We have all spent moments thinking… Why did I buy that? Should I make dinner or go out? Should I get the new iPhone? The new car? The new jacket?
Our biggest internal conflict is “I don’t need it, but I WANT it.” Our wants often outweigh our needs resulting in increased consumer spending & higher leverage (Credit Card Debt, Loans & Mortgage Payments).
The main point I want to make is : h ow many of us truly think daily of our necessary spending and budget, before pulling out our Credit Cards or Debit Cards & the ease of tapping transaction to
transaction.
Do you spend much time considering whether to buy or not to buy? Or are you more interested in instant gratification? Do you think about your retirement which may be 10, 15, 20 or 25 years away? Have you set a savings plan? Contributed to your investments and planned for your future? Or are you living in the now & spending what you have or more?
If it’s the latter don’t feel as though you are alone, most Canadians spend their Disposable Income on the Now & not on the future. With ease of access to credit cards, loans & lines of credit it makes it too easy for us to expend our resources and over spend. We live in a world of instant gratification, filled with social media and marketing pushing us to buy the newest trend now, take that trip next month not next year and enjoy today & think about tomorrow later.
While this would probably place you at the top of the social media chains, with numerous likes, followers & in your friend’s eyes being wealthy, rich & a topic of interest/jealousy , the problem is that although the above causes instant gratification we fail to think of the consequences.
“It is the preoccupation with possessions, more than anything else that prohibits us from living freely and nobly.” Bertrand Russell
Societies addiction to instant gratification, indulgent spending and misguided spending can result in anxiety, increased stress and limited resources available for those rainy days and planning for your future.
There’s an easy formula and I want you to try it, I promise it will lead to a happier and less financially draining future. This will allow you to concentrate on those items which are more important and whilst having fun & enjoying every moment.
So, what’s the 1 st step?
Write down your unavoidable expenses (necessities) these include:
- Rent or Mortgage Payments
- Utilities
- Internet/Phone
- Groceries
- Gas
- Bus Pass
- Daycare
- Medicine
- Car Payments
- Insurance
Now total them up, and write that figure down under the heading “Concrete Expenses”.
Now, look at your bank statements, paystubs or employment contract and write down your monthly net income (after tax). Write that figure down under the heading “Net Income”.
Time for some basic math….
Net Income – Concrete Expenses = (Disposable Income)
The term makes it sound like it’s free money it is not remember although this is what you have following expenses you need to save for a brighter & better future.
OK… So now what do you do with that figure? Is the figure greater or smaller than you expected? Do you currently save any of this amount?
A bit more math …
A. (Take the amount you save) & Divide it by your Net Income, then multiply by 100
&
B. (Take the amount you save) & Divide it by your Disposable Income, then multiply by 100
&
C. 100% – (B) = Consumer Spending
What’s this all about? Well for most us we spend a large segment of this disposable income on trips, going out, new clothes, makeup, kid’s activities and that new flashy car, bike or ski’s.
That figure C is the amount you spend on consumer spending . It i s those quick moment purchase, instant gratifications & marketing tactics at work (and working). I like to call it as did David Chilton of the Wealthy Barber “Carpe Diem” those seize the day moments, enjoy the moments and buy now… do not wait spending.
Savings and Retirement Planning require discipline and delayed gratification… now where’s the fun in that?
What’s one thing we are constantly hearing? From our family, friends, partners, bosses, teachers, yoga instructors and self-help books? Life is about balance. Now the key question is, how do we obtain balance? By living within our means, making time for the things that matter by establishing our
priorities and setting goals & boundaries.
What stop’s us from doing so?
- Friends
- Kids
- Partners
- Ease of access to Borrowing
- The Media and Marketing
Our goal is to reach that item of “perceived wealth”, we too often judge our friends, family and business colleagues based on the following:
- Where have they travelled?
- The car they drive, the boat they have or toys which they own
- Their house location, size & prestige
- Flat screen tv, top of the line furnishings or high-end wine
- Where they go for dinner or drinks
- Clothes & Jewelry
The above has resulted in a materialized perception of wealth and happiness which misses integral parts to one’s happiness and future. Their savings (personal net worth), community involvement, family life & impact which they have on those around them goes unnoticed or appears a small factor in comparison to the above.
So why is it so hard for us to stop spending? Temptation is very tempting… Instant Gratification has an immediate result, whereas saving takes time and diligence to achieve. As Oscar Wilde once said, “I can resist everything but temptation.”
Ok, so I know I’ve listed some of the main reasons why we overspend and forget to save, and why we choose instant rewards vs. long term success & gratification.
I promise I won’t leave you on a daunting note. I promise to help YOU with these 4 simple steps to start.
- Spend Less than you earn. Follow the steps above to determine your net income, concrete expenses and disposable income.
- Start small, set an attainable goal : if you currently spend 100% of your disposable income, perhaps set a savings goal of 5% and then the next month 10% and grow it from there. Make sure to still have fun & for each item you give up reward yourself internally through setting milestones. Tracking is everything each week, month and increase as you go, you are more likely to reach your goals and follow them if you WRITE them down.
- Leave your Credit Card’s at home, keep one with a small limit on hand for emergencies, but put those with the high limits of 5,000-15,000 and higher at home. I have many of my clients who keep their cards in the freezer which allows you time when unthawing the card to determine whether the purchase is necessary allowing you to “inject time between stimulus” aka spontaneous spending or booking that trip to Mexico or Hawaii.
- Determine your triggers and avoid them. The first step is to write them down, what do you spend money on? Where are your weakest areas? Example being: If you love shopping online and find you are often o nline shopping in bed at night, turn your phone on airplane mode to avoid the temptation and pick up a good book. Or If you love eating out and socializing with friends buy a new cookbook, try a new recipe and invite them over rather than eating out – you will all save & have more one-on-one time without going over budget.
Our pursuit of ‘ more ‘ often distracts us from what’s truly important. Our material quest sabotages our financial future and has a negative effect on our psychological wellbeing. This can create tension in relationships, financial stress, anxiety and over utilization of our resources & limited savings.
Following the above 4 steps will help you to:
- Create a healthier financial future.
- Save for retirement and a better life ahead
- Determine what truly creates happiness for YOU and your family
- Increase discipline and achieve balance
Now… GO write these down, determine what your disposable income is and how much you want tosave. Make a list of your triggers and go ahead… put your Credit Card in the freezer for one day try it out. There’s no better time to start than the present.
