Money (or lack thereof) is often-cited factor in divorces, suicides, and just about any other negative life situation you can think of. To overcome this oppressing source of stress, one simply needs to adhere to a lifestyle of sustainable finances. The secret isn’t complicated:
Bring in more money than goes out.
Simple. If more money goes out than in, your financial future is unsustainable and you will either (1) use up all your savings, (2) run up debt, (3) both of the above. If you bring in more money than goes out you will either (1) save money, (2) pay off debt, (3) both of the above, and/or (4) invest that extra money so it works for you.
I’m a guy that makes data-drive decisions; show me the numbers and I’ll believe it. So here goes:
Example 1: Joe makes $45K/year as a paralegal and spends: $20K/year on his super nice modern loft apartment in downtown, utilities (water, gas, electric, cable) at $2.5K/year, $6K/year on his fancy SUV’s loan payment, $3K/year for gas, maintenance, and insurance on that SUV, $5K/year paying off student loans, buys a coffee a day ($4*7*52=$1.5K/year), eats out three times a week ($25*3*52=$4K/year) and goes out on the town with friends an average of twice a week ($80*2*52=$8K/year). Oh, and Joe occasionally buys groceries for his other 18 meals each week ($4K), takes his girlfriend on a once-a-year vacation to the Bahamas to get away from it all ($5K), and maybe even decides to upgrade to that 60″ TV complete with surround sound ($1K). Because you know, hosting that once-a-year party will now be so much cooler. Let’s run the numbers:
Income-Expenses=$ Left Over
45- (20+2.5+6+3+5+1.5+4+8+4+5+1) = -11
Wait a minute! That means that Joe is losing $11K/year! And we didn’t even count his monthly haircuts, the random Powerball ticket purchase, or annual gym membership! I bet those credit card companies sure love Joe; running up $11K/year in credit card debt gives them some great profits on interest.
Example 2: Susie is an inner-city teacher making only $30K/year. She decides to share her small apartment in the old city center with a roommate for $6K/year, which also cuts her utilities in half ($1K/year), drives a 1995 Ford Focus that was paid off 7 years ago, but still has an annual gas/insurance/maintenance budget of $1.5K/year. She is still paying off her student loans too, and also spending a bit extra for distance learning to knock out a few credits towards her Master’s degree ($7K/year). She makes coffee at home each morning while cooking her own breakfast, and to be fair in the example, she eats as much as Joe, running her grocery bill up to ($4K/year). Susie only eats out once a month ($0.5K/year), and prefers game-nights at her friends’ houses to hitting the bars. The occasional box of wine and pizza runs her entertainment budget up to $0.5K/year. Susie does have a soft spot for the occasional weekend trip back to her Parent’s house at a total annual cost of $2K/year. So, let’s see how Susie tallies up.
Terrible news for those credit card companies! Even though Susie is charging those online classes to her credit cards, she is paying them off each month so they aren’t making any profits off her. And she still has $7.5K to spare at the end of the year; what a stress relief! Now she can truly enjoy some free fitness classes in the park on the afternoons instead of trying to squeeze in some extra overtime to pay the cable bill. And since she isn’t stressed and she’s feeling healthy after her runs, she’s likely enjoying those game-nights with friends a lot more, building quality relationships centered around positive human experiences instead of boozing away a hard work week over beer and burgers at the local sports bar downtown.
What a great series of second- and third-order effects for simply being a bit minimalistic in her financial behavior. So you’ve determined you want to be Susie instead of Joe. Great! The trick is knowing how to change your pre-programmed and culturally-inundated bias towards consumerism into a minimal lifestyle. The blog provides many posts on how to achieve financial sustainability, but the main tenants are either:
(1) Increase your income until it is more than your expenses
(2) Decrease your expenses until they are less than your income
Everyone desires option (1), but realistically we can’t expect to just walk up to our boss and ask for a pay raise because we read an awesome blog online and vowed to change our financial behavior in order to get out of debt. Therefore, option (2) is the more realistic scenario for us to focus our energy on. Plus, the extra money saved from decreasing your expenses can be invested which provides further leverage on the savings.
Think minimal and I guarantee you can make the math work. What expenses can you cut out in your life that don’t truly matter? Right now don’t worry about social status, what your friends will think, or if you’ll miss some of those possessions–just make the list. What comes to the forefront of my mind is: cable TV, big SUV being used as a commuter vehicle, expensive house, bar hopping, daily coffee/ice-cream/juice/beer/whatever indulgements.
Now you start getting into a values-based discussion. What will others think if I trade in my Denali for a Kia (save $15K/year), or give up cable TV (save $1K/year), or get a roommate (save $7K/year)? Or you could ask yourself: When I’m financially sustainable, without debt, and saving for a successful retirement, will I be happier with myself when I’m less stressed, healthier, more optimistic, and have deeper relationships in my life? Or do I really want to look cool driving that Denali instead of beating around town in that Kia? Where do your values reside?
Wow–we went from talking about money to fitness to relationships to values in only one webpage. Where else will this blog take me? Check out the other components of minmylife to continue the journey!
Here’s some of the blog posts we’ve written on this topic: