What To Do With My Money: Overcoming Decision Fatigue Using Values Based Planning
When it comes to our money, it can be hard to know which high yield savings account to open, when to negotiate a raise, how much to contribute to retirement, and what to prioritize. AKA the answer to the irritating question “what should I do with my money?”
I’ll cover:
Understanding decision fatigue
Why decision fatigue is so difficult when it comes to personal finance
Values-based financial planning
What Is Decision Fatigue?
Decision fatigue is a phenomenon that occurs after a long period of decision-making, which spoiler alert, is basically all of us all the time. It’s likely worse toward the end of the day because the average person makes between 10-25k decisions each day. Your brain is literally tired of making choices and deciding on things, and you lose the ability to make rational decisions in alignment with your values, energy, and needs.
How To Overcome Decision Fatigue
Overcoming decision fatigue comes from planning ahead and making rules or guidelines for decisions. Growing up, my mom used to make my sisters and I lay out our outfits the night before. I’m sure she was doing it for her sanity to reduce the chaos of getting five children out of the house on time for school in the mornings, but she was also folding in the benefits of reducing decision fatigue.
What to Do With my Money
I talk about three pillars of financial knowledge and action steps that can help you answer the question “what should I do with my money?”
Spending plan. Understanding your monthly cash flow. This is also known as a budget or ensuring that you are bringing in enough money to cover necessary expenses, ideally with money left over. I talk about the benefits of increasing income and reducing expenses in podcast #77 “Ways to Earn and Save More Money.”
Short-term goals. Having a fully-funded emergency fund (start with $1,400, and work your way up to having 3-6 months of expenses), regularly funding sinking fund accounts (such as car insurance premiums, car maintenance, etc). saving for other money goals for things like travel, a new car, a fresh tattoo, etc.
Investing in your future. This category is pretty broad, but it includes making regular contributions to a retirement account, life insurance, will & trust, power of attorney, saving for college for yourself or your dependents, saving for long-term care, paying down consumer debt, and paying down student loans.
What Should I Do With Extra Money?
You have to decide what’s best for you when it comes to dealing with extra money. You can prioritize what needs to happen first. Review the three pillars of personal finance laid out above to determine what you should do with extra money. For some folks, that might be bulking up an emergency fund, whereas for others they might want to prioritize paying down student loan balances.
What To Do with Retirement Money
When it comes to knowing what to do with your retirement account, my first recommendation is to make sure it’s in a tax-advantaged account and make sure it’s invested and not just sitting in cash or bonds.
There are two main types of tax-advantaged accounts: a ROTH and a traditional retirement account. A ROTH means your money is taxed now and you don’t pay taxes when you hit retirement age. A BONUS if you qualify for a ROTH is that your contributions can be used as an emergency fund. There is an income limit to qualify for a ROTH, before opening or contributing to one, make sure you meet the criteria.
Non-ROTH retirement accounts are ones like a 403b, 401k, or IRA, etc. are not taxed now but are taxed later. If you are traditionally employed, see if your employer offers what is called a “match,” where they contribute directly to your retirement account. Usually, you have to put in a certain percentage of your income to qualify for a match, but a “match” is essentially free money. Make sure to take advantage if an employer match is available to you!
If you are working on making more contributions to retirement, you can make a rule or guideline that anytime you get a bonus or a raise, you put a portion of it toward your retirement. Making decisions in advance about what to do with your retirement can help reduce decision fatigue when it comes to your money. Check out the guest post by David Frank on when it might be time to hire a financial planner.
Values-Based Financial Planning
Values-based financial planning will help you build a financial plan that is fully aligned with your values. Value-based financial planning is exactly what it sounds like: it’s creating a financial plan and goals in alignment with your values and unique needs, rather than applying blanket advice to your money.
Maybe you value sustainability and that means your values include things you don’t want to do. Let’s say you have no desire to own a home. Or work until you’re 67. Or pay for a new car every 3 years. Maybe it’s important that you don’t own stocks that are known for being an environmental disaster. Then not doing those things would be in alignment with your goals and values.
On the other hand, let’s say that you value community and family. Therefore, you want a home that can accommodate large family gatherings, but you don’t really care to spend a lot of money on clothes or take out. In that situation, saving money up for a larger home or a home addition instead of spending a lot of money on clothes and take-out would be in alignment with your values.
Spending, saving, and investing in alignment with your values helps with decision fatigue because you are coming back to the values that guide your financial decisions.
