There are certain words and phrases in the financial world that no matter how they are used just seem to have a negative connotation. Words like “budget” and “savings”, if we admit it, can just rub us the wrong way. In some relationships they can even cause tension and arguments.
What do these words have to do with living within our means and why is this even important? I truly believe that the weight of debt the average American is living under is holding them back from living the life of their dreams. Depending on the survey, data consistently shows that Americans spend between $1.24 and $1.33 for every dollar earned. They are living way above their means.
I think words like “budget” and “savings” are actually positive words and putting them to action can save marriages and help people gain financial freedom and ultimately live the life of their dreams. So how do we live within our means?
Yes, I said it – the “B” word. Creating a budget and sticking to it is the #1 course of action for anyone who wants to live within their means. In order to succeed you must have a plan. And for those of you that are married – you both need to work on it together and both agree on it. That is all a budget is – a plan. The budget is not to make you or anyone else feel restricted, but to give you permission on what you can spend. Like Benjamin Franklin said, “Failure to prepare is preparing to fail”.
“By failing to prepare, you are preparing to fail.” – Benjamin Franklin
2. Prioritize Your Wants vs. Needs
Often times people confuse a “want” as a “need”. They fail to plan ahead and spend money on impulse items without taking a moment and asking themselves, “Do I need this or do I just want it?”
A need is required for survival, but a want is a desire. I need to eat, but I want filet mignon. There is a huge difference between the two.
Taking just a couple of minutes to think this through before making a purchase can save you from breaking the bank. If you are unsure, ask your spouse or a trusted friend. If something truly is a need then you must plan for it in your overall budget.
“I need to eat; I want to eat filet mignon” – me
For most Americans being content with what we have seems to be almost impossible. We are forever upgrading to the latest and greatest gadget, car or even house. We overspend and get into debt trying to keep up with the Joneses. I love the way Dave Ramsey says it, “We spend money on stuff we don’t need to impress people we don’t even like”.
And often times once we buy one item it can lead to a domino effect of needing more new “stuff” – making it harder and harder to be content with what we already have. This is actually referred to as the Diderot Effect.
The Diderot Effect states that purchasing a new possession often creates a spiral of consumption which leads you to acquire more new things. As a result, we end up buying things that our previous selves never needed to feel happy or fulfilled. This type of behavior is what gets so many people in financial binds that can lead to a serious financial crisis.
“We spend money on stuff we don’t need to impress people we don’t even like”. – Dave Ramsey
Contentment is a learned behavior
It’s an attitude that one chooses and I believe that begins with first being grateful for what one does have. We will never find true joy or happiness in possessions. If we base our happiness on obtaining bigger and better things then when will enough be enough?
As financial coaches one of the financial principles we teach people is that living within your means can be life altering. Living within your means and being debt free allows you to not only sit back and dream about the future and all of its endless possibilities, but to actually live them out.
If you are interested in achieving financial freedom let’s talk. Working with a fee-only financial planner is a great way to help maximize your money.
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