STRUGGLING WITH MONEY

The untold reason why you either have money problems

In the 19^th century, in a little town in Johannesburg, there lived a little family that had as family name: Mekogo. They had a home with very expensive furnishings, but somehow, a section of the roof was missing. During the rainy season, heavy rain came, flooded the entire house and almost everything was ruined. It took days for the Mekogo’s to remove all the soiled and damaged items and equipment. Afterwards, the father diligently laboured to replace all that was destroyed. When his work was almost complete another storm came and destroyed the new interior restoration. Frustrated, the family began the tedious and discouraging job of restoration. It didn’t take long before the next rain came and yet again, destroyed everything. With every downpour, their strength and resources got depleted. At a certain point, they got discouraged, stopped the work and settled for what they believed was their fate in life.

Of course, this sounds ridiculous. You’re probably thinking, why didn’t they just fix the roof and then restore what was lost? What a silly family! However, this scenario describes how many of us struggle with money. We struggle to correct its effects—lack, discouragement, envy, hopelessness, despair and so on—rather than just understanding where the real problem lies!

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Money is a real issue in our [Cameroonian] society. A necessary evil for some; an unnecessary blessing for others. Everyone tends to have a unique definition and special appreciation of the role money plays in his/her life. Money as we can all agree is a means to something else, mainly a solution to problems either created by its presence or its lack thereof. But what is untold is that there are two main types of problems many face because of money. The first problem is the “saving” problem (what amount to save, how to save it and where to save it), the second is the “spending” problem (how much to spend, what to spend it on etc…)

This piece seeks to explore the latter and it makes the case that poor saving habits are far less disastrous than poor spending habits. And here’s why…

The Selfish response to Generosity

During my pre-teen years, we lived in a neighbourhood that had this particular neighbour with a predictable, monthly, money-spending habit. Each month, whenever he received his salary, everyone knew. But how could we all know? It was simple, on such a day, he never came home empty-handed. He made sure to bring home lots of fruits, gifts and on some occasions, he was prone to carelessly share money with anyone who expressed a financial difficulty, regardless of its magnitude. This benevolence of his usually lasted for about two weeks, after which, his demeanour completely changed from the too generous man to the “I don’t have any money” man. This new state equally lasted for the next two weeks, or until he received his next paycheck.

Some individuals who had his best interest at heart, especially his wife hoped that he was going to change and develop better spending habits, but he didn’t. After hoping for long with getting results, she quit hoping and devised a smart strategy. Her goal was to get him to join a “njangi”, saving that money would be better than wasting it, she opined.

It didn’t take long for him to be persuaded and being a devoted man, great at keeping his word and commitments, he joined the njangi and religiously saved huge sums, each month. It wasn’t an ordinary njangi, the type where you save as you like and when you please; it was the affluent version of it, where huge sums are deposited on a precise date. Two years later, it was time for him to “pick” (get all his saved money back). He did eventually pick. But Guess what happened got that money back?

For the sake of curiosity, explore the options such a person’s hands got.

• Option 1: he could invest that money in buy a plot of land and building his house
• Option 2: getting married in church
• Option 3: launching a business or more (you continue imagining).

Another stream of options (the negative one) would have been to spend it all on drinks, women and drugs. But let’s face it, the latter option is the option of no options.  Finally, if he was short of ideas and didn’t know what to do with the money, he would have just saved all of it, once again. But what did he do?

  Two weeks after he had picked, we heard there was a heated quarrel between him and his (now ex-) wife. During the quarrel, she blurted out a lot of nasty things in anger. She exposed him saying, he had spent all the money in a “generously” foolish manner. As usual, he’d shared part of the savings to those who came knocking with their unending problems. He equally donated some of the money to an orphanage he and his fellow church members were in the habit of visiting. Finally, he assisted his brother financially to enable him to finish his housing project. She couldn’t wrap her mind around the fact that her man had squandered 4 million in two weeks, without seeking her consent. He was so good at spotting and solving others problems but so blind and dumb at doing the same for himself and his immediate family. And that cost him his marriage/union (come-we-stay).

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Each time I think of that story, I am always puzzled by the fact that misdiagnosed his problem― he never had saving problems, but rather spending problems. How I wish she had reverse-engineered her ingenuity in helping him with his saving problems to helping him with his spending problems.  Instead, she let her emotions get hold of her and abandoned the man to his misery.

Why do we have poor spending habits but good saving habits? & why do people get frustrated once they receive their money?

The answer to this is what behavioural economists call the financial thermostat. This is a mental calculator that does all it can to put your finances at the level where you feel either comfortable with less or uncomfortable with more.

To better understand this notion, take a look at the human body. How do you measure your body temperature? Through a thermometer. What is the appropriate body temperature? The norm says 37^o (even though 36^o or 38^o might do), at this temperature, it is a truism that you’re healthy. But if your body temperature rises to 42^o and above, what do we say? Your temperature is high and you’re very sick? After measuring, we generally take all the necessary precautions to regulate the temperature, bringing it down to the appropriate condition 37^o. This is how the internal thermostat works.

Peter’s Magic 25k

I have a friend called Peter. For the sake of argument, let’s say Peter earns 100,000 CFA per month. What generally happens is that after he receives his salary, he will ―either consciously or unconsciously― look for ways to spend this money, until it gets to 25k. Strangely enough, once he is at 25k,  like a vision from heaven; he becomes fully conscious about his finances and takes his spending seriously. This happens every month and I’ve decided to call this 25k of his, his magic figure (net worth). This behaviour isn’t unique to Pete says the behavioural economists, each individual has his magic figure; for some, it’s 25k, for others 50k for others 100k etc…

When Donald Trump lost almost everything in the early 2000s what happened? He couldn’t be satisfied with the title of millionaire but worked his way back up to Billionaire. That’s where his thermostat was set. Billions! Nothing less than that.

Now back to that neighbour of mine, maybe what do you think was his magic figure? his thermostat could have been set at 50k! and that explains a lot.  My friend Peter set his at 25k, and Trump set his at a Billion. What about you, where is yours set?

The thing about one’s thermostat is that it doesn’t just push us to spend faster and casually, but it also prevents us from spending any more money once we get to our magic figure. And when we spend beyond our magic number, it pushes us to search for money, by all means, to keep ourselves at that comforting level.

That’s why regardless of how careless he was with money, he always paid his rents, he always kept the money for feeding, and his thermostat was set to always have money for those basic needs. Trump also had to become a billionaire again, because that was his magic figure. Lastly, this goes a long way to explain, in part, why those who gamble, scam or win lotteries end up losing it all. Everyone has his or her magic number, the point where we all turn from selfless to selfish & unconscious spenders to conscious frugal individuals.

One final story about the Mekogos. They had a pig with a lot of skills. This pig of theirs is reported to have once saved a child from being run over by a speeding car. This same pig is known to have ushered the Mekogo family from their burning cottage. A neighbour of theirs once asked, “You have an amazing pig, but why does he have a peg leg?” to which the head of the Mekogo’s family answered, “When you have a pig this great, you don’t eat him all at once!”

What a badass response!

Now that we have established that you may be suffering from spending problems and have a magic number, can you answer the question of: What is your magic figure?

Lastly, how can we raise that bar and solve your spending problems? That will probably be the subject of my next piece if you show an interest. As always thanks for reading, hope you grabbed something.

Don’t forget to drop a comment on what you learned or just a general remark.

Verberi Leslie Michael Ace