Some people think that they are two people. They believe that they suffer from a form of split personality, two individuals with differing tastes and inclinations that awkwardly share the same body and, more to the point, the same bank account.
It is an interesting, but which I mean amusing, theory. It is not that I do not think that there really are folks, even millions of them, who have mental health issues such as bipolar disorder, which could be trivialized as two versions of the same person sharing one body. Others have substance abuse problems that cause an irresistible need to ingest certain chemicals.
But the people I am thinking of do not have such problems. They have nothing more profound than an inability to save as much of their income as they think they ought to. This they ascribe to mental illness.
Of course, they don’t call it that. In fact, they don’t call it anything at all, merely acting as if they had two or more personalities, and recommending such behavior to others, without reflection on the implications. Wise Bread recently ran a typical example of this line of thinking from PT Money, How to Create Barriers to Your Savings.
The gist of the post is that if you want to save you need to find a way to prevent yourself from having access to your own savings. Good You should put money into a 401k so that Bad You cannot spend it so easily.
Despite the implied craziness, this is relatively common personal finance advice. David Bach developed an entire series of books from it. And nowhere in this literature have I found either an acknowledgement of the assumption of craziness or anything like a warning that this is strong medicine for the few who need it.
This lack of reflection on what is going on isn’t helping any. Not being able to save what you think you ought to is a real problem and, I infer, a relatively common one. People experiencing it should address it directly and rationally. Only if that fails should they resort to drastic measures such as hiding their own money from themselves.
Much of the appeal of “making it automatic” is, after all, that you do not need to address the issue. You do not need to think about it at all. Just arrange to have a portion of your income sequestered so that Bad You cannot get his grubby hands on it and Good You will live happily ever after.
It is probably a better idea for the two of you, Good and Bad, to sit down and have a serious and thoughtful discussion. For example, and I mean this only as a reasonable possibility, it could turn out that Good You is the crazy one.
I believe that many people, and I am thinking particularly of younger ones, subscribe to a belief that they should save an arbitrary percentage of their income, such as 10%. This they consider to be virtuous and good for them, like eating right and getting enough exercise.
The problem is that the percent of income to savings target was likely not all that thoughtfully derived. It was probably selected arbitrarily or taken from some personal finance guru. (Has anybody else noticed that personal finance writers always recommend numbers like 10% or 15%? You would think that a figure that had any science behind it at all would be unlikely to be so round.)
It could be, and again I throw this out only as a possibility to be allowed for, that when 25-year-old Bad You breaks open the piggy bank to buy an iPhone or spend a weekend at the beach he is being perfectly rational. It could be that it is Good You’s plan to save 10% of income out of some general principle that is misguided and crazy.
My largely unscientific opinion, based on too much time spent in the personal finance world, is that although younger Americans probably save at about the rate they should, they tend to believe that they should save more than they do. This is due to the collision of an abstract and not well thought through goal with practical reality.
Life in your 20s and 30s is expensive. Lots of stuff to acquire and kids to raise. And yet income does not peak until your 40s and 50s, when you’ve already got one of everything and the kids have left home.
That does not mean I recommend no saving until you turn 40 and then X% from there on. Everybody is different. Personally, my income has taken a precipitous drop in my 40s. Each person must establish their own goals and work out how they will get there.
If you must think of yourself as a Good You cohabitating with a Bad You, try and listen to what Bad You has to say. It could be that he, and you, are not so crazy after all.