Financial Guiding Principles

October 1, 2011

You know those days that are otherwise unremarkable but are great thinking days? The bus ride to Chitwan was possibly the greatest thinking time I’ve ever had. I share just a bit of it here, since this is a topic I have discussed regularly with friends and family over the years.

Since graduating from college, I’ve developed a strained relationship with my finances. I fluctuate wildly and irrationally between feeling financially secure and feeling like I’m about to go broke. This issue has been aggravated in Nepal by how openly people talk about money. I get asked frequently how much I make and how much my parents support me and how much things cost me. And particularly this splurge trip of jungle safaris has stirred up some internal conflict. I figured since I am all the way around the world and have the chance to ride the elephants, I should do it right. And even after paying for my trip in full, I was still way under budget for the first five weeks of this trip. Yet for some reason, the day before I left, I panicked about this “extravagant” expenditure. I was still freaked out when I got on the bus, but eventually I realized that the trip was already paid for, so it was a moot point and perhaps I should channel my thinking to figuring out why money freaks me out so easily. And so followed a tremendously productive few hours of thinking.

I think that finances freak me out because it is an area in which I feel very susceptible to judgment. And I think this susceptibility stems from me wanting to feel like I spend and save appropriately/normally and not having any concept of what that looks like. So when I graduated, I bought all these young adult finance books and found the “spend x% of your income on this category” stuff completely useless because it had no grounding in my financial context. In retrospect, I think it must be really hard to write a book about budgeting because how we mange our money and what we spend money on are such immensely personal decisions. At the base, expenditures are kind of the external manifestations of our values—we spend money on things we care about and not on things we don’t. So maybe, when I feel judged about my expenditures, it is actually a part of me feeling like my values are being questioned (even though that is never how it is intended). And then I get all worked up because maybe I do spend too much on things that don’t matter. But wait, my finances are my finances and why do I care what others think and how it compares to the “norm”? AH-HA! Unlike many areas in my life, to this point I have not had a firm understanding of my approach to finances, so I am easily swayed by the opinions of others. I’ve made budgets, of course, but I have never stepped back and examined the assumptions behind those budgets.

This was such an epiphany for me and I spent the next bit of time writing myself a set of financial guiding principles. The goal was to explicitly decide on a set of criteria for me to judge my financial decisions. Theoretically, then I would be able to distinguish overly extravagant purchases from ones that are just fine and panic only when appropriate. I found the exercise so incredibly worthwhile that I thought I would share the process here. The questions I focused on contemplating were:

(1)  What are my financial “golden rules” that should never be broken?

(2)  What amount is a comfortable safety net to always have in the bank?

(3)  Under what circumstances am I willing to take on dept?

(4)  What kind of ongoing financial support would I accept/do I expect from my parents? (I guess the flip of this for parents would be, “What do I expect to provide to my adult children?” And maybe as we get older it shifts into, “What do I need to provide for my aging parents?”)

(5)  What are my priority spending areas? What things are important to me and worth financial expenditures (at whatever level is appropriate for my current financial situation)?

(6)  What are low priority spending areas?

(7)  For “rainy days” (literally or figuratively, whenever you have a really bad day), how much would I be willing to spend on a short-term fix? (Almost definitely depends on how regularly you have bad days.)

After I thought thoroughly about these items, I felt so much better about my splurge trip. Given my financial situation and my financial priorities, it was absolutely appropriate. I’m going to go back and revise my guiding principles periodically, and certainly whenever I have a change of financial situation. And of course there will always be times when an exception needs to be made. But in the end, I made this agreement with myself:

My financial life is mine alone. I will gauge my financial decisions on these guiding principles and not on the opinions of others. I shall work hard to never judge the financial decisions of others because their guiding principles differ from mine.

A few days later, I was reading the Dhammapada (the scripture for Hinayana Buddhists, I'll do some more writing on this later) and my favorite section of that is actually very similar to the agreement I wrote for myself, though it's about morals rather than finances. An excerpt:

First once must establish one's own high moral principles... Let one mold himself in accordance with the precepts he teaches... One should not neglect one's one moral good for the sake of another's... Let each one embrace his own truth and devote himself to its fulfillment.