Regardless of how much money you earn, cash flow is the foundation upon which most of financial planning is built. Understanding what’s coming in and going out can help you determine what is available to fund various goals, including debt pay-down, college funding and retirement planning. That’s why nearly every CERTIFIED FINANCIAL PLANNER™ professional (CFP) will start a client relationship asking about how much money you spend today. If you don’t know, she may encourage you to create or adhere to some type of tracking system. Cash flow is probably the least sexy part of planning. In many ways, it’s like dieting and exercising because it relies on self-control and discipline. The best personal trainer can create an effective work out regime, customized to your body type, but she can’t force you to do the squats and dead lifts. Similarly, a nutritionist can design a diet plan that will help you manage your weight, but only if you stick to it.
So too with CFPs: they can create detailed financial plans, based on your objectives, risk tolerance and time horizon, but they can’t make you execute those plans, nor can they stop you from spending more than you should. Maybe the later part of the conundrum is changing, with the advent of technology.
A new product called “Pavlok,” a $179.99 wearable device (think fitbit or Apple Watch), gives you a mild electric shock if you do something you don’t want to do. The company tries to help people change their (bad) habits. “To do so, we create apps, wearables, technology, and more – all designed to help our users get control of their behavior.”
Talk about using a stick instead of a carrot! According to Pavlok’s inventor Maneesh Sethi of "Shart Tank" fame, there are “plenty of positive stimuli in the world,” so why not use technology to zap you when you spend mindlessly, instead of heaping on the badges and the “atta’ girls” when you do something good?
I spent some time on Pavlkok’s web site, where there were the usual how-to blog posts that you might find on any personal finance web site. “15 Proven Ways to Reduce Your Credit Card Spending (and Debt)” offered concrete advice, like “Lock up your credit cards”, “Freeze your credit” and “Cut your credit cards up”. But if those tried and true methods are just too hard, you can use the Pavlok device, which helps you break bad habits through a “small stimulus.”
Here’s how it works. “For the first few days you have your Pavlok, use your credit card as you would normally. Don’t go out and buy a yacht online, but spend as if you would in a typical day. Each time you go to pull your credit card out of your wallet, give yourself a light zap. Do this for several days. After just a few days of doing this, Pavlok will have helped you build awareness around your habit, which is the first step in breaking bad habits…you may notice your desire to use your credit card less, but at the very least you’ll start thinking twice about ordering those imported alpaca shoes.”
If this all sounds like a “Saturday Night Live” skit, it also gets to a core issue that we all have around our relationship to money: it can be guided by emotions – and those emotions are awfully difficult to control. I am skeptical of a zap as the panacea to lack of impulse control, but the mere existence of a product like Pavlkok indicates that despite all of the messaging around “spend less than you earn,” it remains very hard to do.