The resounding advice for someone looking to control their finances is to know your finances. We all hear this advice: you should know how much money is coming in, how much money is going out, and ultimately where that money is going. Similar to many others, I did not follow this advice for a long time. And I don’t regret it.
There are two ends of the money management spectrum: the ostrich and the hawk. As you might imagine, the person who spends without thought is the ostrich. They hide from the truth, burying their heads in the sand and hoping money problems will subside on their own. A hawk keeps a watchful eye on her finances. She knows when she’s been double charged at a restaurant, and can tell you whether or not she paid the expected amount for utilities in July.
I began as an ostrich, which was actually a choice I made with intention. I did not want to know what I made. I did not want to feel the money burning a hole in my pocket, so I pretended like it did not even exist. I worked summer jobs and stashed the money away, but I did not take a hard look at the number on the check. I had no idea how much I had coming in, and likewise, I had no idea what I was spending. All I knew was that I was not spending more than I had because I only paid for things in cash. Everything else I deposited in my bank account which grew like a wild, unattended garden. I lived in artificial scarcity, feeling the budget constrict when cash reserves ran low.
Ostrich Money Management
1. Remain ignorant to stock market swings
No doomsday articles bothered me, because I did not read them. My money stayed invested through wild ups and downs in the market that I did not even know were happening.
2. Spend based on estimates of bank balance
This can be most ostrich’s downfall; the typical pattern is to spend more than you have. However, it can play the opposite way as well. I thought I had much less money and I based my spending patterns around that.
3. Ignore “great bargains”
I stopped watching television and the lack of ads meant I desired less. I disregarded coupons that promised a ‘free dessert’ with purchase of an entree. Ignoring promises of ‘fantastic savings!’ meant I spent less.
Of course, there are many downsides to being an ‘ostrich’ money manager. You are at risk for spending more than you make. You might let your money sit in a money market account earning only 0.01% interest. Debt can mosey on over and start raiding your nest while you pretend like it does not exist. To take control of your finances, it is critical to evolve from an ostrich to a hawk.
Although most of my early life I managed money like an ostrich, I did slowly begin my money management evolution. I began by reading about personal finance. I opened a new account with a local credit union when I moved and started a 401k with my new job. My money was spread across separate accounts, and I only had a vague idea of how much was in each one. At first, I did not trust websites like Mint and Personal Capital.
You want me to input my username, passwords, and security questions into this random site? No thanks. However my friends started showing me their apps, I read up on the security the sites use, and one night I sat down and signed up for Personal Capital (affiliate link). I hooked up my accounts and watched my net worth tick higher. All at once I yanked my head out of the sand.
Suddenly I had a flyover view of my finances. Over time I explored areas I had never dared to venture before, selling stocks with high expense ratios and curating my investment portfolio. There are indeed benefits to being a hawk:
Hawk Money Management
1. I ensure my spending aligns with my values
My third highest expense line in Personal Capital was always for insurance– for a car I rarely drove. I value my daily bike ride and a monthly pass to the rock climbing gym, but I don’t care about having a second ‘fun’ car. With that awareness, I finally worked up the effort to sell my dream car.
2. I prioritize my spending
I’m a naturally frugal person, but having a budget means I can mindfully prioritize what I spend money on. Rather than eat out, I started packing lunch. I have other things I want to spend my money on, like future freedom.
3. I know I’m living within my means
When you are an engineer, people are going to tell you that ‘you can afford it,’ whether or not they know if you truly can. With a firm handle on my finances, I know whether or not I can afford something.
There are downsides to being a bird of prey. Scrutinizing the little choices makes you sometimes forget about the bigger picture of finances. If you narrow your focus, you may concentrate too much on the end goal and not enough on the journey.
Ultimately I think to make big strides with ones finances, one needs to get their head out of the sand and learn to fly. However, there is a balance to these birds: keep a watchful eye on your target, read up to get a bigger picture, and take control of your finances. Learn from the ostrich by ignoring the stock market, but don’t let ignorance dominate your money management habits.
What bird are you: an ostrich, a hawk, or some other feathered friend? Leave a note in the comments below!
(Note: Apologies to the ostrich– as their head-burying when faced by a predator is actually a myth. For the sake of this analogy, I hope they forgive me!)