The spending factor
One of the great privileges of a successful professional career is release from the need to budget day-to-day. But the result can be lifestyle ratchet with expenditure growing to match income, without a corresponding improvement in wellbeing.
Being in charge of what you spend and creating a gap between your income and your spending is an essential starting point for obtaining financial freedom. Understanding what you spend also helps you understand the crucial question: how much is enough?
To make any sort of financial plan we need to understand our spending. But too much discussion around spending jumps straight to the idea of budgeting: building an itemised plan about where we’re going to spend our money.
The problem with this is that for the people who have most difficulty with their spending, this can be a real turn-off. It immediately moves us to a control mindset and one that is loaded with judgement about what we should be doing. This can cause feelings of intense guilt or shame if the budget is violated.
“Is this an essential item that we genuinely can’t do without? Does this spending bring an enduring enhancement to our wellbeing?”
In the spending factor I prefer to start from a point of getting a really deep understanding of how money flows in your life. Where does it come from and where does it go to? This takes some time. It can be done by reviewing past financial statements or it can be done through use of a spending diary over a period of a few months. Often we find that simply observing what we actually do brings about change more effectively than prescribing what we should do.
When we have an understanding of how we spend our money, we can then ask some reflective questions about each item of expenditure. Is this an essential item that we genuinely can’t do without? Does this spending bring an enduring enhancement to our wellbeing? Or, even further, is it essential to me fulfilling my most deeply held values?
On the flipside, is it spending that brings with it a negative emotion: guilt, shame, regret? If so, what was our circumstance or frame of mind when we undertook that spending? What was the deeper need that we were using that spending to try to meet? Or is the spending part of what is for many professionals a big bucket of spending that is really neither positive nor negative in our lives?
As we review our spending we may find some patterns becoming clear to us. Many people find that spending on experiences, especially those involving social connections with others, is much more valuable than spending on possessions.
Giving to others, for example by supporting charitable causes that we care about, is found to cause deep satisfaction for many people. We may also find that one of the main ways in which money can increase wellbeing is through the mediation of time. If we use money to buy time, then this can be a very significant source of happiness.
Most professionals, after all, have plenty of money, but what they are really short of is time. This was a very important realisation in my own life and led me to progressively trade money for time by reducing my working hours as I became more senior, freeing up time for other parts of my life to develop.
When we observe our spending, how it aligns to our values and contributes to our wellbeing, we often find that our spending behaviour automatically adjusts. And it certainly leaves us much better equipped to give meaningful answers important questions: how much money do I need to live the life I want to lead? And how can my spending today be better aligned to my values?
Have a look at the next factor — family.
Questions to start
What, in detail, have I spent my money on over the last year?
How much of my spending is: essential; life-affirming; enhancing; neutral; or detracting?
What does this say about how I direct my spending and how much is enough, now and in the future?
Start a conversation
If you like what you see, do get in touch to ask a question, share some thoughts or fix a time to chat. I’ll do what I can to help.