When people ask me what the most critical thing they can do today to help catapult them into financial security and freedom, my answer is clear: Spend less than you earn.
It sounds so simple, doesn’t it?
But like so many things in life, spending less than you earn is an easy concept to comprehend, but it can be challenging to execute. We are conditioned to want more — the latest iPhone or the car our neighbor just bought. It seems that no matter what stage of earning we are at, scarcity or abundance, we are often pushed to want just a wee bit more. That’s why pushing ourselves to spend less than we earn can sting so much. But if we take the time to look at how we view money and take some simple steps, this way of life (and it is a way of life) is achievable for us all.
Old Habits Are Hard to Break
You may think the issue is how much money you make. Make more, and you’ll be able to cover what you want — done and done. If only it were that easy. Your mindset is the real hurdle. It takes time and practice to change habits, and how we spend your money is a habit deeply ingrained, formed over many years of life experience. How did your parents view money? Was money tight growing up or did you have most of the things you wanted? How does your spouse approach spending, and how does that affect your behavior? While earning more money is clearly not a negative, it doesn’t mean the issue will be resolved. It takes digging a bit deeper and looking at the fundamentals of thinking and making a concrete plan.
The problem isn’t about how much we make. We are the problem. And this is critical to understand because until you identify the problem, you can’t fix it. If you think the problem is your income, you’ll spend your energy trying to make more money. While there is clearly nothing wrong with making more money, making more money will not necessarily make the act of spending less than you make a breeze. So what will?
Before we start this discussion, I want to note that spending less than you earn is quite possibly the single most critical financial habit to develop. And wouldn’t you know it, it is also often the most challenging. I hear all the time from my clients that the discipline to live below their means is the most difficult task on their financial to-do list.
If it were simple and easy to do, everyone would do it, right? But keep in mind, like any habit, once you get into the routine and hone your patterns of thinking around your spending, it will get more comfortable for you. We’ll discuss a few tips that can help you create this essential habit and make it a permanent part of your financial life.
Recognize Your Wants Vs. Your Needs
Let’s take a look at the basics: Nourishment, shelter from the elements, and clothing fall into the category of what we actually need. The other stuff, while it certainly enhances our living experiences, are not needs but instead wants. We have trained ourselves to think that we “need” We’ve convinced ourselves that two cars, cable TV, and eating at restaurants several times a week are vital to our way of living and our happiness. They certainly have become considered “needs” for many Americans. Visualizing what you can truly live without, for example, if you were in a real financial crisis, can help you classify what you can and cannot do without within your day-to-day living.
Take a look at what really gives your life purpose and meaning. For each person, that can be vastly different. Finding out how to live below your means is more than determining what your wants and needs are, it’s also about distinguishing what gives us fulfillment and what does not. Once you know the difference, you can focus your spending on what brings you the most joy.
Spend Some Time Experiencing “Less”
How would your family handle not having that second car? What if you ate out once a week instead of three times a week? What if you made your coffee at home in the morning instead of the pricey cup you get in the drive through? Why not try it out and see how it goes? Go without those things that you feel you need for a short time and see if these things are as necessary to achieve fulfillment as you believe them to be. It could turn out that you and your spouse enjoy carpooling together. You may find that you are skilled at pulling together tasty dinners in the kitchen and have found a new beloved hobby that gives the boot to eating out at restaurants. Giving life a try without these things for a trial period can be a great way to see how you and your family adjust.
Effectively Communicate with Your Spouse or Partner About Money
Many of us share our financial lives with someone and how that person views money and spending is as critical an element to living below your means as your own habits. You must work as a team and communicate about your goals and challenges. You may find that you have some pretty steep disagreements about saving and spending, so it’s essential to execute an effective way of talking with your partner about finances. Make a specific time to discuss where you are currently as a couple, what your goals are, and how you think you can help each other get there. Being careful not to accuse each other or speak angrily as this can breed resentment; instead, try to understand where each other is coming from work on making concrete goals with concrete, achievable steps to get there.
Analyze Your Personal Weak Spots
What is your kryptonite when it comes to saving and spending less than you bring in? For many, it’s things like impulse buying online (2-day shipping is an instant gratification slippery slope!) or eating out too often. Whatever your issue is, pinpoint it and work on it. Some expenditures are likely not too bendable, such as your monthly mortgage payment or your air conditioning bill, so try to focus on the items you can attend to that give you the most trouble in your spending immediately.
Sweat the Small Stuff
When it comes to dollars and cents, the little things matter; everything counts towards your bottom line. One of the most significant mistakes we make is we glaze over the smaller expenses, regarding them as irrelevant to the big picture. While it’s true that an impulse buy of a new car will sting more than that extra cup of coffee now, the routine of that coffee trip over time will add up to a number that will undoubtedly make an impact. Spending less than we earn is not easy, and no one wants to look at every transaction under a magnifying glass. However, if saving truly is your goal, thinking through your small expenses along with the large ones will get you on the right track.
Make Some Drastic Moves
Sometimes we need a little more structure to save ourselves from… ourselves. If you feel like those shopping website promos in your inbox are too tempting (50% off any purchase? What? Click!), then unsubscribe from the sale alerts for a while. If credit cards are an issue, then either get rid of them or have someone you trust to keep them for you, so you are not tempted to use them. It’s ok to remove the temptation from your life. More saving is what you are looking for, so focus on that for now. In the interim, you can do some introspection as to why and how these habits became a problem for you and work on some of the thinking patterns that keep getting you into a bind. That will take some time, so for now, take whatever extreme measure you need to keep that money in the bank.
Spending less of your money than you earn requires discipline and can feel like a real test of will, often, regardless of your income. If you are ready to make the jump, implement the tips we have discussed here to make a move in a positive direction. It may not happen overnight, but through focus and perseverance, you’ll start to see the balance shift with more money for you to save and invest for your future and that of your family.
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