Savings, debt reduction, and wise spending are not financial tools…
they are the RESULT of well-built financial tools.

The tools you are using to make financial decisions may be garbage…

Some of them are solid, some not so much. Sadly, the tools, rules and tips we remember easily and regurgitate quickly are frequently not working.

Chestnuts like:

“Spend on what you need, not what you want.”
“Save for a rainy day.”
“Have 3 months worth of expenses saved up.”
“Just get your shit together.”
“Buy a home and you’ll be ok.”

Let me be crystal clear, here. I am not saying that we shouldn’t have savings, that people shouldn’t spend on what they need, or that no one should buy a home. What I am saying is that the above are not financial tools. They are the natural, almost accidental result of well-built financial tools.

The perfect financial tools are simple, not simplistic.

Let’s go over some rules I use to determine if a tool someone is using is serving them well, or if it’s just garbage they’ve heard and said so many times that they believe it’s true.

(As a bonus, it doesn’t matter what kind of tool we’re evaluating here. Indeed, you could use these four questions to evaluate how well a parenting philosophy is working, or how well your strategy for job hunting is serving you.)

Rule #1: Is it Judgmental?

The quickest way to tell if a tool is judgmental is if you feel like shit when you try to use it. If you feel like you’re setting yourself up for failure, or if there’s any part of your internal conversation that reminds you of other times you tried and failed, the tool is the problem, not you.

We tend to fail ourselves before failing the tool. We see those around us (supposedly) focusing on their needs over their wants or having their shit together and wonder why we can’t do that too. I hear this when my clients say “I don’t know what’s wrong with me… everyone else can make good financial decisions!”

There’s nothing wrong with you. You’re just using a broken tool. But we’ve heard that piece of financial “wisdom” a million times, hell, we’ve SAID it a million times, and no one has ever given us another option. And because we get dialed in to thinking that we’re the problem we never look for other tools.

Judgment, shame, guilt and regret are often conflated with change and progress. Make no mistake, you can grow and change without shame.

I appreciate that judgment is an attempt to use our past choices and mistakes to make better financial decisions in the future. It’s not working. If shaming ourselves was going to work, we’d all be perfect by now. In fact as we shame and fail ourselves over and over, judgment only makes accountability harder.

Best/Worst example of a judgmental financial tool:

“I just need to get my shit together.”

Rule #2: Is it Customized to Your Life?

Parenting is a good analog for needing personalized strategies and tools. The techniques that proved effective with your three-year old will not work six years later, or even six weeks later, nor should they.

Impersonal, prefabricated financial decision tools do not allow for change. And if there’s one thing I want for my clients, it’s change.

What we’re going for is the perfect balance between structure and flexibility.

A well-structured financial tool allows us to carry forward our goals. The structure itself is essentially instructions to future versions of ourselves about what our values are.

An appropriately elastic tool allows for planned changes towards a goal, but also for life’s surprise emergencies and opportunities. These adjustments are essentially grace for future versions of ourselves.

The effort needed to develop a properly personalized financial tool is decidedly front-end loaded. The first time I walk a client through a Zero-Based Budget (ZBB) it typically takes an hour or more, but represents many hours of tracking, awareness, decision making and prerequisite skills. A couple months later that same client is completing their monthly ZBB on their own in about 15 minutes. (More on this in Rule #3)

Best/Worst example of a prefab financial tool:

“Save 10% of your income.”

Rule #3: Is it easy to use?

This may seem counterintuitive considering a well-built tool must be customized to your life. But customization doesn’t mean complication, instead it should mean that it fits so seamlessly into your life and becomes easier to use over time.  If a strategy is making it easier to make better financial decisions over time, it’s a good one!  If you’re getting inconsistent results from that strategy, it might not be worth your time to keep using.

Paradoxically, the most complicated pieces of advice are sometimes misrepresented as elegant wisdom. “Live below your means” is a perfect example. One cannot easily or quickly change their lifestyle. Our lifestyle has thousands of moving parts, from where we live to what we eat for breakfast, and all of that is impossible to even attempt to change without a long-term, complicated strategy.

Best/Worst example of an overly-complicated financial tool:

“Live below your means.”

Rule #4: Is it working?

What we’re asking here is: is the tool working? Not: is the person using the tool doing it right? If you’ve been trying to get the “needs not wants” rule to work for years, there has to be a point where you get to ask yourself: “Is this rule working?”

This disconnection between the tool not working and the person not “doing it right” is crucial. If you are attempting to hammer in a nail with an Allen wrench you likely wouldn’t tell yourself you’re really bad at hammering nails or you need to try harder, you’d probably find the right tool for the job. That’s all we’re doing. If a rule, tool, tip, hack or strategy you’re using isn’t working, it’s ALWAYS ok to ask if it’s the wrong tool.  And I know I’m repeating myself, but this applies to financial decisions as well decisions you make in any domain of your life.

Listen to your internal conversations… if you find you’re telling yourself “I just need to [fill in blank]…” take a beat and ask yourself if that little snippet of advice is working.

If it is working why do you need to keep reminding yourself?

Best/Worst example of an non-functional financial tool:

“Keep your receipts so you know where your money is going.”

Final thoughts on Financial Decision Making Strategies:

Which conventional financial decision making tool rings in your head? Can it pass these four rules?

What piece of financial advice are you currently using that passes all the rules?

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Last updated: Oct 2023