I chose to spend it on oysters and duck confit.
Which isn’t a bad thing, if I’m meeting my other financial goals. But if I’m not - and most people are not, if they’re being honest - then I’m artificially slicing and dicing money up into different categories in order to trick myself. I’m deceiving myself into spending money the way I want, rather than how I should.
This kind of magical thinking allows people to trade in an old car for a newer car, keep the same payments, and say that the new car “paid for itself.” It’s a willing obfuscation of financial facts.
All money is the same. This fact is inconvenient because it’s stressful. It forces us to really think about the best way to spend each dollar. And at the risk of getting too deep on you, I think it fights against a very natural human desire to attach narratives to everything, even math. “My old car paid for my new car” or “eBay sales paid for my son’s college” is a very simple, easy to understand narrative. It makes money less a scary mathematical idea than a story with a beginning, middle, and end. Something we can grasp in our homo sapien heads. But it’s fiction.
Last summer I’d had it with yard work. I was sick of wearing long pants in 100-degree weather to protect my sensitive skin from poison ivy. So I paid a landscaper to handle my yard for a season. At the same time, I was writing more and more freelance articles and actually getting paid for them. I told my wife, “I guess my writing is going to cover our landscaper, at least.”
One of the articles I wrote was about this very topic! Even knowing the truth about money, these kinds of thoughts bubble up all the time and it takes extreme discipline to pop them. But pop them you must, no matter how inconvenient it seems.
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