Folks who are new to the early financial independence movement often find themselves caught up in the supposed “deprivation” that’s required. A headline comes out about a family of four that lives on less than $30k a year and only eats out 3 times a year, and readers are terrified of what that must actually be like.
The separation between the reader and the family’s reactions is one simple change in mindset.
Real Contributors To Happiness
The truth is that many of the trappings of our lives don’t fall into categories that are necessary for happiness. They provide fleeting enjoyment, or help us feel better about how we compare to others. But the list of things that create lasting happiness can all fit into one small picture. This picture:
All your purchases should fit into these categories, or else they are just wasted dollars.
A FI-Focused Couple
For folks on the financial independence path, the spending pattern might look like this:
Health: They are buying healthy groceries and cooking at home. They are keeping active so their health bills are low. The may invest in a low cost gym membership.
Security: They have a modest house with small footprint, an affordable option in their area. It probably doesn’t have many bells and whistles, but that’s okay because they spend their time engaged in activities rather than staring at the gorgeous finish of the countertops.
Community: It’s amazing how much you can do with a little money when it comes to your community. Here, community means friends and family, as well as your neighbors and other groups. Spending $35 on something just because when you run into it as the perfect gift for your friend will do a lot more than buying a generic gift because you are ‘required to’ at Christmas. Giving your kids $100 to donate to a charity of their choice creates an experience for the whole family. I read once about a family who would take their kids to Toys R Us to pick out one gift at $X for the holidays, and they would each have the same $X budget to pick a toy out for a child whose family can afford nothing. I’m planning to borrow it.
Meaningful Work: It probably doesn’t cost much to engage in meaningful work, but to there is room in the budget for materials that will help them get better. Maybe it’s an advanced woodworking class at the community college. Or funds to start a blog. Or baking supplies to perfect the best chocolate cake of all time.
Freedom: This is where the bulk of their money goes. Savings to buy their freedom. And small purchases of freedom in the form of experts who can save them time, time that they can spend with their loved ones.
Very little money is wasted in a scenario like this.
An Average Couple
By contrast, an average couple might look like this:
Health: They are spending the same amount on groceries and healthcare, but there are several thousand dollars in the Other line to supplement their food requirements with meals out. These aren’t related to maintaining good health but some might try and convince themselves they are. How about the daily hibiscus refresher at Starbuck’s – is that for health purposes? It has some semblance of healthy fruit in it but sorry, no dice.
Security: Instead of a basic apartment rental to suit their needs, they opt for a luxury doorman building. The extra several thousand dollars in rent vs. a basic apartment isn’t necessary to have a warm, safe, and clean place and so it falls into the Other (Wasted) bucket.
Community: They spend little time thinking about their community because they “can’t afford” to give on such supposedly low salaries. They are just getting by, after all.
Novelty/Meaningful Work: They probably have lives filled with superficial busy-ness, leaving little time and energy to pursue meaningful work outside of their careers. And what circle can an exhausted couple most easily invest in? Novelty. While novelty is wonderful, they probably don’t need $8,000 worth of novelty. But it evaporated quickly with a $4,000 trip to Bali with their friends, the purchase of a $2500 motorcycle and a few other gadgets. We’ll count those as somewhat meaningful i somewhat excessive, but what about the thousands in fancy gadgets that got used for a day? They fall into the Wasted dollars bucket.
Freedom: What’s left gets put into savings to eventually buy their freedom. 10% is better than many folks, but they’re still bewildered. Where did all their money go??
Questions For You
The chart above can help you do some thinking about how you want 2017 to look.
Sure, it’s rudimentary. And maybe you would label your circles differently. That’s fine, re-label them. But then sit down and look at how your 2016 expenses fit into the picture.
Do you like what the amount you spent on your community says about you?
Now look at how much each of these circles contributes as a percentage of your spending, and determine if it actually fits your values.
How do you feel about the fact that you spend 2% of your income on your community of friends and family, and 20% chasing the latest thrill?
Many of the things that feel like deprivation at first glance don’t actually fall into the areas which contribute to real, lasting happiness.
If you’re unhappy about what your current spendings says about your values (and if you’re unhappy about the total on the Wasted line), there’s more than enough time to correct course.
When you actively try and classify your spending into these categories and see that it doesn’t fit into a major circle, the object will loosen its hold on you. And you’ll be free to spend your dollars more wisely.
Make your spending a message about how you want to live your life rather than a mindless routine.