Want Less Money Stress? Here's What You Should Focus On
Most people act like attention is an infinite resource and it's costing them bigtime
“Tell me what you pay attention to and I will tell you who you are.”
– Jose Ortega Y Gasset.
To rephrase that quote in the context of your financial life:
Tell me what you pay attention to, and I will tell you the state of your financial life.
When it comes to paying attention to your money, you have three choices:
Not thinking about it at all (bad)
Focusing intensely on every detail (also bad)
Knowing which issues deserve your attention and when (good)
Focus on issues with the highest ROI
We use the phrase “paying attention” to describe the issues we focus on. A more helpful way to frame it is to think of attention as an investment. The more attention you invest in a particular issue, the greater your chances of success.
Attention is also a finite resource.
If you try to focus on everything, you focus on nothing. You need to prioritize investing your attention in the issues with the highest Return On Investment (ROI).
To illustrate my point, I’ll highlight two areas of your financial life— spending and investing—and give examples of low vs. high ROI issues.
Spending money
Personal finance gurus make you feel like a failure with money if you buy a latte or go out to dinner.
This kind of small, variable spending is a perfect example of a low ROI issue that does not deserve (much) attention.
These are small purchases that happen every day. Remember that attention is a finite resource. Dedicating your attention every single day to a $3 problem like a cup of coffee is a quick way to burn through our attention.
A high ROI issue to focus on is your fixed and recurring spending.
Examples include:
Housing costs
Transportation costs
Internet
Cell phone
Gym memberships
Netflix and all other subscription costs
There are two reasons why fixed and recurring expenses deserve your attention:
This is where the lion’s share of your money goes. Find me a person who spends more money on coffee than housing.
Cutting these costs requires a one-time investment of your attention.
That second point is critical to understand.
Let’s say you cut out $350 in recurring or fixed expenses. That likely required a lot of your attention to track and prioritize your spending and find places to make cuts.
But, once you’ve made that upfront investment, you continue saving $350 every month without investing another second of your attention on the issue.
Compare that to focusing your attention on cutting out your daily latte. That requires your attention every single day to save yourself $3-$5.
By focusing on fixed and recurring spending, you invest your attention once and reap the financial rewards every month going forward.
Once you make the investment of your attention and cut your fixed and recurring expenses to where you want them, then it makes sense to review your small, daily purchases to ensure they are within reason—but as a rule of thumb, focus on your fixed costs first.
When it comes time to focus on your small variable spending, the goal should be to focus on cutting out your impulse buys which are purchases you never intended to make and provide no value.
Think of the $15 magazine you throw in your cart while waiting in line at the grocery store checkout. You went to the store to buy groceries—not a magazine—and odds are you read less than half the articles in the magazine.
It’s worth noting that impulse buys are a specific and harmful subsection of your variable spending. If you are a coffee lover, buying your daily latte should not be considered an impulse buy but a deliberate use of money to buy something you enjoy.
I previously wrote about financial self-control, which helps you avoid impulse buys.
The TLDR version: self-control means making a plan to avoid tempting situations altogether rather than relying on “willpower.”
You can read the full article on building financial self-control here:
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Investing
Investing is the #1 financial issue where people put their attention in the wrong places.
Many investors pour all their attention into maximizing their investment returns.
In chapter 7 of my upcoming book, The Investor’s Mindset, I explain the irony of focusing attention on trying to pick stocks and time the market in an effort to outperform. Not only do these activities have zero expected ROI, they often cause investors to lose money.
In that chapter, I go on to explain that the issues investors can control—and therefore deserve your attention—are how much you invest, how long you keep your money invested, asset allocation, and minimizing fees and taxes.
If your goal is to build wealth, focus on finding more money to invest and pay zero attention to actively managing your portfolio.
Final thoughts
Financial issues that deserve your attention fit two criteria:
You have the power to change the outcome.
Changing the outcome will have a material impact on your finances.
Financial issues that require a one-time investment of your attention—like cutting down fixed spending or choosing an investment asset allocation—are typically where you want to prioritize your attention.
The final thought I will leave you with is that automating as much of your financial life as possible can help cut down on low ROI decisions and free up your attention for the issues that really matter.
For example, once you’ve figured out how much to contribute to retirement savings automating those savings frees you from having to waste your limited attention on manually transferring the money from your checking account each month.
You automate your savings and bill payments for the same reason Einstein wore the same clothes every day; it allows you to focus on the issues that matter most.
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This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.
You need to find some good money mentors.
People you know are sensible who have driven value over the long term.