Simplify (Part VIII): Show me the money, honey.
Personal finance, other than the accumulation of material possessions, is possibly the least simple area of most people's lives. It's one of the primary points of contention within marriages and for good reason: it's one of the clearest identifiers of one's priorities. Despite what we might tell our friends, family or spouse, where our priorities lie will be clearly displayed in our record of recent transactions. I might talk about how much I love travel (and I do) but if you look at my spending habits, you'll notice that travel is taking a back seat to financial independence and security. Those are two things I value above travel at this stage in my life therefore, those are the things that receive the bulk of my money.
Since simplicity is all about eliminating, automating or delegating the least valuable areas of your life so that you can focus on the most valuable areas, understanding your priorities are paramount. Finances are a perfect place to begin discovering where you place importance. Just to help you gain some solid footing before we dive into a few fundamental principles of finance, I want you to look back at just the last month of your transactions and categorize them.
- On what category did you spend most often?
- On what category did you spend the most money on?
Did the answers surprise you? If personal finance has been a challenge for you or, at the very least a hassle, I hope that a few of these principles will help simplify the process for you. Despite what the big shots on wall street would like to tell you, being smart with your money does not have to be comprised of a gazillion complicated processes. Stressful at times, sure, but not complicated. If you can begin to nail down these principles, you'll find yourself less worried about money over time.
1. No debt
Debt is writing someone else's name on the money you make. All of those dollars your pulling in every other week? They're not yours - they belong to the guy who has a legal right to claim them. In Scripture it says that the borrower is slave to the lender. If at all possible, stay away from situations in which you'll come out indebted to another man. There's rarely a need to borrow money for a purchase; most payments can be made in full, in cash. The one exception (though I believe it better to avoid this as well) would be purchasing a home due to its expense and necessity. If you're going to have to pay off a loan over time, instead take that time and save up until you can buy it outright. Don't spend money you don't have. It's playing with fire.
- It relieves the spiritual weight of being indebted to another man
- It relieves the mental weight of having to keep up with payments, due dates and legal issues
- It relieves the emotional weight of having your money belong to someone else
- It relieves the financial weight of paying additional money in interest payments
2. Spend less; Save more
As of 2013, 76% of Americans live paycheck to paycheck, relying on their employer's fondness of them, the relevancy of their skill set, and the demand of the economy to keep their life moving forward. Should they tick off their boss, become irrelevant or run into economically tough times, the lifestyle they enjoy is in jeopardy. We live in a culture that worships spending and it finds every chance it can to take our money. Go back to that exercise we did at the beginning of this post and look through your last month's transactions. What was it that you spent your money on? And how much value did those expenditures add to your life?
Remember, simplicity is about focusing on what adds value. Spend money on fewer things but on the things that you really love. Find the list of those experiences or possessions that give you the most value for your dollar and put your money there. Quality over quantity.
Living wisely and being smart with your spending habits is actually a fun challenge. What can you rearrange or eliminate so that you cut back on your spending yet still find value in your lifestyle? As you learn to do without certain things, it's amazing how fun saving can become - it's like an online roll-playing game where you accumulate wealth for your character... except not as fast (sadly).
- Break the cycle of living paycheck to paycheck
- Enjoy the security and freedom of having cash in the bank
- Spend your money on what matters to you
- Watch the numbers in your account add up
3. Track your spending
I've mentioned this quote before, by Peter Drucker, "what gets measured gets managed." Simply by keeping track of the things you spend your money on, you'll find that you become more intentional with your spending. You begin to become more aware of when a purchase is superfluous and probably not a good use of your dollar and when a deal is worth jumping on. You can do this by simply keeping an ongoing list of the categories of spending and write down how much was spent in each category each month (like the one you did at the top of this post).
Here, I've already created one for you.
Giving, though counter-intuitive to how many view smart finance, is central to a balanced and healthy financial life. What is money, really? Its worth is negligible in the grand scheme of things. As I briefly touched on in the last post, how we use what we have to bless others is really the only question that matters. Giving, no matter how tight the budget is this month or how much you really want that new pair of shoes, forces you to prioritize others in your life. It's a great reminder that our life here is so short and our future is in heaven with our Creator. In Malachi, God tells His people to test Him in this, that they should give back a tenth of what He has blessed them with and He will open up the windows of heaven so that their storehouses will not be able to contain the blessings He will pour out on them. Of course, giving shouldn't be a devilish scheme to get God to bless you with more stuff. It's a matter of the heart and when you give and God does bless you with more, you're being "restocked," so to speak, to give again.
- Experience the joy of giving
- Bless others with your wealth
- Use the gifts of God to further His kingdom
Four principles. Simple, right? Like I said, there are always complications in finance (I'm convinced it's some sort of scam to increase job security for the financial gurus) but if you adhere to these principles, you'll worry less and find the security and freedom in finance that you've been looking for. Don't over-complicate things.