Conventional wisdom dictates that organizing your finances is akin to taking control of them. If you know exactly how much you have, the reasoning goes, and keep tabs on where your money is going, wise spending decisions will follow. After all, knowledge is power, isn’t it?

However firmly we cling to this belief, there is abundant empirical and logical evidence to the contrary.

While it may still require a degree of motivation, keeping your personal finances organized just isn’t that hard anymore. All you need is a basic software package such as Quicken or Microsoft Money. Better yet, take advantage of one of the many useful online tools which have recently become available. Combine all this with the continuously updated information available from our bank and credit card websites, and it becomes clear that we’re not lacking data.

And yet, what have we gotten from this? If organization is the solution, shouldn’t things be improving as more households begin using these tools? They’re not.

When viewed from another angle, the fallacy of the organization=control argument becomes even more apparent. Consider that virtually every smoker in the world is acutely aware that the habit is very likely to shorten his or her life, yet this information alone does not generally provide sufficient motivation to quit. Is more information the answer? Would knowing that you smoked exactly 7,382 cigarettes last year suddenly inspire you to break the habit? Probably not. It certainly doesn’t appear on anyone’s list of effective methods for quitting.

How about the man who knows he should lose weight? What if a diet counselor presented him with a categorized list of every food item he’d consumed in the previous month, along with a precise inventory of the contents of his refrigerator, and said, “That’s it! Good luck with your diet!” The man would ask for his money back, of course. He already knows he ate too much. What he expected (and paid for) was a plan of action.

If we can intuitively identify with the above scenarios, why would we ever look to organization as a silver bullet for our spending problems? We’ve been conditioned to think that money is somehow different, that, notwithstanding its general uselessness in other similar applications, more information is the cure for what ails us.

I’ve spent considerable time asking myself why this misconception is so widely held. I’ve concluded that it is because financial data simply begs to be analyzed, categorized, and aggregated. Not many years after the personal computer made its debut, software designers realized that the systems were perfectly suited to help consumers organize their finances. Creating impressive-looking charts and graphs was a cinch and made for an easy sell to those looking for a better way. Twenty-five years later, we still find ourselves in heated pursuit of a solution based upon a fatally-flawed premise.

Please don’t get me wrong, organization is important. Organization keeps our checks from bouncing and ensures that the electric bill is paid on time. All of this is extremely important; just don’t expect it to help you control your spending.

So, if organization isn’t the answer, what is? The Banzai Way, of course! But we’ll discuss that next time.

This entry was posted on Tuesday, November 6th, 2007 at 1:53 am and is filed under The Banzai Way. You can follow any responses to this entry through the RSS 2.0. You can leave a response, or trackback from your own site.