Overcoming Financial Decision Fatigue
We covered what decision fatigue is, tips on automating decisions to dial down decision fatigue, how to answer the question “what should I do with extra money?” In short, when you have your values and goals sorted out, it makes it so much easier to make financial decisions.
If you are a health and wellness provider that has been ruminating on a few things about your business and need outside, expert guidance to help you create a plan and start taking aligned action, book a 60-minute Power Session with me! A Power Session may be right for you if you are curious about private practice coaching but aren't ready to join my group coaching program for therapists. Hope to collaborate with you soon, thera-friend.
-
Have you ever had that experience where you go out to a restaurant and you sit down, and the server hands you long menu and not just a long menu, but like a book, it's got a page of appetizers and a page of salads and a page have soups and a page of vegetarian dishes and a page of meat dishes and a page of desserts. And when they come by to ask you for your order, it can feel incredibly overwhelming and stressful, and like you can't make a good decision. Like there's just too many options to possibly narrow it down and make a wise and informed choice. Now, have you ever had the opposite happen, where you head into a restaurant, and the server hands you the menu, and it's essentially like a three by five, okay, maybe that's a little small, like a five by seven card that says, Here are your two appetizer options. Here are your three main course options. And here's your one dessert option. And when that happens, how much easier it is to place an order because you aren't overwhelmed by page after page after page of different types of food that you might want to eat. That is an example of decision fatigue. The first example with the book as a menu contrasted with a smaller, more curated menu, which makes it so much easier to make a decision. So what is a giant menu have to do with money? Well, here's why. We all struggle with decision fatigue. Fun fact we make between 10 and 25,000 decisions per day, per day. This is everything from Should I put milk in my coffee to Should I drink a black? Should I wear like the wool socks that come up to my knees or the wool socks that come to my ankles? Should I walk to work? Should I bike to work? Should I log in now? Should I log in later? All of those things and it is exhausting. So if you think about how decision fatigue impacts our relationship with money, of course, it can be overwhelming. You know, it can be hard to know which high yield savings account to open, when makes sense to negotiate a raise, how much you should be contributing to retirement and what to prioritize. In today's episode, I'm covering financial decision fatigue, aka the answer to the really irritating question: What should I do with my money? Listen for tips on understanding decision fatigue. Listen, for me covering why decision fatigue is so difficult when it comes to personal finance and an intro to values based planning.
Decision fatigue is something that occurs after a long period of decision making, which is basically all of us all the time and it's more likely worse toward the end of the day, or particularly at the end of the of the week, and the week is different for you depending on your workweek, your brain is literally tired of making choices and deciding on things. And you lose the ability to make rational choices and decisions in alignment with your values, your energy and your needs. Money stuff is even more complicated when you layer on decision fatigue because when you're trying to make a decision, like which checking account should I decide on? It can be so overwhelming to be comparing all of the various checking accounts available do Should I go with a credit union? Should I go with a bank? Should I go with an online service provider? What benefits do I need? What fees do I have to worry about it is exhausting, right? And then layer on top of that all the noise in the personal finance space that's telling you, You need to do this, you need to do that if you're not doing this, you're bad at money. So it can be so so exhausting and what we want to do is start creating rules and guidelines and guardrails. So that when we have to make a decision about money, which happens all the time, it is easier to do because you reduce the amount of decisions you have to make about your money. Let me give you an example of how to overcome decision fatigue that has nothing to do with money. When I was a little kid. My mom used to make my sisters and I lay out our outfits the night before. I'm sure she was doing it for her sanity to reduce the chaos of getting five children at a house on time for school in the mornings. But what she was also doing was folding in the benefits and teaching us the value of reducing making decisions when our brains aren't fully ready. She knew that at 6am or 6:45am, a bunch of kids were not going to have the brain capacity to decide what to wear. So she always said, You need to have your outfit ready to go the night before. And that helped us to not have to stand in front of our closet and throw huge fits in the morning because we'd already made the decision the evening before. So how can you take this laying out your outfits the night before and apply it to your money? You need to first figure out what you're working on, what are you working toward, and what is important to you.
