Financial thermostats

The positive economist, Susan Hayes, introduced me to this concept at a talk for the Ireland Fund of Great Britain recently.

Its simple, and I’ve seen it evidenced in my life a fair few times since!

The idea is that you have a level, call it room temperature, at which you feel you have ‘enough’ money. The minute your thermostat drops below, you save and are thrifty to get it back to room temp. The minute it goes over this level, you spend back down!

Being self employed, this is potentially even more dangerous. Some months, the money floods in and you celebrate – whether your celebrating is in restaurant / pub / clothing form / holiday form! Then the next month arrives, and you really wish you hadn’t.

She suggested raising your internal thermostat level, slowly, so that you will just have more money. I think that’s great, but I’m going a step behind that as I think it assumes you know exactly what you spend a month, which you may not.

I think having a figure in mind that’s your safety is critical. Then managing your accounts so that you always know what you have is vital. Paying yourself a salary as a self employed person is essential.

Another thing I realise the other day is – its not actually about how much money you EARN if you are trying to finish the year in debit. It’s about how much you spend!

How much money do you credibly need to have so that you can stop worrying about it?

So ignore the climate hype – set your financial thermometer higher, today!