Smart Money MD

Some of us like to micromanage.  Obviously this trait is useful only for certain tasks that you need to accomplish.  Managing money can take some attention to detail, but fortunately many issues work themselves out if you follow broad principles.  How much you should micromanage your daily expenditures really depends on your own tolerance and your individual financial situation.  We’ve all seen discussions about the cost of daily artisanal cups of coffee at the local barista, or cost savings from cancelling cable/satellite television.  If you are in a dire financial predicament with limited earning potential and wildly out of control costs, there is merit to pinching every penny.  If you are a neurosurgeon paying three mortgages, alimony, and a car lease every three years, foregoing that Blue Bottle coffee might not be the most effective means to put you ahead financially.

All of us face these decisions daily.  Some of us just simply have bigger numbers.  One of the surgeons I work with was eying a new “weekender” car.  He knew that vehicles, especially high-end ones, depreciate significantly during the first few year.  He was on the market for a preowned weekender, and eventually found one.  Interestingly, it took him over a month of researching the regional dealers to find the right model.  Savings: $35,000!

The new model would have cost roughly $120,000, and he was able to score a three-year old equivalent for $85,000! Let’s say that he spent an hour every evening research the car for a month. He “saved” $1167 post-tax dollars per day by opting for the used car.  Not a bad savings rate, but one could argue that this has similar fallacies to negotiating with your cable company every year to cut your monthly rate from $120/month to $85/month.  You’re still spending money, and a whole lot of it too.  Another one of my coworkers had a similar internal struggle with getting solar panels for his house.

How much is micromanagement of your time worth?

Did the coworker who agonized over a weekender car actually make a financially prudent decision despite saving so much? What about the guy who put down big bucks for solar panels that might take a decade to recuperate the initial investment costs?  Who knows, maybe the $85,000 car only amounted to less than 10% of his annual salary.  I suspect that he justified the purchase in the end based on how much enjoyment he derived from researching cars and achieving the end result.  He still enjoyed the forest despite focusing on individual trees.

Different strokes for different folks.  I constantly face the dilemma of buying discounted donuts that neither my waistline nor arteries should have to deal with.  All in the name of saving $2.  Apparently these trivial decisions are important to my psyche.

Most recently my family (myself included) decided to stop putting up with the irregularities of the heating and cooling in our house.  In the summer, the living room is typically freezing from air conditioning while the upstairs rooms are like saunas.  The opposite is true in the winter.  In America, this problem stems mostly from our homes being too large and that it’s prohibitively expensive to route the ductwork with dampers to direct airflow in standard homes.  The real solution to the problem is to zone each room in the house separately, or simply to custom-build a new home.

One of the common workarounds to cold or hot rooms is to install a thermostat with remote sensors in different parts of the home.  This doesn’t solve the problem of overheating or overcooling certain areas of the house but it  ought to make the room that you are situated in more comfortable.  After one weekend of reading all of the reviews on the market on smart thermostats, I pulled the trigger and made the upgrade. All in, I invested maybe four hours of reading plus another thirty minutes of installation, we now have a smart thermostat!

The breakdown:

Satisfaction of a warm home during the winter: Priceless!

Interest is a powerful motivator

How much you enjoy a task ultimately is contingent upon how much we actually rely on that task for our existence.  Doctors gripe about having the see that final add-on patient for the day, but are perfectly willing to volunteer for charity missions.  If we expect compensation, then the expectations change.

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I was able to justify digging through spiderwebs in my furnace to put in a new thermostat, even though I only expected to enjoy a warmer house in the winter as a result.  If I were tasked to service furnaces as a career, I probably wouldn’t enjoy digging through decades of dust as much.

Did I lose sight of the forest in my quest to replace the thermostat? I’d like to think not, but it might be helpful to consider what we are hoping to achieve each next time we decide to embark on any tasks that can ultimately affect our financial outcome.