Following her bestselling debut Such a Fun Age, Reid has turned to campus life for her new book Come and Get It. She talks class, money and why becoming a mother has made her a better writer
Endlessly obsessing over money? This could be the reason
Nowadays, I can see the signs more quickly. The person who has all their research detailed in a spreadsheet, but is still stuck in indecision. The person who gets worked up over a few extra dollars on the parking metre, but has thousands sitting in cash not invested anywhere.
These are some of the warning signs of financial perfectionism. It’s a hard thing to pinpoint.
To begin with, perfectionism is poorly understood. Casually, we tend to use the term to describe someone who is overly concerned with details or being organised.
However, perfectionism goes a lot further than a preference for tidiness. According to the American Psychological Association, perfectionism is: “The tendency to demand of others or of oneself an extremely high or even flawless level of performance, in excess of what is required by the situation.”
The reason we often miss the signs of perfectionism is that it can often produce great results. From the outside it can look like competence, high standards, ambition, and high-quality work.
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What’s not to love? In fact, in many areas, a level of perfectionism is often encouraged. This is particularly apparent in personal finance.
Popular financial tips will have you tracking every purchase down to the last cent, forever. Make sure you’re always hunting for the cheapest petrol and groceries. Don’t forget to return that $35 shirt before the return period expires. Switch savings accounts every few months to chase higher interest rates.
The line between ‘responsibility’ and ‘perfection’ is blurred. And it often does more harm than good. Here’s what financial perfectionism often results in:
- Procrastination fuelled by analysis-paralysis and fear of making mistakes: for example, spending too long analysing investments but never investing, or avoiding finances altogether because it just seems too big a task.
- Excessive guilt or self-criticism over mistakes: for example, feeling bad over spending money on something you didn’t use, even if it wasn’t expensive; regretting money choices of your past and being unable to get over “where you could have been today if you’d done something differently”.
- Anxiety, rumination or even obsession over financial costs: for example, feeling guilty over small purchases; avoiding social outings because of the money you’ll end up spending; feeling like you’re constantly calculating what you should or shouldn’t spend money on.
No one has their finances perfectly optimised … Perfection is an illusion. It doesn’t exist. What does exist is progress.
Financial perfectionism often inhibits people from taking the actions and risks that would lead them to financial success more efficiently. If financial perfectionism is something you struggle with, here are some things that might help:
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- Create personal decision-making criteria: In a sea of endless options, what helps you narrow your focus and make faster decisions is having clear decision-making criteria. If for example, you know you’re looking for high-growth but low-maintenance investments, you’ve quickly eliminated a lot of the options on the market and narrowed your search. The clearer you get on your criteria, the easier it will be for you to make decisions.
- Identify the levers that drive real impact: Perfectionism causes people to overly focus on things that have very little impact on the end result. Switching banks every few months to get a 0.05 per cent higher interest rate is not the thing that’s going to make you financially successful, if you have thousands sitting in cash not yet invested. Agonising over an investment with a 0.05 per cent fee versus another with a 0.04 per cent fee won’t radically change your financial life if you don’t understand asset allocation or your risk profile. Let go of the little things, and focus on the big things.
- Make peace with the mistake-ridden learning process: You are going to make mistakes. It’s inevitable. In fact, trying too hard to avoid mistakes is a mistake in itself. No one is saying you should blindfold yourself and start making reckless decisions. But you have to achieve a balance between uninformed decisions and analysis-paralysis. There is a certain amount of learning that takes place on the job. You can’t learn to drive just by reading a book. You have to do it. The more you practise, the better you will get.
It’s hard to fathom that mistakes might be necessary on the financial journey because we often perceive financially successful people as somewhat “perfect”
We assume they must “have it all together”. They must be free of mistakes. In reality, it is often their willingness to fail and make mistakes that leads to faster learning and growth.
No one has their finances perfectly optimised and mistake-free, without a single cent out of order. Perfection is an illusion. It doesn’t exist. What does exist is progress.
So instead of aiming for perfection, focus on moving in the right direction, however imperfectly.
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