Spending

How you manage your spending is probably the most important aspect of getting to FI. This is where you can dig in and really build strong habits that will help you achieve your goals and lead a secure, happy life.

We have a simple rule of thumb when it comes to managing your spending:

Only spend money on what you actually care about

Any time we're examining our expenses, this is what we have to keep in mind. It's hard, but we have to think deeply about why we're spending the money we're spending. Are we trying to impress others? Did we get sucked into yet another fancy Apple marketing campaign? Is peer pressure subtly getting the best of our wallet?

These are important questions to ask, and your first answer probably won't be the truth. Your mind is going to try and justify itself. Remember, this isn't something our brains are used to doing: understanding itself. Dig deeper and keep asking yourself why.

Take a second and think about your latest big purchase, be it a new phone (guilty), expensive clothes, purse, car, you name it. Why did you decide to spend money on this? Did you need it? Was it for you or was it so people though of you a certain way? If it was for others, who was it? Do you actually care what they think? If you do, why? What would it be like if you had friends who didn't care about that?

I know, I know. You came here to learn about money, not get a lesson on what true friends are. But that's the thing: how we spend our money is greatly influenced by those around us. As we search for happier lives, it's important that we're supported by friends and family that truly care about who we are, not what we buy or how cool we make them look. Regardless of what you do with your money, get close to good people and I promise your life will only get better.

Now imagine you didn't make that big purchase. What about your life would be different? Turning back to our Philosophy of Money, did this purchase make you happier?

Judging happiness is a tricky exercise. We tend to be overly-optimistic about how something (or someone, for that matter) is going to make our lives better. Be sure to think back to similar purchases you've made in the past and how you felt afterwards, 3 days, 3 months, 3 years later about it. Thinking about buying a new TV? Think about the last time you did that and how it actually impacted your life. Were you happier for it? This practice can be a great reality check.

Exercise

This exercise, though incredibly simple is the basis of all budgeting and smart money decisions. We call it a happiness estimation, and we urge you to get into the habit of doing it regularly. Start with the next big purchase you consider making (I bet you already have one in mind):

  • Figure out the true reason that you want to make this purchase. Keep asking why.

  • Decide whether or not this is a good reason.

  • Ask yourself what would be different if you didn't buy this thing.

  • Reality check how happy this purchase will make you. Compare to similar past purchases.

The goal is to make this a habit. Start with big expenses (cars, electronics, where you live) and slowly start applying the exercise to everyday ones. You'll find that you can start cutting expenses that weren't adding to your life anyways.

Making Mistakes

The trick is to not go overboard. We've found that for those who tend to have a "maximizer" mindset, this habit can become a bit obsessive. Make sure the stress of this process isn't actually making you less happy by itself.

You will make purchases you regret. Everyone does. Remind yourself that you are human and that beating yourself up over it isn't going to make you feel any better. Take note, see if you can't sell or return whatever you bought, and move on.

Next Steps

That's the basics on expenses. Really it's that simple: knowing why you're spending the money you're spending.

In the deep dive section on spending, we'll learn a bulletproof budgeting strategy that puts you in control of your money, how to estimate usefulness of your purchases, and how powerful cutting your expenses can be.