I’m a financial advisor. But I’m also a normal person just like you, and I know how difficult it is to be an American and somehow not feel it’s your duty to shop.
Our economic and social system is based on capitalism, which is partly defined as the creation of goods and services for profit in a market. The consumer (you) is a very important part of this equation because if there are no buyers for the goods and services – what happens to the economy?
Economists watch consumer spending like hawks – and no wonder: it fuels about two-thirds of total economic output in the U.S. Talk about pressure! Consumer spending is so important several indexes have been designed to measure it. The most widely used index is the Conference Board Consumer Confidence Index and among other factors is used to determine the direction of the economy.
The perfect agent for promoting consumption is the advertising industry. Advertisers want us to consume. Their mission is to make products and services as enticing as possible so we buy them whether we need them or not. Watch a few episodes of Mad Men to learn the tricks of the trade. Watch T.V, drive down the freeway, listen to the radio, log on to a website and you’re bombarded with advertising messages.
It’s almost impossible to escape from the influence of advertising unless you live like a hermit. A quote from Wikipedia describes advertising as the “pillar of the growth-oriented free capitalist economy” and states that “contemporary capitalism could not function and global production networks could not exist as they do without advertising.”
Born To Shop?
No wonder we sometimes feel we were Born to Shop!
The problem: economists and advertisers aren’t concerned about your personal bottom line. Just like you, they’re concerned about their jobs, their families, their standard of living and their ability to retire comfortably.
We need to adopt a “me vs. them” mentality. When we open our wallet to buy something… let’s stop and think: do I want “them” to have my money, or do I want “me” to have my money? The person on the other side of the cash register doesn’t know if you can afford the item you are about to purchase – nor do they care. Think of shopping as a psychological battleground – that’s how advertisers think of it. Do you want to be the victor or the vanquished?
Feeling vanquished when it comes to your personal finances isn’t a good thing. It probably means that you’re in debt; you’re anxious about your future and you feel stuck. Is all the stuff worth it? Probably not.
Excess stuff clutters your environment and the collective environment and excess debt can ruin your credit score and your relationships. So it’s time to denounce popular opinion, admit you weren’t born to shop, stop spending more than you earn, and live within your means.
Like anything psychological or emotional, it isn’t easy to change. Read Simple Truth #2: “Your Money Personality Affects Your Money Behavior” for more insights on this topic. But there are things you can do to take control of your spending.
Here’s a strategy to get your started:
Balance Your Budget
1. Using an excel spreadsheet list all of your expenses subtotaled as follows:
- Fixed and necessary expenses: these expenses are the same every month and/or are necessary to keep you housed, clothed, groomed, healthy, fed and mobile
- Other committed expenses: child related expenses, pet care, fees to professionals, adult education, gym membership, insurance premiums, debt payments
- Discretionary expenses: vacations, dining out, entertainment, hobbies, electronics, gifts, home improvements, furnishings
- Auto-savings: retirement contributions and other savings
2. Total all the subtotals to come up with your total monthly expenses. Subtract this amount from your total monthly income. The outcome will either be a positive or a negative number.
3. If it’s a positive number, congratulations. You are living within your means. If you know you’re saving enough for retirement and other financial goals and have no debt to pay off, then you have some discretion as to how you use the money. If the outcome is negative, go back and rework your expenses until it comes out even or positive.
A hint: You will have the most flexibility to adjust on discretionary items, but you can also try and negotiate savings with service providers or increase deductibles on insurance policies to save on premiums.
Note: It’s important that you pay off your high interest consumer debt as fast as possible, so if you can increase debt payments do so.
4. Now that your cash flow is neutral or positive, this becomes your working budget. Need help staying on a budget?
Some Tips for Staying the Course
- Use mint.com – software that tracks all of your expenses, income and savings on line. You enter your budget and it will send you an email when you overspend on a budget item.
- Try the envelope system: place your budgeted amount for discretionary items such as clothing and food-out in an envelope in cash. When the cash is gone, you can’t spend on those items again until the next month.
- Leave your credit cards at home. Become more conscious that the money you spend is from a finite source. Try paying cash or using your ATM card whenever possible.
- If you are tempted to buy an item that you don’t really need, leave the store, walk around the block and think about it. Nine times out of ten you won’t buy the item.
- Print out a copy of your budget. Post it somewhere that is visible to you regularly. Keep it top of mind.
Remember: It’s “me vs. them”. Who gets your money?
Each month that you stay within budget, reward yourself in some small but significant way. Indulge in a nice lunch out, get a pedicure; order a nice glass of wine with a meal.
If after completing the budget exercise you find that it’s impossible to balance your cash flow or you don’t want to live so frugally – look at the income side. Can you ask for a raise at work? Find a higher paying job? Freelance? Start a small business? Rent a room out? Sell belongings to raise cash? Explore all avenues. Exercise your capitalist gene by thinking about all the ways you can produce goods and services for profit – for yourself!
Below are some additional resources to help you start living within your means:
- Read Your Money Or Your Life by Vicki Robin, Joe Dominguez and Monique Tilford
- Read I Will Teach You To Be Rich by Ramit Sethi
- Blog to Follow: Get Rich Slowly
Please feel free to share your comments about how you keep on a budget and/or what you have done to bring in extra income.
Do you want to manage your money (and life!) better?
If you want to think differently about the relationship between your spending, your values and your happiness, then sign up to get your FREE copy of The Happiness Spreadsheet.
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