|Tuesday, September 30, 2014|
Tough Times Series: Live Simply to Reap Savings
There is a movement underway to simplify our lives. Magazines, television programs, and Web sites offer devotees "101 Ways to De-clutter Your Kitchen" and "Tricks for Cutting Your To-Do List in Half." While these and other tips may fix what's ailing in a room of your house or in your daily schedule, one piece of advice has the power to both simplify and transform your life: Live beneath your means. Spending less than you earn results in less stuff and less stress.
Though the wisdom of adopting a live-beneath-your-means approach to personal money management may seem obvious, rising credit card debt, extensive home equity borrowing, and an alarmingly low consumer savings rate are evidence that frugality--defined in the cult classic "Your Money or Your Life" as a "high joy-to-stuff ratio"--must be a bigger challenge for Americans than one would expect. In fact, observers note that rather than socking away that annual raise, many U.S. workers simply increase their spending to match any growth in earnings--make 10% more, spend 10% more.
Still, if you're eager to get off the earn-and-spend treadmill and start living beneath your means, you can make the shift to a lifestyle that embraces moderation and eschews excess.
Spending less than you earn results in less stuff and less stress.
Real change only possible with new mindset
In their best-selling book, "Your Money or Your Life: Transforming Your Relationship with Money and Achieving Financial Independence," co-authors Joe Dominguez and Vicki Robin explore the role of money in our lives and its power over us.
Among other distressing observations, Dominguez and Robin note that Americans "project onto money the capacity to fulfill our fantasies, allay our fears, soothe our pain, and send us soaring to the heights....We buy everything from hope to happiness."
Funny thing, spending as a means to achieve greater fulfillment doesn't seem to work. Various formal and informal surveys, including one conducted by Dominguez, conclude that consumers on the higher end of the middle-class earning and spending scale are not any happier than those on the lower end.
So why do we keep spending beyond our means? Habit may be partly to blame. A daily routine that includes latte, lunch, and snack purchases could have you spending $10 a day without prompting a second thought.
Many workers increase their spending to match any growth in earnings.
To avoid mindless spending, Dominguez and Robin encourage consumers to ask of each expenditure whether it brought "fulfillment, satisfaction, and value in proportion to life energy spent?" "Life energy," a concept presented in their book, is the work it takes you to pay for a purchase. When you realize that two hours at a fancy restaurant will cost you nine hours of your energy, you start to analyze your spending choices more critically.
Alan Seid is president of the board of directors of the New Road Map Foundation, a nonprofit organization in Seattle that fosters sustainable ways of life and teaches the "Your Money or Your Life" nine-step program. Seid says that while the point of the book and course is not specifically to spend less money, expenditures just naturally tend to level off once people figure out that they do not need to spend more to maximize their quality of life. The key is figuring out what is enough and what is just excess.
Spending as a means to achieve greater fulfillment doesn't seem to work.
For those who tend to overspend in a big way--say, frequently upgrading to a new car, taking lavish trips, amassing a wardrobe that fills three closets, or always having the latest and greatest "toys,"--Seid suggests asking yourself what need you are trying to fulfill through your strategy of buying. Whatever it is--acceptance and self-esteem, for example--"you need to find a way to get fulfillment from something cheaper."
"Once they've made a healthy distinction between the ways they try to meet deeper needs and the needs themselves, they free up some creativity to explore the many, many strategies possible to meet any need. This alone can help us save lots of money," says Seid.
Another important shift in mindset that needs to be made before you can switch gears from spender to saver: Stop viewing spending as a reward and saving as deprivation. That outlook will doom any attempt to apply the tips and tools that will help you live beneath your means. Instead, see overspending as depriving you of the freedom to make choices about how to live and work, and see living beneath your means as the path to such rewards as peace of mind, financial independence, and the opportunity to do what you want with your life.
Stop viewing spending as a reward and saving as deprivation.
Straightforward steps reduce spending, increase saving
The point of living beneath your means is to avoid debt and save for what is most important to you--homeownership, freedom to spend time with your kids, early retirement, or whatever makes you look forward to getting up in the morning. Keeping your reward in mind will make adopting these tips and techniques for frugal living perfectly painless.