Why Hope is Not a Plan

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Quick quiz: what do the following statements have in common?

  • I don’t like used cars. I don’t want to buy somebody else’s problem.
  • Maybe I could live in the house for a few years, and then rent it out.
  • I don’t need professional advice. I know what I’m doing.
  • He’s rich, so he can afford it.
  • Maybe when I’m in my 60s, I’ll be able to afford that.
  • The government / my parents / my spouse should just take care of me.
  • I’ve worked hard for this money. What if the market tanks, and I lose it all?

These statements highlight the way emotions drive our decisions about money, time, careers, real estate, and lives.

  • I don’t like used cars. I don’t want to buy somebody else’s problem. – Fear.
  • Maybe I could live in the house for a few years, and then rent it out. – Hope.
  • I don’t need professional advice. I know what I’m doing. – Arrogance.
  • He’s rich, so he can afford it. – Contempt, Self-Doubt.
  • Maybe when I’m in my 60s, I’ll be able to afford that. – Envy, Hope.
  • The government / my parents / my spouse should just take care of me. – Fear, Hopelessness.
  • I’ve worked hard for this money. What if the market tanks, and I lose it all? – Fear.

Greed, Fear and Hope

There’s a cliché that says the two most powerful emotions when it comes to managing money are greed and fear.

But no one thinks of themselves as “greedy.” No one wakes up in the morning and says, “Time to screw the poor!” Greed is a more subtle force.

Likewise, not many people recognize fear as one of their driving emotions. Fear is like a tooth cavity: you don’t notice it unless the situation is already out of hand. It’s either hidden or it’s unbearable.

Fear expresses itself in small ways:

  • Wanting to a new car “in case” your eight-year-old car breaks down. The engine is making funny sounds, anyway. Or is it the timing belt? Whatever.
  • Avoiding the market because you can’t stomach the possibility of losing. You worked hard for that!
  • Staying in your 9-to-5 job forever, not because you love your job, but because you hate the idea of unstable income. Besides, you get “paid vacation” days!
  • Disparaging people with wealth, because you’re “sure” they “must have” trampled others to achieve their success.

“I’d rather be happy than rich.” That’s your fear talking. You’re not sure if you have what it takes. You’d rather avoid trying.

You rationalize this fear though an illogical idea — that happiness and wealth are contradictory.

Hope is Not a Plan

A third emotion drives many of us: hope. Hope talks when we say:

  • I’d like to live in this house, and rent it out when I “trade up” or move away.
  • If I put money in mutual funds, it will go up over the long run. Right?
  • I think my product/service is good enough to sell.

These are great sentiments. Hope is wonderful. But hope is not a plan.

You know what is a plan? Math.

“Oh, no. Not math!” — Yeah, just hang with me. This ain’t no fancy-pants calculus. It’s simple arithmetic.

Crunch the numbers. You want to live in your house, and later rent it out when you move away? Fine. Make a spreadsheet. Create different rows containing different assumptions for your vacancy rates, maintenance costs, management fees, insurance, taxes, and rental income. Run the numbers on scenarios A, B, C, and D. What’s the best case? What’s the worst case? Can you live with it?

You want to simultaneously pay down your debt and put some money aside for a rainy day? Okay, run the numbers. What’s the consequence of putting money aside? How does that translate to added interest costs on your debt? Peace of mind is worth something – but how much? What’s your number? How much will you pay for that peace of mind?

Financial conversations are filled with emotional language. I have found that a solid spreadsheet is a source of comfort, particularly when I am undertaking risk or making a high-dollar decision.

That doesn’t mean that I’ll always make the decision that earns or saves the most money. Peace of mind, after all, does have a value. But with a spreadsheet, I can quantify that value.

We can never remove emotion from our financial choices. But we can manage our emotion through math.

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18 Responses to “Why Hope is Not a Plan”

  1. Tisha Johnson
    27. Feb, 2013 at 1:25 pm #

    Great article! Putting items on a spreadsheet goes a long way in implementation of ideas and yes, brings peace of mind.

  2. Edward Antrobus
    27. Feb, 2013 at 1:25 pm #

    I’d say that number 6 is about hope instead of hopelessness. You are hoping that someone will take care of you later in life.

    “Staying in your 9-to-5 job forever, not because you love your job, but because you hate the idea of unstable income”
    This actual does describe me. This decision isn’t as emotional as you might think. I’ve thought a lot about it. But having done both, I have decided that I get more enjoyment working a mediocre job than I would if I went a more lifestyle design route.

