Living a Good (Financial) Life

"'To invent your own life's meaning is not easy, but it's still allowed, and I think you'll be happier for the trouble."

-Bill Watterson

Imagine you're in the woods. You don't really know where you are, but you know you need to go somewhere. Before you figure out where to go or what path you should take, you need to first figure out where you are. Once you know where you are, it makes sense to figure out why and how you got there so you don't make the same choices when you start your journey. Next, you get to decide where you want to go and figure out how to get there.


Hiking can be fun, but if your objective is to hurry up and get home so you can throw your backpack off, you're missing the point of the journey. Hiking isn't the same as walking on a treadmill; there will be challenges and setbacks, but overcoming those is what makes it fun.


Living a good financial life is much the same as this hiking scenario. You have to understand where you are, figure out where you want to go, figure out how to get there, and understand ahead of time that there will be challenges and setbacks. If you don't like hiking or haven't hiked before, this analogy isn't great, but I hope you can still see the big picture.


What follows is an outline of the steps you can take in order to live your best financial life.



Knowing Where You Are


The first step toward a good financial life is understanding your current situation. This includes financial statements like your cash flow statement (how much money is coming in versus how much is going out) and net worth statement (what you own and owe), but also what your current behaviors are. What are your thoughts and beliefs about money? What do you not like about your situation? What are you doing well in your current reality?


Getting crystal clear about your current reality will help you define what's possible and how you can achieve what you want out of life.



Money Scripts


Knowing where you are includes knowing about your behaviors and beliefs about money. These are called money scripts. Money scripts are unconscious beliefs that we have about money that drive our financial behaviors. Sometimes we develop scripts that may have been helpful in the past, but we've grown out of them. Other times we develop unhelpful money scripts right away. Without self-exploration, we are completely unaware that we have these beliefs.


Identifying and changing unhelpful beliefs needs to be done if we want something different to happen.



Values and Purpose


Once the path is cleared for you to design your life, you get to decide what kind of life that will be. Get clear about your values so that you know what you want your money to support. What's the money for? Taking some time to determine what money's role in your life is will give you confidence, and that confidence will help you ignore outside influences.



Who You Want to Be


You already know your current reality, including your money scripts, and you know your values and what money's purpose is in your life. The next question is where do you want to go? You get to determine your ideal future. Sometimes it's helpful to think in terms of what kind of person you want to be. What would that person do? Imagine yourself in your ideal future state.


This choice is up to you.



Understanding Change


If you understand where you want to be and that place happens to be different from where you are, then you have some work do. You need to do something different from what you are doing now. Change is hard. Take some time to think about how important it is to make a change, and follow up with why it's so important. Likewise with how ready you are to change. Knowing it's important to change is different from being ready to change. Lastly, how confident are you that you can make a change. What are the traits you have that you can rely on to help you? What resources would you need to boost your confidence?



Systems Over Goals


As you think about your financial future, it's tempting to try to set goals. Goals, however, are outcome-focused. Outcomes are outside of our control. The systems we create, on the other hand, are fully (or at least mostly) in your control. Changing your mindset to think in terms of systems instead of goals will help you focus on things you can control while giving yourself permission to ignore things over which you have no control. Eventually, you'll be able to set up your systems in such a way that you're happy with any outcome you get.



Managing Your Cash Flow


Cash flow. This is what most people think about when they think about personal finance. In this sense, personal finance is quite simple. Here is the formula:


Expenses < Income


That's pretty much it. Your lifestyle has to cost less than you make if you ever want to live without income (aka retire).


The way to cut your expenses is not to simply look at your list of expenses and start cutting away. This is because our spending supports our needs and our values. When you start cutting out spending without exploring the underlying reason for your purchases, you are leaving needs and values unmet.


Take, for example, the common-picked-on expense of daily lattes. If you read an article about personal finance and then simply cut out your daily lattes, it's true that you'll save around $2,000 per year. However, without understanding why you made that purchase every day you'll be far more likely to go back to your daily habit of getting a latte.


Some of you might buy lattes strictly for the caffeine intake. In that case, you could save a lot of money by making coffee at home, or waiting to drink it at the office. But, if your coffee shop run was for socialization, taking a break from work, getting some work done, or because that's what others at your office do, then you'll want to spend some time figuring out how to get that need or value met in a less expensive way.


After you have developed a plan for your cash flow, it's great to automate and systematize whatever you can. Once you get your savings out of the way, you no longer have to worry about it. It's already being taken care of. You have permission to spend what's left over however you wish, and "however you wish" will transform into "supporting your values."



Money and Happiness


Money doesn't buy happiness, of course. That's a catchphrase that floats around social media in the form of memes. It's only partially true. It is 100% accurate in the sense that making more money or having more money doesn't make you any happier than making or having less (unless you are in poverty). On the other hand, how you use money can bring happiness. Buying experiences instead of stuff, giving to others, and buying time are great ways to use your money to bring you joy.


