Meaningful Returns

Can you imagine how much more difficult driving a curvy back road would be if you had to keep your car inside two ruts, just big enough for your tires? It would be a nightmare. The slightest mis-steer would lead to overcorrection which would lead to you bouncing out of the ruts and easily spinning out of control.

Of course engineers in their wisdom have figured out that a better way to build roads is with banked turns and guardrails.

But some of us (typically type-As) have set up a financial reality for ourselves which more closely resembles the hypothetical above. We know we need to have some order in our financial lives, and we hate any sort of situation where uncertainty is present, so we set up spreadsheets and models to break all our spending into the smallest minutiae. But this is like building a road with ruts. It may seem like the wise thing to do, but in reality it can be a recipe for disaster.

For one, financial ruts can generate tremendous amounts of stress, as we must constantly be making decisions about every single purchase, no matter the size or substance. And we only have so much mental capital to spend on decisions. Secondly, whenever we (inevitably) fail to keep every line item of our overly-rigid budget WITHIN budget, we then shame ourselves or shame our partners or shame our kids, which leads us in some cases to tighten the budget, and in others to seek retail therapy, neither of which is what we actually need.

What we need are guardrails. They’re there, we know they’re there, and we know why they’re there. We hope not to hit them, but if we do, they do their job and keep us from going off the road into more serious trouble.