The Psychology of Personal Finance: Meet Diligent, Destitute and Dickey (Part 3)
There are three broad approaches you can take for your personal finances, which in large part is behavioral. So I decided to model these approaches with three fictional characters.
Meet:
Dickey the Blend
They all make similar incomes, but they all go about saving, spending and investing differently. With each approach, there are trade-offs.
Part 3: Dickey the Blend
Dickey, the hero, always heard people say that saving money and planning for retirement was important, so he decided to find out for himself what this meant.
Keeping in mind Voltaire’s notion “Perfect is the enemy of good”, he reflected on his current situation and what his future might hold.
He then decided a few things were important to him, both in the short-term and the long-term—like time with his family, staying healthy, traveling the states, relationships, sudoku and financial independence (down the road).
Dickey’s goal thus became: to do the right amount of work to pursue his varying interests, mostly worry-free.
Costs and Expenses
To keep their expenses in line, he glances at his monthly bills and knows a potential bad purchase when he sees it. By simply paying attention in these two places, it tends to keep their monthly spending in check.
Dickey does bust out a budget in Excel from time to time, to “get a look under the hood.” Checking this level of detail, on occasion, helps him avoid fooling himself, which he knows he’s susceptible to.
He uses credit cards to purchase most things, which he pays in full every month. This way, he can use the rewards points. Though he could optimize rewards points by having many more credit cards, that’s too much to keep up with, he thinks.
Dickey never understood why one might spend money to impress others. “Stupid games, stupid prizes”, he’ reminds himself.
He ultimately found a fun group of friends that also felt similar to him regarding spending habits. They generally avoid status games. Thus, this made good financial behavior even easier for him.
Investments
The Einstein quote: “Everything should be made as simple as possible but not simpler” sums up much of his philosophy, including the investment approach.
He found (and utilizes) the holy grail of investing, which is just setting up an automated investment to an index fund, and letting algo.
Dickey has one of these money-makers set up for his 401K (which he makes sure to capture at least his employer’s matching amount). And he also puts monthly “spare change” automatically into another investment account.
Dickey is a buy and hold kind of guy as he finds this easier—a weird byproduct of this very simple strategy is that he ends up wealthier than he otherwise would have, had he traded more often.
He recognizes investing money usually performs better than holding cash as he’s never come across a feature in Forbes showing the subject’s innovative use of savings and checking accounts. Nor has he noted a single boat christened with “Savings Account” at his local marina.
Dickey read somewhere that the financial wealth hierarchy goes: owners, lenders/creditors then workers. Though he’s a worker bee, he purchases stock-index funds and bonds; this way, he can ALSO take part in being a lender and an owner.
Hobbies
Most of the things he enjoys in life do not require much money, but a few do. For example, Dickey likes running in the neighborhood, nice dinners, tossing the football at the local park, drinking cheap wine on a Friday night and great relationships.
Though traveling and saving can butt heads, he still pursues both.
He tends to call it a night at a good hour unless it’s a weekend, and he’s having a good time with friends.
What He’s Teaching His Kids About Money
He’s careful with spending in ways that are easy to see. His kids are very observant.
Dickey recognizes the his kids never witnessed the hustle of his younger days so he makes sure to show them those habits today.
For some reason, his kids aren’t really sure if they have money. He likes it that way. Keeps ‘em guessing at Christmas.
Decision-Making
Dickey’s secret: he gets that Diligent is too focused on money and the long-term, and he knows Destitute listens too much to his impulses.
Occasionally, Dickey does use pencil and paper to work through the complex and important problems because he knows it’s sometimes necessary. Rules of thumb are great time savers but you gotta be careful and check for yourself every now and then, he thinks to himself.
On weekends, he’ll leave a portion of his willpower at home and hits up the families’ favorite dog-friendly local spot, where he orders brisket tacos with queso, paired with a margarita.
He isn’t married to any one financial idea, and it’s likely he’s missing some financial trick here or there. He’s open to change. Nonetheless, he gets the big things right.
Reader Relation
Dickey’s financial goals are better-defined than Destitute’s, but they’re not his primary goal in life, like Diligent’s.
He makes smart decisions with his finances so that he can stop worrying about them and focus on what really matters to him.
In reality, we all exist somewhere on the Destitue-Dickey-Diligent spectrum. And the good news is, it’s never too late to improve your financial-life habits.