The single biggest challenge for an individual trying to get control over their finances is not their income level. It’s their financial literacy and their awareness of the problem.
Over the course of my life, I’ve lived at a wide variety of income levels. I grew up in a household without much money. I went through college without much money at all. I also spent time as a young professional earning a solid entry-level salary. Today, I’m a self-employed writer with a widely varying income.
The amount of income I earned had very little connection with how much of my income I was spending or saving. Earning more money didn’t somehow magically mean that I was now saving more money. It usually meant that I was spending more money.
It’s easy to say, “Well, that’s because you made bad choices,” and that may be so. The thing is, I made essentially the same set of bad choices whether I was making $8,000 a year or $60,000 a year.
No matter what my income was, my spending would match or slightly exceed it.
This is a problem that a vast number of Americans face all the time. No matter what they earn, there’s always a channel to spend it. There’s always something else to long for and to acquire.
It wasn’t until I reached my own “fiscal cliff” in early 2006, when I came to the realization that some things in my life needed drastic change, that I began to turn around my spending and saving habits.
At this point, no matter what my income is, my spending stays roughly the same from year to year.
Excluding my mortgage (which we paid off in 2011), our average monthly expenditures in 2010, 2011, and 2012 were pretty close to identical. My income level in those three years varied quite a lot, too.
In other words, before we were financially successful, our spending was tied heavily to our income. We spent at or around our income level each year.
After our financial turnaround, our spending eventually reached a reasonable point and stayed there, regardless of our income level. That “reasonable point” is substantially below our shared income level, a statement that would be true for any year since we graduated from college.
Our financial turnaround wasn’t based on income growth. It was based on having a grip on what the problem actually was.
What was the problem? The problem is that we were spending based on a social idea of what we should be spending. We’d see something, get all hyped about it, buy it, then move on to the next thing in a blink or two. We’d constantly accumulate things that we would barely use or upgrade things needlessly when the original worked perfectly fine, or we would “treat” ourselves so often that the experience would become routine.
If you’re finding yourself struggling financially, look around your life. Do you have a bunch of DVDs that you’ve rarely watched or video games that you don’t play? Are you sorely tempted to upgrade your phone, even though it won’t really do anything your current phone doesn’t do? Do you have a compelling need to constantly update your home decor, even though the stuff you’re tossing aside is perfectly nice? Do you go out to eat at different restaurants or coffee shops so often that the experience is commonplace?
If I’m going to invest one of my dollars into something, I want to get something worthwhile out of that dollar. Something that does the same thing as something I already have? Not worth it. A restaurant visit or a coffee stop that’s so ordinary that I don’t appreciate the treat? Not worth it. A new computer game when I have several that are barely played? Not worth it.
The challenge for most people is actually living that way.
We are constantly bombarded with the idea that you need to have the latest and greatest thing in order to feel good about yourself. You don’t.
Here’s a new challenge. Spend a month without going out to eat. Discover what foods you can prepare at home and genuinely enjoy. Spend another month without visiting a coffee shop. Spend a month without adding to whatever it is that you collect, whether it be computer games or clothes or trading cards or DVDs, and instead digging into and enjoying the items you already have. Spend a month reading five books you checked out from the library in the evenings instead of buying new ones or going out on the town.
Chances are, you’ll find a whole lot of pleasure in those things, and they either cost you nothing at all or cost you far less than you were spending.
That’s the new normal. That’s the normal that led me to financial rebirth. That’s the normal that led me to appreciate the smaller things in life.
That’s the normal that changed my life completely.
It’s hard to reach that normal, whether you’re making a bit over minimum wage or you’re making $200,000 a year. The easiest way to get there is put up some blocks and find the joys in life that you already have without simply buying more and more and more.