With personal finance, as with so many areas of life, we have a tendency to swing between extremes. Often,
an excess of spending – with accompanying credit card debt, clutter and
stress – prompts us to take a good hard look at our finances. We make
all sorts of good resolutions: a plan to reduce our debt, a savings
account for our emergency fund, and so on … and somewhere along the way,
we pick up the idea that we should only spend money on absolute essentials.
We might start off sensibly, cutting down on unnecessary spending to put some money aside for the future. But before long, we end up obsessing about every penny, denying ourselves even tiny treats like a weekly coffee or a magazine, because it’s a “waste of money”.
Are You Enslaved by Your Money?
Usually, being “enslaved” by our financial situation means we’re in
debt, struggling to stay afloat. But I feel that there’s another sort of
enslavement which we can fall into: forgetting that money is just a tool for us to use in whatever way we want.
Do your money anxieties look anything like this?
- You’ve already got three months’ living expenses in an emergency fund, but you’re obsessed with driving up that figure every month
- You feel guilty about any unplanned spending, even if it’s just a few dollars (e.g. you end up buying lunch because you forgot to take your sandwiches with you)
- You won’t spend any money to advance your career (e.g. on studying or business materials) because it’s “not strictly necessary”
- You often think about a smallish purchase which you’d really enjoy (perhaps a DVD box set, or movie tickets, or some equipment for your hobby) – but you keep telling yourself “I don’t really need it.”
Why Spending (Consciously) Could Help You Save
It isn’t healthy to deny yourself everything. Of course, if you’re
undergoing a financial turn-around, that might mean some radical – even
difficult and painful – changes to your spending habits. But, just like
dieters tend to fail when they attempt to cut out all “naughty” foods, your motivation is likely to drain rapidly if you take all of the fun out of your money.
Adam Baker puts it well, explaining how – in the context of getting
out of debt and building a secure financial situation – it’s still
important to spend on what you really love:
Find your passions and feed them. Of course you need some limits, but
the limits need to be higher than zero dollars. Starving yourself of
healthy spending is a surefire way to blur your focus and kill your
momentum.
True Frugality
“Frugality” is a loaded word. You might feel a bit uncomfortable
describing yourself as “frugal” – especially if it makes you think of a
penny-pinching approach to life.
True frugality isn’t about being cheap or hording away your money while living on a pittance. It’s about making sure that you get the most bang for your buck. It’s
about cutting back on expenditure which isn’t adding anything to your
life – saving on the things which don’t matter, or which you don’t care
about, so that you’ve got more money to enjoy!
Things that provide genuine personal value to you are not a waste [of] time or money.
Playing board games forces me to think deeply and it also provides a
powerful avenue for socializing – those things provide genuine personal
value to me.
(Trent Hamm, What Exactly is “Wasted Time” (or “Wasted Money”)? on The Simple Dollar)
I love to read, but I very rarely buy new hardback books. I generally
wait for the paperback release – and often pick that up second-hand. I
also use my local library. The net result isn’t that I miss out on any
enjoyment – it’s that I can afford more books overall, and that I have
enough to spend in other areas of my life.
Enjoying Your Money – Guilt-Free
So how can you spend money without feeling guilty about it? How can
you trust yourself to spend sensible amounts, and not get back into
debt?
One easy way is to allocate a certain amount of cash for “fun” spending.
You could set an entertainment budget for the month, or even for a
whole year. You could get an envelope each week and put $20 into it.
Whatever works for you!
I like to look for ways to get lots of enjoyment for a small sum of
money. A coffee and a long chat with a friend costs much less than a
meal out – but it can be just as enjoyable.
You’ll also want to think hard about what really matters to you, and what you care about spending your money on.
Don’t let other people’s views and values sway you here. Perhaps home
entertainment is really important to you, whereas you don’t really enjoy
eating out at fancy restaurants. Ramit Sethi makes this point
forcefully in his book I Will Teach You To Be Rich:
My friend “Lisa” spends about $5,000/year on shoes. … And on the
surface, that number is indeed large. But if you’re reading this book,
you can look a little deeper: This girl makes a very healthy six-figure
salary, has a roommate, eats for free at work, and doesn’t spend much on
fancy electronics, gym membership, or fine dining.
Now, I’m not a shoe person myself (I wear my shoes till they’re
falling apart, then I buy another pair). So my first reaction was $5,000 on SHOES? But I take Ramit’s point: his friend is spending on what really matters to her, and saving money in lots of other areas.
What do you really love? Can you cut down on your other spending, and put more money into that?
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