We often about how to get personal finances right and one of the keys to this is to avoid doing the wrong things. So what started as an idea for an article with several things that you should avoid ended up as an article that focuses on one thing; throwing money at problems and why you should avoid it. It is perhaps the most important thing you should stop doing if you find yourself guilty of this offence.
Money problem vs other problem
I would like to set the foundation for this by explaining that problems have different origins. They say when you are poor (i prefer financially challenged) all your problems seem like money problems. In an economy beset with problems that many have solved through applying money to a situation, this rings true. Water supply problems have been dealt with through investing in boreholes. Electricity problems have been dealt with through investing in generators or solar power setups. Some problems are genuinely money problems. When we look at personal finances we will see people complain about not having enough money when people who earn less are capable of doing better. I will concede that no two situations are the same, no matter how much it may seem like they are. That said your habits and choices are much more determinant of your personal finances than the amount you earn, with obvious exception to those on both extremes of the income scale.
Throwing money at problems
The term “throwing money at problems” refers to a situation where a person or group of people choose to apply more money to a situation or problem when the solution to the problem rests somewhere else other than the amount of money applied to it. A good example is a problem of not having enough money or having too much month at the end of your money. While it is acceptable that the income may be low, it is also acceptable that the management of the money rather than the amount is the problem. This is backed up by Parkinson’s law which simply states that if income increases, expenses will rise to meet the income. So adding more money to the equation will not fix the situation. Similarly to the leaky bucket metaphor, adding more money to poor financial management means you lose more money faster.
Throwing good money after bad
The other expression of this problem is known as throwing good money after bad. This occurs when you make a bad decision, for this article a financial one and after realising you have made the mistake you spend more time, energy and most importantly money trying to justify the mistake or make things right. Instead of just cutting your losses and starting afresh. A relatable example is buying a car that has more or deeper problems than was originally disclosed. If you’re really unlucky attempts to fix known problems will only reveal deeper unknown problems and before you know it costs pile up. You realise it might have been wiser to cut your losses.
How bad can it get?
This tendency to throw money at problems can have a debilitating effect on your personal finances. It will not only continue to say money which you likely need badly but will also trap you in a false prison with very powerful bars that are only a figment of your imagination. Combine with the habit of throwing bad money after good it can lead to a frustrating life.
Assess what the real problem is
Enough about the problem. If you’re afflicted by this problem you are reading because you want solutions. There is one solution and it is surprisingly simple. You need to identify the correct problem. If you happen to be earning more than before but your finances have not improved then its time to accept that you are the problem. Well, at least your habits and choices. You need to pay careful attention to your influences and your decision-making process. I love to tell people “the answer doesn’t matter if you are asking the wrong question”. This is the way it is with our subject matter. If you are looking at the wrong problem, your efforts to solve it do not matter.