CEO of your money
I have two boys. They are a year and a half apart and could not be more different. For my older son, everything seemed to come easily and naturally to him. When we first got him a bike without training wheels, it took him a few minutes and he was suddenly riding down the street as if he'd been riding for months. Similarly, he didn't need much help with school, he seemed to just 'get it'. My younger son, on the other hand, didn't pick things up quite as effortlessly. He needed extra help when it came to school, especially reading. There was a lot more yelling than I care to admit while trying to help him with his homework. I did not know anything about learning disabilities or how differently a brain could process information until my younger son came along.
This past weekend, I attended a Special Education Family Conference to learn about learning disabilities and what our school system has to offer. My biggest takeaway was that I was an extremely privileged person. There was so much going on in my brain that I did not even realize was happening! So many things had to happen for me to learn. If, for example, you have difficulty writing, it takes a lot of brain energy just to take notes which means you can't focus on what is being said. If the teacher is moving along too quickly for you to keep up, you miss information, even though you are trying to pay attention and take notes. And forget about actually being able to process the ideas and participate in a discussion. I take for granted that I can write without thinking so I can focus all my brain energy on the concepts being discussed.
One of the topics at the conference was 'executive function', which simply put is the type of work our brain does to 'achieve goals'. The types of things you imagine that a chief executive officer (CEO) does for a company - making higher level strategic planning and decisions, but for your brain. This includes things like planning, organizing, focusing, prioritizing and executing tasks. When we want to go on a trip, there is a lot of work that goes on in the brain before we actually do anything. When is the trip? Do I have anything else scheduled on those dates? How important is this trip? Should I reschedule conflicts or change my trip dates? How are we going to get there? What do we need to pack? What else do I need to take care of before I go? A weakness in executive function makes it more difficult for a child to learn in the classroom but the good news is that these skills can be learned and improved.
So... what does this have to do with money?
Managing finances requires a lot of executive functions. We need to plan our budget, organize our expenses and prioritize where to spend our money. And when we are lacking in any of these skills, we have a hard time with our money. For some of us, these skills come naturally, but for others, it takes work.
Let's dig into a few specific executive functions and see how they show up in personal finance:
- Planning/organization: This skill is about keeping track of things and figuring out exactly which actions you need to take to achieve a goal. This one is HUGE. When it comes to money, planning is not just about budgeting. It is also about forecasting. Many of us get paid either monthly or bi-weekly but our bills don't follow the same schedule. So we need to figure out how to make the money that comes in last so that we can pay all our bills. Can we name every single one of our expenses - the regular ones and the irregular ones? Do we know how much money we will have leftover after bills are paid? How can we tell if we can afford to take a trip or go out to a nice dinner? We need to be able to plan our money so that we can cover all of our expenses and even some that come up unexpectedly. There are many ways to keep track of income and bills. I personally keep track of my bills using a 'ledger budget', where I list out every single debit and credit for the next few months (like what people used to do with checkbooks, but for the future, not the past). There are no categories, keeping receipts or tallying amounts. Just what goes in and what comes out. If I want to know how much money I have available to spend, I scan the ledger for the lowest amount. How do you organize your money/bills and plan your spending?
- Impulse control: This skill is about the ability to think and process information before acting upon it. When it comes to money, this manifests itself in how we make spending decisions. From the moment we want to buy something to making the decision to buy it, what goes on in our brains? Do you know if you can afford it? Do you need to buy it? Is there a cheaper alternative or a better time to buy it? How often do you stop and think before spending money? I've mentioned before that I like to wait an extra month before buying something just to make sure I really want it. Another thing you can do is only carry around limited amounts of cash - don't carry around debit or credit cards. That way if you want to buy something, you have to come back later to buy it. What other ways can you pause and think before acting?
- Task initiation: This skill is about being able to start tasks in a timely manner without excessive procrastination. When it comes to money, this is about starting tasks such as sitting down to pay your bills, putting together a budget or doing your taxes. Difficulty in this area makes it hard to figure out where or how to start. Sometimes it's overwhelming to think about the task and it's just easier to freeze or avoid it. If you struggle with this, try breaking down your task into a few concrete, small tasks that would help get the overall task done. Maybe for taxes, you could put time on the calendar just to find all the taxes related papers and put them in one folder. Then the next task may be to call and schedule an appointment with an accountant. You could also enlist the help of a friend to remind (or nag) you to do what you need to do.
The one thing that was impressed upon me at this conference is that we have the capacity to improve our executive function. And doing so will only help you to be in control of your finances so that you can direct your money to achieve your larger goals in life.