When it comes to what to do with your money, of course, you have to make the decisions, but I typically talk about three pillars of personal finance. And this is more about the financial knowledge and the financial, tangible steps and action steps. So I think about the first pillar is being your spending plan. The second pillar being your short term goals. And the third term pillar being your long term goals. So when we think about your spending plan, that is also known as the dreaded b word that is known as the budget. So knowing how much money is coming in, and how much money is going out each month, and making sure that you have enough money to pay for your expenses and hopefully have a little bit of money left over. If you don't have enough money left over at the end of the month, I would encourage you to go back and listen to the podcast on how to earn more money and save more money that will give you some tips to increase your income and decrease your expenses, s you can start making sure that you're hopefully breaking even, but hopefully in the future making sure that you're making more money than you're spending. The second pillar is all about short term goals. This is where things like an emergency fund comes into play, sinking funds. I defined sinking funds or regular expenses, as those one off things that happen a few times a year but don't necessarily happen on a schedule. So I live in the Midwest, which means every year I have to switch from regular tires to snow tires. So I know it'll usually happen in November, December, but it's not on an exact timeline. So I would use sinking funds to pay for that or to pay for things like an insurance premium for my car that happens every six months. Other types of short term goal are saving for certain things, things like saving for travel, saving for a new car or saving for gifts. That is a great second pillar of financial knowledge and Personal Finance information. And then the final one is investing in your future, making sure that you are contributing to a retirement account, making sure that if you're partnered or have children under the age of 18, or you care for somebody who's disabled, that you have life insurance, making sure you have a will and a trust in place, potentially having a power of attorney in place again, particularly important if you have children, or if you are taking care of somebody with a disability or if you have a disability, to make sure that in the event that you are sick or injured that people know what you want to have happen. I know it sounds really morbid, but in the event that something like that happens, you want your family members to know that they are taking actions that honor, your autonomy and what you want to have be done. So making sure to get that in place is a way of investing in your future. And I do consider that to be a financial checkbox. Other things include saving for college, either your own or the people you care for. Investing and saving for long term care. Since we live again, I'm speaking through the lens of being in the United States. The our government really doesn't care about us when we get. So you have to save up money for that. Paying down debt, whether it's credit card debt, student loans, mortgage, anything like that, all of that can be investing in your future. So when it comes to decision fatigue, you should prioritize what you need first, meaning if you don't have a spending plan in place, get that spending plan in place, and then you can go, Oh, if I have extra money, then I can put it towards these other things like an emergency fund or like paying down credit card debt or like investing in my retirement. I can't really answer the question, What should I do with extra money without knowing what you're working on, but you get to make the decision about what to do with that extra money by kind of reviewing these three different pillars of financial knowledge and action steps.
When it comes to retirement money, it's really important to make sure that you are actually having your money set aside in a tax advantaged account. These are typically the things that sound like 403 B's 401 K's IRAs, Roth IRA, etc. And the other thing about having a tax advantaged account is making sure the money inside of it is actually invested and not just sitting in cash. I've had several clients, sadly, who had been contributing to retirement. And when we actually went in and looked at their money, they never made decisions about what would happen to it. So it was literally sitting in cash--one was sitting in cash for over four years. And what does that mean? It means that is not an earning interest, and particularly compound interest, which is what helps you accelerate the rate of money in those retirement accounts. There are (I'm oversimplifying this retirement piece) but there are basically two types of tax advantaged accounts in the United States. One is a Roth, and one is, not surprisingly, not a Roth. Roth just means that you pay taxes now, and and then whatever money you invest into that retirement account, when you hit retirement age, what you see is what you get. You are not taxed on the withdrawals, your tax rate now, but you are not taxed on the withdrawals. A special bonus is if you qualify for a Roth, either a Roth IRA or a Roth 401K is that it can be used in an emergency fund or as an emergency fund. The asterisk here is that in order to use a Roth as an emergency fund, you can only take out your contributions, not the interest that you earned. So for example, if you contributed $1,000, to a Roth, and over several years, you've earned $250 on it. And now in your Roth, you have $1250. In your Roth account, if you needed to use it for an emergency, you could only ta,ke out that initial contribution of $1,000, not the entire $1,250. As always, check with the financial advisor or tax advisor for your unique situation. But it can be a nice way to kind of have your cake and eat it too, meaning you can invest in retirement and also kind of have one place for your emergency fund. Now some people say not to do that. I personally have my emergency fund and a high yield savings account. But I like to have that Roth available as like a break glass in case of emergency situation. I hope that makes sense. Now non Roth accounts. So these are things without that Roth in front of them 403B, IRA, 401K, you are not taxed on them now, but you are taxed on them when you remove the funds at retirement age. If you know that you need to be putting additional money into a tax advantaged account. This can help with decision fatigue. If you've already made a rule that if I have money leftover at the end of the month, it will automatically go into a retirement account. That is a great plan or a great rule to prevent you from overthinking and stressing out. If you have additional questions about whether or not your your retirement plan is on track, you might want to consider hiring a financial planner or advisor; I have a great guest post by David Frank, who shares a bunch of questions that you can consider for yourself, that might be hints that it might be time for you to hire a financial planner. And in that post, he also includes things to ask a potential financial planner before you make the commitment to hire them.
