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Three Absolutes that Belong Together

On every performance appraisal form I have worked with, a question has been asked about the use of financial resources. That question was an opportunity to talk about money strategy with my team of employees.

Whether we work in an office, work at home, or don’t work at all, most of us have never been formally taught how to make strategic decisions about money.

My experience is that many folks tend to make one of three global assumptions, and their choice of assumptions becomes their de facto strategy for financial decisions both at work and at home. The three global assumptions are these:

1. Money is meant to be spent. You have to spend money to make money.
2. Money is meant to be saved. The more you save, the more you earn.
3. The best bet is to ask someone else — get advice, or “persmission,” from someone who knows.

All three assumptions are useful — but only when taken together.

Taken individually, the three assumptions above become absolutes without balance. When we rely on only one of three, that assumption often works the opposite from the way a strategy should. We tend to use our chosen one of the three to avoid having to think through a decision. We turn the above assumptions into rationalizations. Each one of the three keeps us tied to the belief that only some people know how to deal with money decisions, and we’re not in that group.

If we look at a decision and at each assumption, we can develop a framework for how to approach money decisions.

Sample Decision: Do I need the latest upgrade for my computer?

Money is meant to be spent.

That’s a nice thought. It’s also a nice way to empty a bank account. Fast adopters tend to favor this assumption.

Money is meant to be spent when it will give us a greater return than not spending it will.

The key here is whether the new upgrade will pay for itself in productivity, quality of life, or other tangible or intangible benefits. In circumstances such as this, here are some of the “go or no go” questions.

• What benefits will this purchase bring me, my clients, my family? Are these benefits worth more than the purchase price?
• Will this purchase bring me more time, more productivity, more ability to serve my clients, more efficiency, more quality of life? In other words, can I turn this purchase into money; use it to lighten my workload; or to improve or better balance my life?
• If I wait to buy this item later, what will I lose while I wait? What opportunity am I giving up by buying this item now?
• Do I have the cash flow to pay for this? If I’m putting this on charge card or increasing my debt, what is the real cost of what I’m buying when I include the interest and finance charges? — Are the benefits still a good return at that price?

Money is meant to be saved.

Saving money is good. So is spending it wisely. Slow adopters and folks who don’t like change — two different groups — sometimes save when they should spend. A friend of mine calls this “thinking poor.” They are often caught without the right tool for the job. This can mean more work at a lower pay rate.

I repeat, money is meant to be spent when it will give us greater return than not spending it will.

Here are some of the “go or no go” questions for folks whe are biased toward not spending.

• If I don’t buy this now, what extra work will I be doing? What opportunity to become more efficient will I miss? Is the cash value of the opportunity greater than letting the cash stay in my account?
• What will it cost to save the money? Would making this purchase be an investment that would gain me more time, more productivity, more ability to serve my clients, more efficiency, more quality work, more quality of life?
• What will I lose, if I continue to put off purchasing? Am I saving money at a long-term cost?
• Is my money just sitting in an account, when it could be working for me? If I bought new tools and equipment, would I be more efficient? If I hired part-time help, would I be able to handle more and higher-level work, or spend more time living my life?

The best bet is to ask someone else.

Actually the best advice is to be that someone else.

Money decisions are like other decisions. They require looking at options and possible outcomes. In the end, every money decision comes down to one basic premise.

Money is meant to be spent when it will give us greater return than not spending it will.

I know. I know. This is the place where you say. “Okay, Liz, the horse is dead.”

Sorry, I thought the horse was still twitching.

Truth is, if you can explain how spending money on what you want will deliver a tangible or intangible return that people care about, they will spend their money to invest in what you propose. That’s not selling, that’s helping folks reach their goals.

Solid strategy is simple and makes sense.

–ME “Liz” Strauss
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