Tag Archives: Spending management

May200919

Liz Koh

0

Spending without Feeling Guilty

There are some people who have no qualms at all about spending every cent they have and perhaps every cent they can borrow.

Most of us, though, feel at least a twinge of guilt when we spend money on expensive or nonessential items.

There’s a little inner voice reminding us that we can’t really afford it or that we should be saving up for our retirement.

Feelings of guilt come from a combination of things we have learnt or observed in our childhood, our own life experiences and pressure from others.

While there are some people who you might call compulsive spenders, there are others at the opposite end of the spectrum who you might call compulsive savers.

They are so focused on saving for the future that they miss out on enjoying life in the present. Such people are usually overly concerned about financial security. They are pessimistic and fearful and prepare themselves for the worst.

So what is the right amount to spend and save? It depends.

Ultimately, during your lifetime all your income will probably be spent. It’s just a question of whether you spend it now, spend it later, or leave it behind for your children to spend.

There is an element of personal choice in deciding how much to spend or save, combined with an element of financial and social responsibility. As good citizens, we all have a responsibility to do our best to take care of our own needs rather than relying on the Government or other people to take care of us.

That means setting aside sufficient money to provide for our basic needs in retirement. Saving, though, isn’t just about providing for retirement – it’s also about accumulating enough money to spend on things that enable us to enjoy life before we retire.

Your income can only be used in three ways.

  • you can spend it now on daily living expenses
  • spend it in the medium term on things you need to
    save up for, such as travel, a new car or renovating the house
  • and you can spend it in the long term in your retirement.

If you want to be able to spend money without feeling guilty, you simply need to work out how much of your income you need to set aside to cover each of these three categories and ensure that money is set aside for each on a regular basis.

If you are in a relationship, the balance between each of the areas needs to be a joint decision.

This can be a problem when one partner is either a compulsive spender or a compulsive saver. Such people have extreme views about what it means to be financially secure.

Compulsive spenders reason that there is little need to worry about the long term. Their strategies for retirement include saving later in life (after all, there is plenty of time left), adjusting their spending habits to live on NZ Superannuation, or, failing that, selling their house for another that costs less. These attitudes and strategies can leave their partner feeling insecure about the long term future.

On the other hand, compulsive savers are extremely worried about the long term to the extent that they deny themselves enjoyable experiences in life. They argue that their needs are basic and that they get sufficient enjoyment from life without having to spend money.

The problem is that the partner of a compulsive saver is forced to adopt the same frugal lifestyle whether they like it or not (and usually they don’t).

If you have a balanced and planned approach to saving and spending which has been agreed with your partner you will be free to spend within the agreed limits without feeling guilty.

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May200919

Liz Koh

0

How to Avoid Money Conflicts with your Business Partner

Arguments about money are a frequent cause of breakdown in life partnerships and can be just as destructive in a business relationship.

Here are some typical examples of money conflicts between business partners:

  • Janis believes that building relationships is a key ingredient for success in the business. Consequently, she frequently meets customers and suppliers over lunch and sends them lavish presents at Christmas time. Her partner Heather feels that the business cannot afford to spend money on such luxuries.
  • Melanie sees opportunities to expand the business in Australia. This will require a significant investment of money, most of which will need to be borrowed. James is concerned that this venture is too risky, despite Melanie’s research which shows that there could be a huge potential market
  • Fran has two small children and works in the business for around 25 hours a week. Jess is involved full time and is struggling to cope with her workload. She feels that the business can’t afford to take on another employee and wants Fran to take on more of the workload instead.

Differences between partners over how money is spent or invested arise from different attitudes towards money and risk, and different money values.

Very often these attitudes and values stem from childhood, but not in a predictable way. For example, someone who endured frugality in childhood may be frugal as an adult or may conversely seek a life of luxury, almost as compensation for the deprivation they have experienced.

The starting point for resolving money conflicts is to explore the differences in values and attitudes.

There are three key questions that should form the basis of discussion:

  • What things were said or taught to you about money in your childhood and how have these affected your attitudes towards money?
  • What is the purpose of money in your life?
  • Why are you in business?

Sayings from childhood, such as “money is the root of all evil” can often instil a negative attitude towards money, which is a sure way to avoid attracting it into your life.

The purpose of money in your life will depend on what you value.

Perhaps security is important to you, or it might be that you are driven by a desire to be able to help your family or others in the community.

For some, the purpose of money is to be able to have fun and interesting experiences.

Understanding the reason why you are in business is also important. Owning a business is, for some people, simply a means of having employment. For others, being in business represents having freedom and independence.

Discussing your attitudes towards money and your values with your partner will help uncover the points of conflict.

The next step is to find ways of resolving the differences, which usually requires some degree of compromise.

Returning to our previous examples, Janis and Heather quite clearly have different attitudes towards spending money. Heather appears to be more cautious with her spending and concerned with security, while Janis is willing to risk investing money in relationships in the expectation that eventually there will be a return on that investment.

One way of reaching a compromise between these equally valid views is for Janis and Heather to agree an expense budget which is affordable to the business.

Melanie and James also have different views about taking risks and in this example a solution may be to do further research, analyse the risks involved, and put strategies in place to minimise risks and protect the existing business.

Fran and Jess appear to have different reasons for being in business and different values. For Fran, spending time with her children is more important than the growth of the business.

Ultimately, unless some compromise can be reached, Fran and Jess may find that they are unable to continue to work together as partners.

There is no right and wrong in any of these examples.

Each partner has a valid point of view that must be acknowledged and respected by the other.

As with most other conflicts in relationships, money conflicts can generally be resolved with good communication and an understanding of each other’s perspective.

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