    • Afford Anything
      27. Feb, 2013 at 3:38 pm #

      @Edward – If you’re hoping someone else will take care of you, rather than feeling empowered to take care of yourself, you’ve given up. You’re feeling despair, dependence and helplessness.

  3. Mike Damazo
    27. Feb, 2013 at 4:31 pm #

    Great read, helps put the perspective on my emotions and money. I’m slowly learning how to manage my emotion through math. Financial freedom is my destination as well as setting aside funds for savings. I used to find myself rushing to make purchases as an instant gratification, but now I put more thought before spending.

    • Afford Anything
      27. Feb, 2013 at 9:22 pm #

      @Mike — Good for you! The next step: find instant gratification from saving … from the rush and thrill of narrowly avoiding an impulse buy. Once you master that, you be able to build your savings a lot faster.

  4. Ms. JSB
    27. Feb, 2013 at 5:35 pm #

    Once again, you have spoken VOLUMES in a few paragraphs. Thank you for teaching old dogs new tricks! Always good to get a fresh perspective on matters of finance, especially now. The news is saying 48 hrs. before govt. cuts, but you don’t give it a second thought. That’s refreshing. God Bless.

  5. Chris
    27. Feb, 2013 at 6:21 pm #

    Preach it! I love me a big bowl of cold hard math in the morning. Of course we would all love to have pure confidence in a situation. Which math is great for providing. If the math works, you can’t go wrong.

  6. Ross
    27. Feb, 2013 at 8:41 pm #

    Paula, Grate. I’m always shocked when I hear that my friends have never even thrown their salary in a spreadsheet to do some worst/best case scenario modeling!
    I would argue that emotion is useful in some situations. Like you said, the best way to figure out whether or not to invest, make a change, move, etc… is absolutely to put it in a spreadsheet. I’ve got a crazy early retirement spreadsheet that gets more complicated everyday. But once you get all of the math figured out based on what you expect to happen, I think a bit of optimism about what you might accomplish in addition to those cold, hard numbers gives you the encouragement to succeed at a variety of life’s ventures.

  7. Untemplater
    27. Feb, 2013 at 10:44 pm #

    I LOVE spreadsheets. I guess it’s the nerdy and organization obsessive parts of me. Spreadsheets really do have a lot of benefits though because numbers tell the truth. It’s easy to get emotional about money and life decisions, and numbers help us focus on reality and planning.

  8. sandra
    28. Feb, 2013 at 6:22 am #

    love this post! you have very good timming.

  9. William Cowie
    28. Feb, 2013 at 9:37 am #

    Great insight. Money is a “left brain” thing and the people who do best at it are people who are able to strong arm their “right brain” impulses when it comes to money decisions. Warren Buffet is the poster child for letting pure rational reason be the only voice when it comes to money decisions.

    Money, though, is but one part of our lives and completely ignoring the other parts with our financial decisions may cost us in those other areas (Mr. Buffett again being the poster child for that aspect).

    Success in life involves a balance between the two. But the money decisions have to be made without emotions. Spreadsheets are an excellent way to keep the attention on the facts, just the facts….

  10. Jason Hull
    28. Feb, 2013 at 9:51 am #

    Spreadsheets do give you a lot of comfort, but make sure that it’s not GIGO. I can make a spreadsheet tell me that I’m going to have a 9 digit net worth tomorrow if I only monkey with the lottery winning probabilities just a teeny bit!

    Don’t read that thought as me not feeling the <3 for your post. It's a fantastic idea for people to actually think through their options rather than doing the one that feels best (and leads them to self-pity, 183" flat screen TVs, and the like).

    Each person controls his or her own destiny. You always have a choice. Thanks for pointing that out so well.

  11. Little House
    28. Feb, 2013 at 9:57 am #

    I love crunching numbers. I use spreadsheets, Quickbooks, and I recently used planwise to predict how long it would take to pay down a credit card. It’s satisfying knowing where my money goes each month (even if it’s not exactly where I thought. ;) )

  12. maria@moneyprinciple
    28. Feb, 2013 at 4:48 pm #

    A very intelligent article; I couldn’t agree more although there probably something that can be added – hope is the begining of things but without it being padded up with strategy and planning (including doing the maths) it will always be a disappointment.

  13. Budget & the Beach
    01. Mar, 2013 at 6:04 pm #

    Great article! Fear is the F word that drove me to do projects which I did “just for the money” but they were awful projects. I got depressed because I wasn’t getting even close to what was fair, but I was afraid of not having the money. That fear almost created my environment. I’ve since gotten better about it and now bigger and better projects are coming along!


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