I am a notorious miser. One of my friends jokes every time she sees a moth that I must have opened my wallet. I don’t enjoy clothes shopping, I only have a couple of pairs of shoes and I forced my family to live with an oven that needed pliers to operate for many years because I was too cheap to buy a new one.
However, when it comes to health, I spend lavishly. I take lots of supplements, have a personal trainer and love exotic health treatments like whole body cryotherapy and hyperbaric oxygen therapy. I am not an elite athlete whose income is dependent on physical performance, so while the health treatments make me feel great, they are a bit of an indulgence.
For a committed saver and investor, this inconsistency might appear counter-productive.
However, there is an emerging understanding that consciously spending on things that bring happiness and satisfaction, rather than trying to spend less on everything all the time, results in superior financial outcomes. This is because frugality in itself, while helpful, is not sufficient to achieve long-term goals.
The best conscious spenders seem to be able to save at above-average levels while having all the things they want. Conversely, the inability to align spending with personal values is one reason that some high-income earners seem to be constantly under financial pressure, struggling to make ends meet, trapped on an endless treadmill, frittering their money away on whatever attractive thing catches their attention.
As we start a new year and our resolve to spend less and save more might already be wavering, here are some tips to leverage the philosophy of conscious spending:
Determine your personal values - There are a number of terrific online tools to help identify the handful of values that are most important to you in life. These will be different for everyone and there are no right or wrong answers. For me, health is one of my strongest values, hence my abundant spending in this area. Whittling your values down to just five will ensure they are all meaningful and you are not justifying all possible spending with reference to numerous weakly held values.
Understand your current spending - Review your last three months of credit card and bank statements or use one of the handy apps, such as ASIC’s Track My Spend to identify areas of spending that are absolutely non-negotiable. Of the remaining discretionary spending, highlight those that are strongly aligned with your values. The objective is to get rid of as much of the non-aligned spending, which is likely to be unconscious ‘leakage’. Just like personal values, there are no correct answers, with the same type of expenditure being essential for one person and completely frivolous for another.
Pay yourself first – Even worthy expenditure needs limits. Automate a sustainable regular investment in your financial future by making additional home loan repayments, voluntary super contributions or commencing a monthly dollar cost averaging program, and apply a conscious spending discipline to what’s left. In this way you will be incrementally moving closer to your long-term goals while still enjoying the journey.
As New York Times best-selling author Remit Sethi puts it, personal finance has a lot more to do with “personal” than with “finance.”
Understanding our internal motivations and personal values relieves us from the pressure and guilt of constantly trying to spend less. The result might just see us finish this year happier and wealthier than when we started.