Tell me what you value and I might believe you, but show me your calendar and your bank statement, and I’ll show you what you really value – Peter Drucker
Can you remember the last time you walked into someone’s house for the first time who you didn’t know or didn’t know well? You began to look around inside. The pictures on the wall, the furniture, the decor, the books on the shelves and magazines on the coffee table. These things all give you clues as to the type of person who lives here, what they value and what their interests are.
Similarly, our bank statements and credit card bills reveal a lot about what WE deem valuable and what OUR interests are.
Scrutinize your bank statement and credit card bill
When looking at your bank statement or credit card bill, have a close look at what you spent your money on. Tickets to a rock concert? Regular coffees at Starbucks? Take-aways every other night? iTunes purchases? A car payment?
These purchases reveal a lot about your habits and values. Do you really like the rock band you went to see? Or did your friends drag you along and you couldn’t say no? Was the experience really worth the ticket price? If it was, that’s awesome! But if it wasn’t worth it, would you rather still have the money in your account?
How much is that car payment? Is having a nice shiny new car really worth all that money you have to fork out, or does it pain you to see that money leave your account every month? Would you rather own an older car that’s paid off (or better, bought cash)? Then, why DID you buy it?
What are my values?
Were these purchases really aligned with what you think your values are, or are you deceiving yourself? The car purchase is a good example. Did you tell yourself that you needed to buy that new car because of its great safety features, or amazing fuel economy, or some other reasons, just to come up with enough excuses to justify the purchase, because in all honesty your current set of wheels are still 100% fine and you just wanted to have that sexy new car?
Be honest with yourself. If you look closely, you’ll find what you really value, because that’s where your money will go…
Have a moment and rethink your long-term goals. Do you want to retire one day? Do you want to live a comfortable life in retirement? Maybe even retire a little earlier? Write down a few of your most core values and think about what really matters to you.
When you’ve come up with your real core values, have another look at your bank statement or credit card bill, and do the following:
Next to each expense on the statement, write down yes/no by asking the question: Does this expense align with my values?
While doing this, be honest and truthful, without falling into a shaming/blaming mindset or trying to justify each expense. Now, go over the list again and notice all the expenses you incurred that don’t align with your values. All those expensive coffees at Starbucks? How will they help you reach your goals?
You’ll notice that some of these expenses really are money wasters. So what can you do about them?
Some of them can be eliminated completely. For example, paying off your car and not financing another one, ever again – buy cash or don’t buy! Another example is to not always go out to an expensive restaurant when spending time with friends. What’s wrong with having them come over and spending a free afternoon or evening together at home?
Some expenses can be replaced with cheaper alternatives which still give you the benefits, for example not buying expensive coffees at Starbucks, but making your own. Or not buying expensive lunches at the shop around the corner from the office, but packing your own. Or not joining friends for an expensive restaurant meal, but rather having them join you for a picknick in a park instead?
Think creatively and make sure you don’t justify any of these expensive items just because you’re too lazy to implement the alternatives! Be willing to suffer a little. Remember, any money you spend today incurs an opportunity cost!
Breed new habits
A lot of our expenses are just poor money habits. We spend mindlessly without even realising the amount of money it costs us. So when we do indeed find alternatives – or ways to eliminate mindless spending – we need to make these changes stick. We need to breed new habits. How do we accomplish this?
- Automation – if you know that you’re going to need to replace your car in a year or two, rather than waiting until it’s time to buy a replacement and then having to finance the deal, start saving immediately by having money transfered to a savings account every month, specifically for this purpose.
- Accountability partner – just like a gym buddy helps one stick to your exercise routine a lot more succesfully, having someone to keep you focused on your financial goals also helps. Spouses can keep each other in check (but don’t let this turn into a blame-war! That definitely won’t be worth it!). Colleagues at work can also be good partners – teaming up with colleagues and having each one prepare lunches for everyone in turn, works very well for some people I know and work with.
- Make it a challenge – challenging yourself to find clever ways to save can become an addictive game! Finding cheaper transport alternatives, or the best cell phone deal, or replacing a specific service with something else (think short-term insurance premiums, bonds costs, cell phone contract costs, etc).
- Eliminate – if you walk past the Starbucks every day and it is just too tempting to grab a cup every time, change your route.
I hope these thoughts can be of help to some of you! Until next time, happy saving and investing!