The Perils of Throwing Money at a Problem
By Kevin Gibbons
Many people wish they had the luxury of throwing money at a problem, as they struggle every day to meet their basic needs. But for those people who have a bit more resources (and even those who do not), throwing money at a problem can be in itself problematic.
The number-one cause of this situation is lack of time. For one reason or another we get short of time and have to spend extra money to get or do what we need. Companies have made a lucrative business out of providing expedited shipping, for example. Or, we rush into a store panic buying a last-minute birthday present or clothing item for an imminent event instead of shopping for what we really want at a good price.
Throwing money at a problem is usually a reactionary response. We get hit with a crisis and want to make it go away as quickly as we can. We often cannot or do not want to take the time to consider other approaches. We just think “I need to solve this as quickly as I can!” This can result in several more problems, such as:
Spending more money than necessary to fix the original problem.
Addressing the symptom rather than the root cause of the problem, meaning you’ll end up spending more money to truly fix the problem later.
Settling for the quickest solution rather than the most appropriate one. (This includes settling for a lesser quality or desirable product or service than the one you would really prefer.)
Actually getting cheated. Some unscrupulous people will take advantage of your desperation.
Feeling buyer’s remorse after the crisis passes. Most of us recognize when we’ve done something that is not financially savvy and, when things calm down, we will regret our knee-jerk reactions.
How To Avoid Throwing Money at a Problem
If the main cause of throwing money at a problem is reactionary spending, the solution is to:
Avoid situations that trigger reactionary spending, or
React differently when you are in those situations.
In the first case, that means trying as much as possible to plan and give yourself time to think about things before you feel forced to spend. Mark known spending events like birthdays, anniversaries, weddings and travel on your calendar and give yourself enough time to shop, find, purchase and receive the items you will want, so you’re not put in the position of having to make rushed decisions.
Sometimes, accidents or emergencies arise, for which you cannot completely plan. When those situations happen, STOP. Breathe and take a moment to think about what is happening and what your ideal solution would be. If your basement is flooding, yes you want to turn off the main water supply as quickly as you can. But whether you call the plumber right now or 30 minutes from now, probably is not going to make that much difference once you have stopped the water flow. So, take the 30 minutes to consider more options beyond just “get a plumber in here RIGHT NOW and pay the weekend emergency extra charges!” Maybe you will decide that is the best course, or maybe you’ll decide to borrow your neighbor’s wet/dry vacuum or sump pump to remove the water and then take a few days to shop around for the best deal. But give yourself the chance to explore other options. Just changing your mindset to allow yourself the time to process what is happening, evaluate the seriousness of the problem and consider alternate solutions, can make all the difference.
When It’s Appropriate to Throw Money at a Problem
Sometimes, paying money to fix a problem is the right or only solution. If your car breaks down on the way to your daughter’s wedding, you have to do something. But, first, identify the root problem, not just the symptom. The problem is not getting the car fixed. The problem is getting to the wedding. You may be able to solve the problem by:
Fixing the car.
Renting another car.
Hiring a taxi or ride service.
Contacting another member of the party who can transport you.
Most of those solutions will involve spending money (and you probably will want to get the car fixed at some point), but taking the time to consider will help you get the solution you desire while spending the appropriate amount of money.
In other cases, spending money is the right thing to do because your time or other resources are more valuable, or because you need expertise beyond your own capabilities. I will do many of my own car repairs, but I never service the brakes on my or my wife’s vehicles. I always pay to have certified professionals do that work because, even though I know conceptually how to do a brake job, I want the professional to do it to ensure our safety. Likewise, many people pay to have their vehicles’ engine oil changed even though that is a mechanically simple operation. It is worth it to them to have someone else do it rather than they crawling under the car, getting dirty and have to deal with proper disposal of the waste oil.
So, when is it appropriate to “throw money at a problem?” When you have taken the time to think through the cost/benefit of the proposition, evaluated the alternatives and made the clear conscious decision that this is the best use of your available funds. At the end of the day, you decide how to spend the money you have. Everyone is different and has different priorities, strengths and gaps. Just be purposeful and aware when you are making these decisions and make sure those decisions support your goals on where you want to spend your time and where you want to spend your money.
Kevin Gibbons is a Cash Flow Planning Expert, the Vice President of The Savvy Life and co-author of the international bestseller Living The Savvy Life. For the past eight years, Kevin and Savvy Life Founder Melissa Tosetti have worked with over 625 individuals and families to create Spending Plans.
To learn about how Kevin and Melissa work with clients to create Spending Plans, visit The Savvy Life’s Home Page. If you’d like to learn about how they work with financial advisors and their clients visit: The Savvy Life Advisor’s Page.