This article was written by Lionel over at www.centbycent.co.uk go to his blog to discover more about personal finance and how to get on the road to financial independence!
Who doesn’t want more money? Or to see their income grow?
We all dream of what we would do with unlimited income or if we could just save a little bit more. But we always feel like it is so much work. Instead of building habits, we try a new trendy budgeting technique. Whether it’s 20% saved per month, 30 days no take-away, or 50-30-20.
Just like diets they only last a few weeks – maybe months for the most courageous. The problem is as we start getting used to one system a new fad comes to town. Yet another vicious circle…
What’s the solution?
Follow my lead and change your relationship with money. I did it through a life-philosophy called Essentialism. It’s the idea that you need less to be happy, not more. The quote that inspired me to stick to this mindset is:
“You cannot overestimate the unimportance of practically everything.” Greg McKeown
Whether I review opportunities, set goals, or make decisions, I only choose what matters most. By prioritizing, I have been able to not only reduce my spending but manage my money more efficiently.
There are 3 key pillars to make this mindset work.
Pick your opportunities
On average we make 35,000 decisions a day. It’s almost impossible to make the right choice at every turn. We are hardwired to say “Yes”, Whether it’s to go out for a drink or help someone for free. It’s always easier to say yes. It feels safe and comfortable.
Of course, If you don’t take the risk of saying no you have time to help out or go through sales. But it’s at the expense of your time. You can no longer invest in your own projects, accounts, or take the time to manage your money. Not only will it cost you time but money. By seizing everything you will quickly end up with an empty bank account.
Before I started turning down opportunities, I was scared the great opportunity would pass me over. Yet, I have seen the quality has increased. Instead of losing out, I know have the time to research my investments. Whereas I suffered from analysis paralysis focusing down allows me to achieve my goals at a faster rhythm.
I no longer spend my money on unnecessary opportunities and dodgy investments. By taking the time to make a decision I’ve been able to increase my portfolio growth and savings.
At the end of the day, it’s our FOMO that takes us away from achieving our goals.
Understand your values
The biggest thing an expense sheet can bring is understanding. Thanks to it you can clearly see where your habits lie and what you value. A standout picture of your life – How you expand your energy.
At the end of the day, you trade your life away for money and wealth. How you spend it shows the value you put on your time.
You might be thinking: “ This is great but how do I apply it?”
It all starts with tracking your expenses. I have assigned categories to all my purchases and total them up in a spreadsheet at the end of the month. I then take the time to ask 3 questions per category:
Was this purchase inline with my values?
If I had not spent this money – would my life have been worse?
Did my purchase make a positive impact on those around me?
By asking these 3 questions on a monthly basis, I no longer use rigid budgeting! As when I’m about to spend anything I automatically consider all 3. It might sound like another one of the “trendy budgeting tricks” but far from it.
Applying this approach not only let me save more it led me to a fulfilling life. At first, my mind was crowded with “What ifs” and my wallet suffered the consequences. Now that I only spend on necessary things such as rent and experiences that bring value. I no longer have the impulse to spend without thinking.
Understanding who I was through my spending habits. I went from saving 5% of my income to over 30% monthly, The key is to revise your categories and personalize them to understand the “Why?” behind every purchase.
3. Make saving a game
The biggest problem with money management is how it seems boring from the outside. We aren’t all lucky enough to be passionate from the get-go. Although, I always enjoyed having money in my accounts (who doesn’t?). I needed to find some extra motivation.
If managing my wealth is going to be one of the few things I focus on… might as well make it fun. We all hate tedious tasks. To help you find the excitement in saving I will share a few of my favorite tricks.
When I set saving targets for new house, for example, I want to save $10,000 dollars a year. I break it down into smaller achievements. Whether it is saving my entire bonus this year or finding the cheapest deal for my new shoes. I make it my mission to find the best deals and offers. When I do, I take the time to celebrate my victories. Personally, my favorite is a square of chocolate.
I’m also adept at saving my leftover cash in envelopes. In this case, after each purchase in cash, I will deposit the change in the envelope. Once I reach $100 – I deposit into my account and go straight to investing it. At each new start, I write down the time it took me. Aim for the fastest as the earlier you invest the more you’ll benefit from compounding interest!
I also only allow myself to spend money on frivolities once I have reached my saving target of the moment. Thanks to this approach budgeting is no longer a chore. It’s worthy of a reward!
Saving money is only as difficult as we make it. By transforming it into a meaningful and entertaining part of our day we can make it second nature. I used to only save when I was following a program or a challenge.
Nowadays, I’m able to save a third of my income consistently without a second thought. Going from dreading looking at my account and expenses to seeing them as an opportunity. You can learn from your spending but the most important is to improve. You cannot let yourself look back in shame.