{"id":103242,"date":"2011-09-20T04:00:40","date_gmt":"2011-09-20T11:00:40","guid":{"rendered":"http:\/\/getrichslowly.org\/blog\/?p=103242"},"modified":"2023-12-06T11:00:15","modified_gmt":"2023-12-06T18:00:15","slug":"logic-and-emotion-why-smart-money-management-isnt-just-about-math","status":"publish","type":"post","link":"https:\/\/www.getrichslowly.org\/logic-and-emotion-why-smart-money-management-isnt-just-about-math\/","title":{"rendered":"Logic and Emotion: Why Smart Money Management Isn’t Just About Math"},"content":{"rendered":"

Eighteen months ago, I read Switch: How to Change Things When Change Is Hard<\/em><\/a> by Chip and Dan Heath. This book changed my life.<\/p>\n

\"Switch<\/a>Switch<\/em> explores the difference between the life changes we eagerly embrace and those we struggle with our entire lives. The book radically altered the way I plan, budget, eat, sleep, and work. Thanks to Switch<\/em>, whenever I want to change any habit in my life, I now think of elephants.<\/p>\n

Let me explain.<\/p>\n

<\/span>The Elephant in the Room<\/span><\/h2>\n

Chip and Dan outline an easy-to-follow system to create lasting, long-term habit changes. To make their point, they use the metaphor of a rider sitting atop an elephant on a path through a jungle.<\/p>\n

The rider represents our rational or logical mind. The large, powerful elephant represents our emotional mind. And the path through the jungle represents our environment and surroundings.<\/p>\n

The authors say that we most often approach habit change by leveraging only our logical mind, the “rider”. We outline the exact tips, tactics, and strategies we need to systematically execute our plan.<\/p>\n

We see early success with this method because, in the beginning, the rider has enough control and strength to force the elephant to go wherever we desire. But the longer the rider tries to overpower the elephant, the more quickly she tires and burns out.<\/p>\n

Trying to change a habit with only your logical mind quickly leads to exhaustion. You cannot succeed with willpower alone.<\/strong> (Does this sound familiar<\/a>?)<\/p>\n

\"Riding<\/div>\n

 <\/p>\n

The Heaths argue that we need to motivate<\/em> the elephant. By motivating our emotional mind to change course, we don’t have to steer with as much force. This greatly increases the chances we can maintain momentum and achieve lasting results.<\/p>\n

They also recommend shaping the path through the jungle to make the journey easier on both the rider and the elephant. This includes surrounding ourselves with positive, passionate people and removing any potential negative situations that weigh us down.<\/p>\n

This simple metaphor has changed my life.<\/strong> As a result, I’m constantly exploring new ways to change my environment and motivate my emotional mind.<\/p>\n

When it comes to personal finance, my wife Courtney and I apply this methodology to several areas. Let’s explore them.<\/p>\n

<\/span>Playing with Numbers<\/span><\/h2>\n

When Courtney and I first started our financial turnaround, we started the basics of tracking our spending<\/a>, starting a budget, and creating a list of every debt we owe.<\/p>\n

We laid everything out to the penny. We knew exactly how much interest we were adding to our debt each month. At one point, we could even tell you how much our average toilet paper spending changed on a month-to-month basis.<\/p>\n

As you might guess, this level of accounting didn’t last for long. Neither of us is a CPA, and we didn’t have the willpower to continually force this type of accuracy. Even worse, one small error could lead to hours of effort as we tried to reconcile the missing pennies.<\/p>\n

We decided to give rounding a try. We rounded all expenses and debts to nice whole numbers. We rounded down all income.<\/p>\n

It was a simple change, but it had a profound effect on our process.<\/strong> Suddenly, tracking became fun<\/i>. It was no longer a chore, but something we actually enjoyed! We could get a snapshot of how we were doing with quick mental math (as opposed to our complex spreadsheets).<\/p>\n

The rounding had another positive side effect. By rounding our expenses up and income down, we built up a small buffer that grew throughout the month.<\/p>\n

For example, if we budgeted $80 for our $76.50 electric bill each month, we’d have a little left over. Same result if we tracked our spending as $10 when lunch was only $7.98.<\/p>\n

The extra dollars and cents accumulated more quickly than you might think! At the end of each month, we were left with a couple hundred dollars as a buffer.<\/p>\n

Before we started rounding, if we budgeted incorrectly or had an extra expense pop up, we’d feel guilty. But this buffer allowed us to absorb a mistake or two and still be on target for our budget.<\/p>\n

Most months we’d just leave any extra we had in our checking account and let it compound a little each month. We celebrated yet another small victory!<\/p>\n

<\/span>Defeating Debt<\/span><\/h2>\n

At some point in time, every person who digs his way out of debt has to decide what order he’s going to eliminate the debts in his life.<\/p>\n

There are several popular methods to pay off debts, including:<\/p>\n