How Parkinson's Law WRECKS Your BUDGET (And How to Fix It)

work expands so as to fill the time available for its completion if you've spent any time researching the productivity space this is probably a quote you've heard at least once it describes something known as parkinson's law and it's something that has a tremendous amount of relevance to the world of personal finance today we're going to be discussing what parkinson's law is when it comes to personal finance why we might fall victim to it how to break it as well as the impact that breaking it can have on our financial future but before we get going be sure to like this video if you haven't already as it really does help out the channel a lot and subscribe with notifications on for more money related videos like this one every single week and if you want to further support this channel you can check out some of the links i've left in the description below which includes a link to the investing platform m1 finance get started investing for free today so as i said today we're going to be discussing parkinson's law which traditionally refers to the phenomenon that work required to complete a task will swell to the point that it fills up all the allotted time given for the task's completion basically it describes how we can hyper focus on the tiny details that in the grand scheme of things aren't really all that important simply because we don't feel the urgency of an impending deadline or in some cases it just describes our tendency to procrastinate but i'd argue that also comes from a lack of urgency in many cases when it comes to personal finance parkinson's law makes a similar observation except instead of the work required to complete a task swelling to fill the allotted time it's our expenses that expand to fill the amount of income that we generate in essence what it's describing is our tendency to lack of sense of urgency in our financial lives especially when it comes to those larger but further away goals like saving for retirement as a result of this lack of urgency we can often ignore or at least fail to make the most of important aspects of building a strong financial foundation such as regularly tracking our expenses and budgeting automating decisions that we may screw up if our willpower were to fail us at an inopportune moment or simply having a well thought out contingency plan and priorities that we stick to instead what we often actually do is more or less float through our financial lives this doesn't necessarily mean that we aren't making any financial progress it doesn't mean that we are racking up mountains of credit card debt but it certainly does mean that we're probably not making the most of what we have and that matters in the real-time strategy-esque game that personal finance can often resemble simply due to the miracle of compound interest if you get off to a really good start financially you have much more wiggle room down the road than you would have otherwise which is something you tend to be really grateful for when life inevitably throws you some curveballs or you happen to spot a great opportunity still this experience of floating through our financial lives at least to some degree is one that i'm sure many of us can relate to at least at some points in our lives so that raises two questions first why do we so often find ourselves falling victim to parkinson's law and second how can we go about breaking it so that we can start to make some real financial progress the answer to the first question is going to vary from person to person however i think one of the biggest reasons we fall victim to parkinson's law is simply how our psychology is wired while there's still a lot we don't yet know about how early humans lived we do know enough to gather that their long-term planning requirements were not the same as what we have facing us today society was not as complex and interwoven as it is now as a result human beings did not evolve to be particularly long-term thinkers in our hunter-gatherer days the extent of our long-term thinking requirements may not have often stretched much beyond planning out food and job allocations within our tribe over the next couple of seasons and the very idea that we would need to plan for something like retirement that wouldn't even start for four or five decades was nion unthinkable heck the 401k which is often seen as one of the moments where responsibility for retirement planning was shifted from the corporation to the employee remember pensions used to be much more common for employees than they are today only came about in 1978. that's barely 40 years ago so in the grand scheme of things they're a very new invention one that many of us are still adapting to but the fact that we're psychologically wired to naturally seek out short-term gains more than long-term payoffs tend to work against us a lot when it comes to personal finance things like giving in to impulse purchases when we know we probably should be saving more for our retirement that won't actually start for another 40 years is just one example of that but if that's the case if our psychology is working against us in this regard what can we do about it we know that this is something we need to overcome if we're going to be successful financially so how do we break parkinson's law thankfully we have a lot of options at our disposal today i'll lay out three of them that i found to be particularly useful the first is setting limits and automating your decisions to ensure that you stick to them this reverse budget-esque approach essentially solves for the willpower conundrum as we all know even if we may not like to admit it consistently making good decisions when faced with tempting alternatives is difficult and the more we have to use our willpower and self-control to make these decisions in a short period of time the harder it is to persevere in consistently making the right choice while resisting each successive temptation while more research is needed to discover the root cause of this phenomenon it has been supported time and again in many studies one of the more famous ones conducted by roy baumeister in 1998 had one group of participants try to resist eating sweets for an extended period of time before trying to solve some difficult puzzles in order to see whether or not resisting the temptation to eat the sweets affected their ability to keep going when the going was tough the studies have found that compared to a control group the will to keep trying was noticeably diminished so while it is important to set realistic limits for ourselves so that we're able to save money it's also important that we supplement that with as much automation as we can so that we don't become our own worst enemy by crippling our own financial success in a moment of weakness a second way that we can break parkinson's law is