Other things that can help with financial decision fatigue is practicing values based financial planning, values based financial planning is exactly what it sounds like. It makes sure that your financial plan is fully aligned with your values. So let's say you value sustainability and it means your values might include a bunch of things that you don't want to do that maybe the personal finance world is saying you have to do if you want to be stable, blah, blah, blah. So maybe you value sustainability so much, and that was one of your leading values and you don't want to own a home. You don't want to work till you're 67. You don't want to buy a new car every three years or lease a new car every three years. You don't want to own stocks that are known for being environmental disasters. That is an example of values based financial planning, just as much of what you want to do, the things that you don't want to do. Let's take another example that might help you kind of flesh this out. Let's say you value community and family and in your values based financial plan, you want a home that has a large space to accommodate big family gatherings, but you really don't care to spend a lot of money on clothes or takeout. Then you can kind of shift your Financial Planning in accordance with saving up money for a down payment so you can purchase a home that can accommodate those big family gatherings. Again, coming back to what are my values and when you're making financial decisions, and you're experiencing decision fatigue, kind of running it through is this in alignment with my values. So let me just kind of recap here. When you are experiencing financial decision fatigue, first and foremost, turn off the noise of what you should or shouldn't be doing with your money and come back to what you need to be doing with your money, whether that is extra cash, whether that's retirement money, or whether that is planning ahead for future goals. Think through the three different pillars of personal finance your spending, plan short term goals and investing in your future and see if there's any of those three that could use a little bit more TLC when you are experiencing decision fatigue. Automate these decisions as much as possible to help dial down that decision fatigue. To help you answer the question, What should I do if I have extra money? In short, when you have your values and goals sorted out, it makes it so much easier to make financial decisions. And if you're a small business owner, I know that you're probably experiencing decision fatigue about what you need to be doing to set and achieve goals for 2022. Meaning there's so much noise out there about what you need to be doing to grow your business. And I want to kind of give you a little peek behind the scenes of what was going on for me and my business. Last month. I'm recording this in November. So I was looking back at what was going on in October, and I added 25 clients to my waitlist. I already have a full practice, but I added 25 clients in the month of October without doing any reels on Instagram. No posts on Facebook, I have not been there since anti-Asian hate exploded in February, no TiK Toks, no IG lives, no YouTube videos, no additions to any therapists directory profiles, no networking meetings and no tweets. This is not magic. I did not just like fall asleep and all of a sudden they had a million people on my waitlist. That's not what I'm saying and I'm not trying to like sell that at all, but I did this through patients, which is if you ask anybody in my life, probably one of my least good strengths, my worst strengths. It's a struggle for me. But I really think about how I called in aligned clients without getting trapped in that decision fatigue of should I be doing reel? Should I be doing Tik Tok, should I be doing this that and the other thing, it's like, ugh--I know who I can help, who I can't help and I came back to what I needed for me in my business. This year 2021, I said that I wanted my business to feel simple, easy, and aligned. So I kind of run my marketing and my business decisions just like we talked about today and decision fatigue through those three criteria. And if it feels like it is not going to be easy, simple or aligned, I'm saying no to it. And for a long time, the things that I listed off have not really felt easy, simple or aligned. Instead, I show up here on my podcast, I show up in my inbox. And I show up on my blog. And I like Instagram for connecting to other people, particularly other small business owners. I don't necessarily use it to find or attain new clients. I think what happens is people find me on Google and then they vet me over on Instagram. Anyway, I digress.
If you are listening to this in real time and your small business owner experiencing decision fatigue, I would love to invite you to a goal setting workshop that is happening tonight. It's $29, everyone who registers will get the replay and I will be leaning into all of my Virgo qualities, which are all about planning and goal setting and also, you know the Scorpio side of me that's like let's get rid of the stuff that is not serving you. It is a not a place where I'm going to be giving you a bunch of strategy or telling you how to earn six figures or any of that, it is going to be a place where we are going to come back to how do you want to feel in 2022.. What are the things that are going to move the needle in your business the most and how can we cultivate one goal that will ground you in route you throughout the year, so when 2022 hits you have a plan ready to go. To register head to my website, MindMoneyBalance.com/Events and again, I hope to see you there.
Transcribed by https://otter.ai