With COVID-19 in the news, and the world focused on finding a treatment or a vaccine (or both!), my mind has been going back to middle school science classes a lot. My favorite part was doing experiments. Trying things out, seeing what we learned, and seeing if the results are repeatable.
Right now, we are being forced to participate in a grand scientific and economic experiment. Recently, our state epidimeologist showcased the models of what it will take to continue to keep the COVID-19 virus at bay. Spoiler Alert: It’s not a one size fits all solution. There are five different components that will have to work in tandem to keep people safe. So what does this have to do with personal finance?
Personal finance is personal. What works for one person or family won’t work for another. That’s why you’ll hear things like “I tried Dave Ramsey, and it did/did not work for me.” While my partner and I have figured out what works for us, it doesn’t translate directly to our friends and family members. There is an emotional charge around money – memories, beliefs, feelings, actions – that are different for everyone. As your figure out your personal finance journey, try to let your middle-school scientist lead the way.
- Define your question: What do you really want to know about your personal finance strategy? Maybe it’s “Why am I always stressed about money?” or “How can I build up a buffer for unplanned expenses?”
- Do your background research: How have others solved this problem? Be sure to look up your sources and pull from credible experts (not just reddit.com/r/personalfinance), who aren’t trying to get you to buy their investment products.
- Formulate a hypothesis: If I do [______], then I think [_____] will happen. Fill in those blanks with the variables that matter most. If I [go to the grocery store once every two weeks], then I think [I will spend less money].
- Run your experiment: Set some parameters, like how long you will run this experiment. Think about making it repeatable. Document it all, so you can review and see if there were any other factors that might
- Collect your data: What were the results from your experiment? What are you able to measure? Total dollars spend? Change in spending? In personal finance, the emotional data is as important as the hard numbers. How did this experiment feel? Did you love it or hate it?
- Make sense of it: What does it mean? Does the data support your hypothesis or contradict it? Why? Are your results in line with the background research? Do you think you could repeat it?
Part of the reason I started this blog was to document my own personal finance experiments. In my first phase, I’m trying to figure out what the minimum spend is for a lifestyle that we enjoy, and that requires running a lot of different experiments at lowering costs. Share your questions and experiments in the comments!