As an employee of a federally chartered financial institution, I am painfully aware of the “one size fits all” approach to rules and regulations.
Every one of us has experienced this approach at various times in our lives. Whether it has been as a student, a client, a patient, a family member, or as an employee, each of us has encountered a situation in which we were treated a certain way or judged by a certain set of criteria simply because the school, firm, doctor, relative, or boss used one set of rules for everyone. In many cases, this approach is used solely because “that is the way it has always been done.”
While I understand that the one size fits all approach is often the easiest approach and it is typically administered under the umbrella of fairness; there can be some negative effects as well.
As it pertains to personal finance, for example, individuals who are not able to follow the rules of thumb of saving, borrowing, and spending can be demoralized and discouraged because their personal situations are outside what is considered “normal”.
You have probably heard that you should save between 10 and 33 percent of your salary. For some of us, this just may not be possible. Life changing events, such as becoming a parent or furthering your education, have a way of changing your best-laid plans. It is also hard to save when you are out of work or your hours have been cut back. The better message is that you should save what you can when you can and to incorporate the importance of saving money into your financial planning, whether it is for your retirement, future events, or simply for a rainy day.
In order to be in the best position you can be to set your personal savings goal, you will need to do an assessment of your own finances and to fully understand your income and expenses. You will then be able to set a realistic savings goal that will be easier to achieve and more meaningful to you because it is tailored to your personal situation.
There are also “one size” type rules for borrowing. Many, such as limiting your debt to a percentage of your income, have merit, but may not apply to you at the moment that you need to make a critical decision.
There are legitimate reasons, in some instances, for you to borrow more heavily than what would otherwise be generally recommended. Buying your first house might be an example of a time when you would stretch beyond what is comfortable in order to realize your goal of owning your own home. It may be the absolute right thing to do for you and your family to increase your debt beyond recommended thresholds if you do so knowingly and with a longer term plan in place to limit whatever disruption or discomfort the effect of additional debt may have on you.
You should be able to make this decision without feeling stress for being outside the one size fits all parameters. When you make any decision, it is important to understand all aspects of it, especially any applicable guidelines and the known pros and cons. No one, however, should feel unnecessarily bound by a rule of thumb just because that is the accepted mainstream answer.
Debt, once incurred, has to be paid back. If you can get comfortable with that responsibility and you can develop a plan that works for you, you should feel comfortable going forward with that debt. Just don’t forget that situations change over time and it is always a good idea to have a back-up plan.
Spending habits and related decisions are also subject to all kinds of one size fits all approaches, such as “always pay off your credit card balances” and “don’t spend what you don’t have”. Sometimes, however, life takes over and you need to make a decision that will take you outside these rules. When making a purchase or deciding between options, you owe it to yourself to properly weigh all of the alternatives and make the decision that is right for you.
As is the case with any plan, you feel better about it when it is your own. Your planning needs to be built on a foundation of self-discipline and a healthy balance of responsibility and awareness, but if you have brought these elements into your decision-making, you are going to be more likely to reach a result that is better for you and more suited to you then you would have, had you simply followed the one size fits all approach.
There are few things more gratifying in life then the ability to make your own informed decisions and then setting your own course of action based on those decisions. Allowing yourself to be constrained by generalities and rules of thumb can actually hinder your planning and prevent you from reaching meaningful goals. Instead, it is important to take the time to understand what you want to achieve and then to develop a plan of action that best reflects your personal situation.
When you do these things, you may be surprised to find that you have taken the mystery and intimidation, often associated with making financial decisions, completely out of the equation. Success through this process will inevitably lead to success in your other decision-making involving other aspects of your life and career.
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To join National Police Credit Union, or if you have immediate family members who are interested in becoming members, please use our application. This article was written by Scott Arney, CEO, Chicago Patrolmen’s Federal Credit Union.
This article is part of Scott Arney's educational series, entitled The Serial Decision Maker.