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Managing Financial Behaviors

The core purpose of what you do is the one thing that need not change.

My fiance and I recently had a discussion around whether or not I should tap into my emergency fund. The context was that I had a legitimate emergency medical bill of ~$100. By most criteria in financial literacy, an unplanned emergency medical expense that you do not have the budget for would justify spending from your emergency fund. Yet she recommended I avoid pulling from my rainy day fund, despite the rain.

Given that she is a financial coach, this both confused an intrigued me. I wondered why her advice was contradictory to what I knew about managing personal finance and so I asked for her reasoning. The conversation that followed, I am pleased to say, was rewarding in that it gave both of us a better understanding of each of our behaviors in managing our finances and led to an amicable solution.

I'll take a quick moment here to suggest that if you can manage to ask for your partner's reasoning behind their decisions without being condescending or judgmental, I recommend you do so frequently.

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Different Financial Strategies

My fiance recommended that I not pay the bill via my emergency fund. Essentially, she recommended that I wait until my next pay check, adjust the budget for that week's expenses, and cash flow the payment from that income. Mathematically speaking, I would be putting less money towards our wedding from that paycheck in order to pay for the bill.

What I wanted to do was pay for the bill from my emergency fund. I would then replenish my emergency fund upon my next pay check, which would give me that much less money to put towards our wedding. Mathematically speaking, I would be putting less money towards our wedding from that paycheck in order to replenish the emergency fund which was used to pay the bill.

What you may notice, is that the balance at the end of the month is exactly the same. An accountant would likely shrug at the nuance in this disparity as the funds get to the same place at roughly the same time. The seemingly unimportant nature of this decision is what raised my curiosity at her insistence that I pay it her way. Why did it matter? The math is the same.

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Different Financial Behaviors

The difference between what she recommended and what I planned is our behaviors. She was cautioning me to take the "emergency" in emergency fund seriously. She warned of the perils of frequently dipping into an emergency fund, that it may lose it's significance if I default to tapping into it for something as small as a $100 bill. Psychologically speaking, my method of paying this bill would decrease my likelihood of maintaining a healthy emergency fund.

I however, had a different concern. I have a terrible memory and I was afraid that if I wait until my next paycheck, as she recommended, then I would forget about the bill maybe even lose it. I wanted to tap into my emergency fund to ensure I did not run the risk of missing the payment and thus costing myself more in fees.

Both of these concerns are valid. Both of us are identifying more than simple financial mathematics and getting into the behaviors behind how we manage our finances. Personal finance differs from every other field of finance because it primarily revolves, not around the math, but around the behaviors an individual takes on a daily basis. Personal finance is less about equations and more about people.

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Finding a Solution

How many couples have a happy ending to a conversation around managing their finances? Well, we did. By having the conversation around our reasons for wanting to manage the finances in the way we did, we were able to articulate the behaviors we wanted to manage. In other words, we identified the values driving our decisions. Once identified, the conversation became less about "who's right" or "which strategy is better," and more about "what strategy would satisfy both of our needs?"

In this situation, we decided that we will add a new fund. While we have a emergency fund that we will share after the wedding, we also committed to a "flex fund." This fund can be tapped into as minor emergencies occur, satisfying my need for paying bills immediately so as to not forget them. This fund also is above and beyond the emergency fund, satisfying her need of holding the emergency fund for true emergencies.

Often, as in this case, the solution to managing a behavior can be quite simple. Creating a "flex fund" takes about five minutes and satisfies both of our needs. However, in order to find a solution, you must first identify the behaviors you want to manage. If you are struggling with your budget, look at the behaviors behind the budget. If you spend too much on restaurants, figure out why.

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