We are told that certain debt is good debt. This is a lie, or as some would say an “alternative fact”. I don’t care how you spin it, how on earth is debt a good thing? Honestly. If you could choose to have or to not have debt, which would you choose? Then why are we continuously told that some debt, certain debt, is good? I can only think that it is so we spend more money and buy more stuff.
But more things do not result in long term happiness. They just mostly add clutter to and complicate our lives. We sorely will be left continuously wanting and desiring more, if we believe money can buy us happiness.
Money can only move us so far along the happiness curve. Once we are “comfortable”, the more money we make doesn’t result in more happiness. A study from Princeton in 2010 proves this.
Our focus should not be to earn more money so that we can buy more things to increase our happiness. It should be, to earn enough to satisfy our necessities and provide a little comfort, and then to develop relationships with people, to pursue our hobbies, to focus on our health.
But we do need to get our money and personal finances in order to help us clear a path to the simple life and improve our well-being.
3 money habits to get a hold of our personal finances.
Set A Monthly Budget:
A budget often has a negative connotation. It carries a cautious and structured feeling with lack of spontaneity. So let’s make it little more positive. A budget can tell us how we intend to spend our money, as opposed to how we can’t spend out money. There, that’s better – a slight change in perception.
The key idea of a budget is to determine where our money is going before it is spent.
Before you even earn your paychecks for the month, determine how you intend to spend this money. This is the opposite of what most of us do. Determine what will be spent ahead of time instead of looking at your credit card bill later and hardly even recognizing the incurred charges.
This might seem rather obvious. Like, well I to have to pay my mortgage, my utility bills, my phone, and food. And that is completely true. We do need to cover those necessities. But we also mindlessly spend money we don’t necessarily have to spend. Hence our amassing personal debt.
Setting a budget at the beginning of the money, before we have earned our paychecks, is something Danielle and I have found to be very helpful. We take some time to develop a written plan of how we intend spend our money, and the purpose of each expected purchase or debit from our checking account. Writing this out allows us to get a very clear picture of our monthly income, monthly expenses, and money that we intend to save. This is not perfect. However, by writing out a budget every month, and checking in routinely, we can see where our money goes.
It should be real clear whether or not your expected expenses surpass your income when you write out your budget.
Each month we continue to refine this ideal budget, as we think of some small things we may have forgotten. The thing is, usually, it is all of these small things that can quickly add up and a reason credit card bills grow larger each month.
Budgeting is a great tool and habit to help us avoid the “buy it now immediate gratification tendency”. If we have money in the budget planned for splurges that is totally fine, but we are setting limits ahead of time to help control some of these urges.
Live Below Your Means:
You could say this is living like we are poor, however I think it more accurately reflects the “plan” to avoid living paycheck to paycheck. This plan ties in very nicely with developing a monthly budget of intentional and deliberate purchases.
Live below your means implies that there will be money left over to set aside for emergencies, to save for larger expenses or purchases, to save for our future.
I am not going to lie – you kind of need a budget in place in order to live below your means. Even if you feel you don’t spend money and you don’t buy things, the expenses that you do have may be more than you can really afford.
I think back to when Danielle and I first bought our house together. I was completely amazed at what I was approved for and granted. The total of the payments for the mortgage, taxes, insurance, a small student loan, and utilities, I was left with just $200 for food for the entire month…and nothing else! Thankfully Danielle and I shared living expenses. But if it was just me, paying for my home, food, heat, electric, water and trash, and nothing else, I could feel like I am living below my means even though I am in fact actually living above my means.
I don’t have a golden rule regarding allocating percentages of income to housing, food, or bills. But, a good starting point is to make sure you are saving a consistent portion of your income. And minimize the use of credit to make a purchase.
This is hard though. How do we buy a car and a home without borrowing money to do so? It starts with being honest with what we can afford. Saving money well in advance and making smart choices with our money. And it might mean buying a cheap used car instead of the newest model. Or it might mean renting while you save for a fixer upper.
Destroy the Credit Cards:
We no longer need to directly trade or barter physical services or goods to each other in order to meet our needs. We can trade money for the service or product that another provides. And this is great. Money simplifies the process. We still let go of something (our money) in order to receive something else. There is an actual or physical exchange. Except when there is not.
A few months ago I heard a very interesting concept regarding the use of credit cards. When you make a purchase with a credit card you get to keep the card. In the moment, you don’t actually give anything up – the cashier returns the card to you. It’s like you still have something to trade even though you don’t. This is very different than spending the last $20 in your wallet, and not having any more money to spend.
Credit cards are only for one thing (and it’s not a good thing) – to allow us to spend money that we don’t have.
You are more likely to overspend when you use a credit card. You are more likely to make impulse purchases.
And the less likely you are to make impulse purchases the less stuff you will bring into your life. The less debt you will accrue. And your life can become just a little simpler.
By implementing just one of these money habits, how could your life be different? What is one thing you can do today that will move you in that direction?