Thursday, April 12, 2012

A Philosophy of Failure

Though I’ve been reading and writing about money for six years now, I still do stupid things sometimes. Most of these errors are un-interesting — it’s the compulsive spending that’s interesting, and I seem to have that under control — but sometimes it’s instructive to look at the mundane mistakes I make, like shopping while hungry.

Well, last week I made another relatively un-interesting mistake, but one that’s educational at the same time. Since it’s typical of the dumb things I do from time to time, I want to share it, and talk about why I’m not going to let it bother me.

The Importance of Routine

Because I know myself and my forgetful ways, I’ve tried to create routines around many basic financial chores. (Learning how to outsmart yourself is a great way to make behavioral change.) For instance, I’ve automated most of my bill payments so that I don’t have to worry about forgetting to send a check. Plus, I sit down for 30 to 60 minutes every weekend to work on my finances. Doing this prevents me from losing track of what I have and what I owe.

These routines help me, but they’re not perfect. Even with rituals in place, I sometimes make mistakes.

For instance, last weekend I did my month-end financial chores: I paid credit card balances in full, I prepped my bank deposits, and I wrote checks for upcoming expenses, including my rent. On Monday I mailed the bills and made a deposit. Done deal, right? Wrong.

On Thursday evening, somebody slipped a note under my apartment door. It was a notice that since my rent payment was late, I owed a $75 late fee. Say what? I knew I had written the check, but I verified everything in Quicken anyhow. Yep. Bill paid. Plus, I remembered taking the check downstairs with me when I went to pick up a package at the office. And the final proof that I’d paid? I couldn’t find the check anywhere. I must have made the payment.

But a quick check with the rental office revealed they’d never received the check. Where was it? Eventually I discovered it neatly tucked between two pages in my checkbook register. Alas, a typical J.D. mistake.

A Philosophy of Failure

A few years ago, I would have been angry at myself for making a mistake like this. Of course, a few years ago I wasn’t as financially secure as I am now. But more than that, I didn’t have the experience, the maturity, or the wisdom to cope with financial failures, even small ones. Now I can view things more objectively. I’ve developed a system for responding to small financial mistakes. Namely, I:

Figure out what went wrong. When I make a mistake, I take time to analyze why it occurred. In the example that prompted this post, a simple act — tucking my check into the checkbook register — eventual cost me $75. I wasn’t mindful enough to remember the check when I spoke to the apartment manager; during the two minutes it took me to get to his office, I had forgotten about it. Lack of mindfulness is the source of many of my financial mistakes. Sad but true.

Make a plan to prevent the mistake in the future. In this case, I know not to tuck the rent into the checkbook register next time. But more than that, I’ve resolved that every month I’ll just walk the check downstairs and put it in the rent slot as soon as I write it. Why wait? Procrastination is never productive.

View each mistake as temporary and isolated. The worst thing I can do when I make a mistake — financial or otherwise — is to treat it as a part of larger problem. Maybe it is part of a larger problem, but in the moment, as I’m responding to the error, if I view it this way, I begin to think of myself as a failure, which only leads to further failures. So in this case, I’ve reminded myself that never before in my life have I been late with a rent or mortgage payment. This is is an isolated incident. And it’s temporary.

Another reason I don’t let small mistakes bother me is that I’ve come to recognize that all these tiny errors, while annoying, actually make me a better person. These little failures are the price I pay in order to find success. I mean, Get Rich Slowly would not exist if it weren’t for the hundreds of small financial mistakes I’ve made in the past.

And that’s the thing: A single small mistake is no big deal. It’s when these small mistakes compound or become habitual that you get into trouble. I used to be the sort of person who allowed mistakes to compound and to be come habitual. It was a disaster. But I’m not that guy anymore. Sure, I’m human. I do make mistakes, but I try to learn from them so that they aren’t repeated in the future.

The original article by J.D. Roth can be found here: A Philosophy of Failure

My Thoughts

I've been in the same situation as J.D. but I offer a different solution to the problem than how he has dealt with it.  He resolved to physically walk the check and deposit it as soon as he writes it but I propose that automation is the most efficient solution.  I can't remember the last time I wrote a check to pay a routine bill.

Most banks nowadays offer free online bill pay and I recommend that everyone should take advantage of it for three reasons:
  1. you will never forget to pay your bills
  2. you will save the cost of postage and 
  3. most importantly, you will save the time and effort required to write and mail a check.
I do most of my banking with ING Direct and they have a neat tool where you can view and schedule payment of electronic bills from participating vendors if you do not want to set up automatic payment directly with the vendor.  The ING Direct user interface is also well designed and you can quickly see which automatic payments are coming up and which e-bills are due.

In addition, I also recommend that everyone have a financial management tool like Quicken or Mint.com.  I've used Quicken, MS Money (no longer available) and for the past 3 years, Mint.  I love the convenience of having access to all my financial transactions in one place and the ability to track and analyze my spending habits.  Mint also has a bill reminder feature that will notify you a few days before your bills are due.

Even since I implemented automatic bill pay, I've found that paying bills is no longer a stressful process that requires thought and diligence.  We all lead busy lives - why complicate it by doing manual tasks that we can easily automate?

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