Family Finance Blog

Everyone has their own way of manging money. Throughout my life I have always been frugal, and for much of my life, I bordered perilously close on the line between cheap (not productive) and frugal (productive). My mom told me that if I found a quarter on the ground, I would go home and put it in some obscure corner of my room so that I could save it up for something I wanted. I would agonize over spending $2 for lunch, but I would happily save and buy a $1,000 computer. For my brother, on the other hand, money is something that burns a whole in his pocket. Even as a child, if he found a quarter on the ground, he would actively look for a way to spend it immediately. To some extent, we both still manage our money this way. Neither is necessarily better than the other - my brother has a generous streak that I would love to emulate and I have more savings than he does, which allows me greater financial freedom.

When it comes to how we manage our money, though, the important thing is that we are each aware of our relationship with money. My brother sometimes has to stop and think twice about his purchases, and I often have to stretch myself to be more generous with my money - with myself and especially with others. This doesn’t mean I have to buy everyone lunch and dinner all the time, but just to keep in mind that my money isn’t all about me, and I don’t have to agonize over every little expense. My wife is wonderful at reminding me of this, gently and persistently, and I am slowly changing.

Where this “know thyself” comes up in the real world is how I manage my credit card rewards. The rewards cards today are great. You get 1% - 5% back on your purchases. Most are 1%, but I do have a card (Chase Freedom) that gives 3% back on gas and groceries (1% on everything else), and I use it exclusively for that. For all my other purchases, I use a Disney rewards card that gives me the same 1% as the Chase Freedom card, but as Disney dollars instead of cash. But that is silly, you say! Why would you get 1% back in Disney dollars instead of 1% back in cash? Disney takes cash, I’m sure they do!

Well, in fact, they do. But I know myself, and I know my spending habits. I love to go to Disneyland and I don’t live too far, so I have an annual pass. So I go there fairly often and hang out for a few hours, have a meal or a snack and go home. I bring out my Disney rewards dollars to pay for 100% of my meals, and most years it even pays for my annual pass (I put my company travel on my card. Since I don’t carry a balance, it costs me nothing, and I get 1% back.) I call it my free money, and it doesn’t weigh on my financial conscience. And also very important, I almost never spend more than what is on my rewards card.

If I got back my credit card rewards in cash, I would hoard it. Every time I wanted to buy a meal, I’d ask myself “is this worth it?” Even worse, I’d make my wife feel guilty every time she wanted to buy something (not on purpose, it’s just how I act sometimes.) Our enjoyment of Disneyland would go down and our general level of frustration would go up. Not by significant amounts, but by enough to matter. And when we were there, we would have no idea how much we had saved up in “free money”, and could easily spend a lot more than we had earned.

So what I get from knowing myself is a place to go and relax and entertain myself with absolutely no guilty feeling. I can get a meal, get a snack, get a souvenir, and just not worry about it. It is not the best, 100% maximize-your-money way of doing things, but it makes my life a lot better. So I encourage you to think about how you are with money, and if there are ways you can manage your money to make you happier rather than wealthier, do it.

This entry was posted on Wednesday, June 13th, 2007 at 8:43 am and is filed under Tips. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.