reframing the situation or goal that we're striving towards as i said one of the reasons that we fall victim to parkinson's law is that we lack a real sense of urgency when it comes to some of our financial goals and if we're being honest with ourselves that is an entirely understandable feeling to have especially with the large and far-off goals like retirement i mean there are so many things that we have to deal with every day in life and saving money for retirement well certainly a lot easier to take care of if we get an early start to the miracles of compound interest is still doable even if we get a late start it'll just require us to either save more money later on in life at the expense of the urgent things that are still coming up every day at that point or it'll require us to earn higher returns to make up for the difference which is quite a bit less in our control but still technically possible if we're fortunate but that's us viewing the situation in terms of time urgency in other words this bill that i just got in the mail which is due in two weeks is by definition more urgent than a retirement that's 40 years away instead we can reframe the situation in terms of some other type of urgency for instance when it comes to saving money for retirement we could look at it in terms of effort related urgency as i said if you get a late start when it comes to saving for retirement you can still achieve your goal you'll just need to save a lot more money than you would have otherwise while still handling the day-to-day minutia that comes up because that stuff certainly is not going to be going away anytime soon that is certainly doable but if we're struggling to make that balance work today how likely is it that it'll be any easier in the future when we'll need to be putting more of our budget towards saving than we would if we figured out how to make it work to start with today it's gonna take a lot more effort and be less probable to succeed probability of success related urgency could be another option for reframing the situation so that's the basic idea you try to reframe the situation in such a way that you develop that sense of urgency for goals that you actually want to work toward but aren't right now because they don't seem very urgent that's how you get your psychological quirks to work for you and not against you now how specifically you end up reframing the situation will likely come down to whatever works best for you on a case-by-case basis so some experimentation and patience with yourself will probably be required especially at first as you get to know yourself and what motivates you better but that's the general goal with this technique a third technique that we can utilize to avoid falling victim to parkinson's law is to establish contingency plans and priorities from the offset communicating them with partners or significant others if applicable this one is pretty straightforward it really just comes down to figuring out what you really want and thinking through how you'll react to certain undesirable events or stumbling blocks that might come up on your road to getting there so that you're less likely to make sub-optimal decisions due to panic or exhaustion when life throws you curveballs as it always does eventually beyond these techniques you can also work on developing other financial habits like asking questions relevant to the situation such as is this product or service a good value for the money or how much will this really cost me in total as opposed to how much will it cost me per month you could also take control of your environment by removing temptations from your space so as to make it less likely that you'll fall into a trap you'd rather avoid this could come in the form of something as simple as blocking certain websites that tempt you into making purchases that you later regret you'd be surprised how many people do that it's very simple but having that one extra step to go through is often very effective at curbing those impulse related temptations but with that being said i wanted to wrap this video up by running some numbers with you to show you just how much of a difference breaking parkinson's law can make on your finances motivational speaker and author brian tracy was once quoted as saying here is a rule of thumb that will almost guarantee that you become wealthy over the course of your working lifetime save and invest fifty percent of any increase you earn in your salary for the rest of your career you can spend the other fifty percent of the increase on improving your standard of living but resolve today to save half of every increase for the rest of your career this discipline alone will ensure that you achieve financial independence and probably several years before you expect and you know what he wasn't wrong let's assume that jon and jane are making about sixty thousand dollars a year between the two of them and they're saving about fifteen percent of that which is a pretty standard recommendation given by many financial experts if on average they received annual raises of three percent and saved half of that then they would end up with a net worth of approximately 4.85 million dollars after a 40-year working career assuming a long-term average return in line with that of the s p 500 of about 10 per year during that same time frame their annual expenses would have risen from approximately 51 000 to about 92 and a half thousand dollars according to the four percent rule this suggests that they would need to have about two million three hundred and twelve thousand five hundred dollars put away in order to be considered financially independent they would have hit that mark in year thirty three pretty sweet huh so that's how parkinson's law can wreck your finances if you don't find a way to break it thankfully as we just went over there are a myriad of things we can do to avoid falling victim to the worst effects of this law arguably what it all comes down to though is finding a way to make our psychological quirks work for us and not against us which is something we have to do in the world of personal finance and life in general all the time so whether you're currently struggling with parkinson's law or not there's a lot to be learned from it but that'll do it for me today once again if you enjoyed this video be sure to smash that like button if you haven't already subscribe and hit that bell next to my name so you'll be notified of all my future uploads i generally upload every single monday and if you have a friend that would be interested in this kind of content be sure to share it with them let's really get this information out there and start our own financial revolution

Channel: Next Level Life

Views: 7,799

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Id: oN_ZNdvxyzc

Length: 11min 18sec (678 seconds)

Published: Mon Dec 12 2022