We have a tendency to take what we have for granted. This simple reason for this is that we are very good at getting used to our surroundings. Once we get something, it becomes part of us and any happiness or joy we had melts away quickly (this is why it's not a good use of money to buy stuff). We all have a negativity bias. Our ancestors simply had to pay more attention to stuff that was potentially deadly. Avoid a source of pleasure - no big deal. Avoid a source of pain or suffering - deadly.


Happiness comes, in part, from not taking your life for granted. You do this with gratitude. Give thanks. Count your blessings. Be grateful. Don't take your life for granted.



Expectations Management


Stop reading for a second and think about your ideal future. What does it look like? If you're like most people you just envisioned an easy life where nothing goes wrong. Am I close?


The problem is that you can never get rid of setbacks and challenges. If there were no problems and your current level of happiness become the norm, then you would have to feel extra happy to feel anything greater than baseline. And today's "normal" would be the new "sad" in this made-up world. It's the negative experiences that give the positive experiences more meaning.


Bad things will happen. The stock market will fall reducing your net worth. You will lose your job. Your income will be reduced. The company you work for will get sold. Someone will steal from you.


We don't know what the negative events will happen, we don't know how long they will last, and we're not guaranteed to know why they are happening to us. What we know for sure is that bad things will happen. But you don't have to just sit there and let them happen to you.


You can, for example, reframe setbacks as puzzles to solve. You know life will throw puzzles at you. Don't get mad or sad, instead, take on the challenge of solving the puzzle. You lose your job. Ok. That's an interesting puzzle. What can you do about it? Your company hired an outside person for the job you should have had? Shoot! What's your next move? There's an old saying that you can't control the cards you're dealt, but you can control how you play them.


Finally, negative events actually make you a better person. We need struggles so we can learn the lessons required to move forward with life. Challenges make us resilient. Even trees can't survive without wind.



Money Mindfulness


Money mindfulness is a term that I use to describe being intentional with your use of money. It doesn't mean you have to learn how to meditate (although becoming more mindful will help you detach from external circumstances and become calmer). It simply means increasing your awareness around your use of money.


Make financial decisions too early, and you're making impulsive purchases. In other words, your emotions are driving your decisions. Growing the space between your impulse and your purchase will bring the decision up to the conscious part of your brain. Money mindfulness means making sure every purchase supports your values and your needs, no matter how small.


Retailers have done a lot of work to reduce the pain of paying. In the past, we used to have to physically part with our money. We counted our cash, gave it to the seller, and received less money back (plus whatever we bought). If we used checks, we had to write out the amount of our purchase at least twice (three times if you recorded it in your check register). Today? Today we simply shove a card into a reader or pay with our phone. How much did you pay for lunch the last time you went out? If you're like everyone else you may know a range, but don't know for sure.


Money mindfulness does not mean shaming or blaming yourself for your purchases. Money mindfulness simply brings your spending back into your awareness where you can make sure you are making your decisions with intention and purpose.



Better Money Conversations


Fighting about money amongst couples is quite common. Part of the reason is that money is a taboo topic. Another reason is that money is deeply personal. Mostly, though, it's because we tend to try to push our views of money onto our partners.


Everyone is a little weird when it comes to money. We all have different backgrounds and money histories. Further, money causes us stress, and when we're stressed we no longer talk like adults. We jump to conclusions - the wrong conclusions. We believe our partner, who was simply trying to communicate a fear or a request to us, is trying to put us down.


The key to better conversations about money is to stop trying to win the conversation. Stop trying to prove how smart you are. Instead, seek to understand your partner's point of view.



I think you can live a great financial life. I think you have a good starting point by reading this article. If you find yourself wanting guidance, you can check out the online program I created on achieving financial health.


Reduce your stress. Live your life on purpose. Align your money with what's important to you.


You only have one life. Live intentionally.




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Related Money Health® Reading
References and Influences

Scott Adams: How to Fail at Almost Everything and Still Win Big

Dan Ariely, Jeff Kreisler: Dollars and Sense

James Clear: Atomic Habits

Daniel Gilbert: Stumbling on Happiness

Derek Hagen: Aligning Your Money and Your Values

Derek Hagen: Healthy Money Conversations

Jonathan Haidt: The Happiness Hypothesis

Rick Hanson: Hardwiring Happiness

Rick Hanson: Resilient

Sam Harris: Waking Up

William Irvine: Guide to the Good Life

William Irvine: The Stoic Challenge

Daniel Kahneman: Thinking Fast and Slow

Brad Klontz, Ted Klontz: Mind Over Money

William Miller: Listening Well

William Miller, Stephen Rollnick: Motivational Interviewing

Sarah Newcomb: Loaded

Jordan Peterson: 12 Rules for Life

Massimo Pigliucci, Skye Cleary, Daniel Kaufman: How to Live a Good Life

Carl Richards: The Behavior Gap

Marshall Rosenberg: Nonviolent Communication

Simon Sinek: Start With Why

Richard Wagner: Financial Planning 3.0


Note: Above is a list of references that I intentionally looked at or thought about while writing this article. It is not meant to be a definitive list of everything that influenced my thinking and writing. It's very likely that I left something out. If you notice something that you think I left out, please let me know; I will be happy to update the list.


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Financial Therapist on Living a Good (Financial) Life

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