Building wealth (and paying off debt) can be reduced to two very simple steps. Earn more. Spend less.
We all know that these steps work. But many of us struggle with following through. We try to white-knuckle ourselves into a tiny budget, which might work momentarily, but ends up backfiring later down the road. We try to live on cash for half the month and then realize that we’ve run out of money once again, and turn to our credit cards to bail us out. Unexpected expenses derail us. Or we’re so behind on our bills that it seems like we can never catch up.
So, even though “spending less” is a simple solution. It can be very difficult to put into practice without some very clear guidelines.
I teach three basic questions to ask yourself when it comes to spending:
Can I afford it?
Do I truly want it?
Is it worth it?
Know what you can and can’t afford.
If we are in debt, we do not own our dollar bills. We are renting them. Whether it’s from VISA, our mortgages, our student loans, or Victoria Secret. If we owe dollars to someone else - the dollars in our bank accounts are not ours. They belong to someone else.
To truly afford something, it means being able to purchase it with the cash that we own. So, if we don’t own cash, and we are in debt, we technically can’t afford anything.
This doesn’t mean that we aren’t allowed to pay for anything while we are in debt. It simply means that we must tell ourselves the truth: that we truly can’t afford it and we are spending money someone else’s money to buy it. We’ve got to understand that by purchasing something that we can’t afford, we are choosing to stay in debt. One dollar at a time.
If we aren’t in debt, affording means feeling abundant about the consequences of the purchase. It means the expense won’t wipe you out or put you in a difficult or scarce financial position. It means that you can remain financially and emotionally stable after the purchase.
Knowing what you truly want.
Our true wants are in line with our target. They align with the change we are wanting to make. They are congruent with who we want to be. Our true desires are healthy for us. They add value to our lives. They enrich our experiences. Instant gratification is the opposite of what we truly want. Compulsion is the toxic offspring of impatience and self-sabotage. It disguises itself as desire but this indulgence takes us in the opposite direction of where we truly want to go.
We might think we want to lay on the couch and watch TV, but what we truly want is a healthy body. We might think we want more cookies or another glass of wine, but what we truly want is to be proud of ourselves. We might think we want a new handbag, pair of jeans or trip away this weekend. But what we truly want is to pay off debt and take responsibility for our long term financial well-being.
We’ve got to navigate the voice in our heads that tries to sell us on compulsion and instant gratification and have the discipline to rise above it and look at our long term desires.
Know what it’s worth.
To understand worth we must understand value. We must understand the value of a dollar, ten dollars, a hundred dollars. Debt drastically skews our understanding of value because we do not see a purchase as a direct exchange. We buy something and close our eyes to what that action truly means. We are playing make-believe with someone else’s money and we are relying on our future-self to do the hard work of bailing us out of our fantasy.
To understand the value of a dollar, we must understand what it means to us in our lives. What it takes to earn it. What it represents. What we can exchange it for. The power that a dollar holds.
Basically, we know it’s worth it if we are willing to do what it takes to earn it.
If we implement these three questions, we can easily change our habits and drastically influence our results.
When we buy only what we can afford, truly want and value - we effortlessly begin weeding out unnecessary purchases. We simplify our finances. And we make quick and simple strides towards long-term wealth.
Spending less is about seeing the grace and beauty in frugality. Instead of equating the word to greedy penny-pinchers, re-define it.
See it as an art.
An act of mindfulness.
Full of purpose and love. For yourself and for your future.