Your Playbook: A Healthier Money Relationship
Money alone will not buy you lasting joy. Money alone will not solve many of your most profound relational problems. Money alone will not help you discover who you are or what you should do in life. More often than not, however, many individuals deceive themselves, believing that their pursuit of money can help them solve these and other life problems.
Don’t believe me?
You can ask the well-paid executive who spends too much time at the office and is about to lose his family. You can ask the professional athlete who worked their whole life to make it to the big time, only to find their successes wanting. You can ask the lottery winners who report little change in their overall happiness after winning a million dollars.
Make no mistake, money is essential to getting the things we want out of life, but acquiring money is only one component in building your ideal life.
And a common misbelief that some individuals hold is that the act of acquiring wealth will somehow bestow all sorts of gifts upon their lives. The often sad reality is that many individuals who pursue this end, often spend their time chasing more money in hopes that they one day will somehow find what’s missing in their lives.
It’s called the hedonic treadmill: without a purpose, the more you make, the more you want to spend and, therefore, the more you want to earn so that you can spend even more.
The fact is that money, in itself, is simply a tool. The acquisition and possession of money does not bestow magical powers to the individual holding it. Certainly, money can change a person’s current life satisfaction to a certain extent. This recognition is described in the book, “Your Money or Your Life,” and illustrates the relationship between money spent and personal satisfaction called the fulfillment curve.
What the authors show in their work is that there is a diminishing return between the amount of money spent and the fulfillment one receives from spending that money.
For example, a needy individual’s life satisfaction can change overnight when they can earn $2,000 per month to meet their daily survival needs. Their fulfillment level continues to go up if they earn an extra $500 per month to pay for creature comforts, and it continues rising as their ability to spend on luxuries increases – up to a point.
Once an individual hits the level of luxury spending, it takes an increasingly higher amount of money spent to move the dial higher in terms of life satisfaction. From an economic perspective, we call this the law of diminishing returns. Once our spending exceeds the point of “enough”, the consumption can produce a negative effect.
Indeed, one study from a couple of researchers at Georgetown University and the University of Birmingham analyzed measures of happiness and income levels using data from 2010 to 2015. Their study found that measures of happiness rose with income up to a certain point before falling. Indeed, in their study, the researchers found that individuals with higher reported incomes often reported lower happiness compared to those with lower incomes.
So then, can we say that to be happy means that we need to spend less money and live like a hermit?
Not at all.
The point here is that money does not give your life purpose. It’s a tool that helps meet essential needs and wants.
That’s why once your essential needs and wants are met, it’s time to give your money purpose by identifying your personal values and creating a life purpose that answers big questions like, “what is life asking of me.” If you still need to identify your values and define your life purpose, be sure to check out our resources from the January and February FI|Mastery Journey action items.
Give Your Money Purpose
For now, however, the next leg of the journey for giving your money purpose should begin by assessing whether you’re using your money to create your ideal life. That is, an ideal life that is aligned with your values and purpose.
So, what does it look like when you have your money purpose? Here are some examples:
Giving money purpose means knowing…
- why you work in a chosen profession
- where you are spending and what you are spending my money on
- why you are saving money for the future
- how you will feel when you can use your money to make critical life change
- that your kids won’t have debt burdens when they go to school
- that you are leaving something behind for future generations to enjoy
- that you can spend money without feeling guilty
- that no matter what happens in the economy or markets that, your financial situation is secure
- that you can help out a friend or family member when the financial need arises
- that you have the resources you need to pursue your hobbies and passions
- that you have the time to do what you want when you want
- that you have options to make life changes
- that no job or relationship will ever control your ability to live a fulfilling life
- that you can give your family life experiences that they can treasure
What purpose does your money have?
Take a moment to consider the values and purpose that you defined for your life. Then, think about the near- and long-term life goals that you’ve defined for your life journey.
Now, ask yourself, “how can I use my income and savings now and into the future to achieve my life goals?”
Do you need to increase your earning power, save more money or reduce your spending to achieve your goals? Maybe a combination of all three?
Your values and life purpose are the Northstar for where you’re heading in life directionally. The life goals you defined over the past couple of months set the milestones to tell you that you’re moving in the right direction. Your money decisions, thereafter, is the fulcrum for moving you closer to the overall purpose that you’ve defined for your life.
Either way, giving your money purpose is the first step in getting off the hedonic treadmill of mindlessly acquiring more money simply to spend it. Alternatively, it can give you the push you need to begin spending more intentionally if you’re a natural saver and worry too much about overspending.
Save and Spend with Confidence
A key benefit of knowing your money’s purpose is the ease of spending and savings decisions.
Because always knowing your money’s purpose reduces your need to overanalyze each and every spending or savings decision that you make from one moment to the next. That’s because when you have a base from which you make spending and savings decisions, making money choices becomes easier. And there’s an added benefit: it reduces overall cognitive load.
Now, in psychology, the term cognitive load refers to the amount of work that your brain has to go through to think through a complex task. Or, put a different way, it’s the amount of mental energy used to process information.
For instance, tasks that impose a heavy load on short-term memory, such as calculating, planning, and quick decision-making, result in less-than-ideal outcomes when time is a factor in the face of new or changing information.
So then, the two critical factors here are 1) how familiar you are with the information and 2) the amount of time you have to make a decision. When you don’t have enough time or information to make a decision, you typically revert to more common or familiar behaviors. And when it comes to your finances, these situations can lead to making decisions based on old money scripts.
Nevertheless, when you define a new purpose for your money that aligns with your values, making money decisions becomes easier because you have one less criteria against which to evaluate your decision.
For example, let’s assume that a friend asks you to join them on a trip, and it will cost you $10,000. You consider this person a good friend and don’t want to disappoint them. The request is short notice, but it could be a great experience. You need to make a decision in the next few days and know that you can just put the purchase on a credit card and deal with it at some future point in time.
So, what do you do in this situation?
Well, you have a couple of options. Your initial instinct may be to evaluate the pros and cons, including what the trip may cost you in terms of time and financial resources. But if you worry too much about this approach, you could end up forgoing the trip to avoid making a bad financial decision.
Your next option is to evaluate this potential spending decision within the context of your life values as the guiding light and the new money script that you’ve defined to guide your spending decisions. You’ll recall from previous topics we discussed that money scripts are internal beliefs you hold about money.
For instance, you can begin by asking yourself, “does this spending decision reflect the purpose that I’ve defined for my money?” If you’ve been working on amending your money script as we’ve described in previous articles, then this process will act as a prompt to queue up how you might want to respond to the money situation in front of you.
If one of your values includes nurturing important relationships, then the decision to spend money on the trip might be rather straight forward so long as the spending does not take away from your other financial priorities.
Dealing with Analysis Paralysis
Giving your money purpose means being intentional with your spending and savings decisions. This process begins with a firm grasp of your life values, understanding what life is asking of you, and amending your money scripts to align with your values and purpose.
Then, as you develop a new awareness of your money scripts, begin using them actively in your everyday financial decisions so you can reduce the friction involved in making wise money choices.
These can include times when you’re about to make a purchase but feel guilty about the spending.
For instance, do you spend too much time analyzing the utility of a spending decision and struggling to make a choice? This is a common experience known as analysis paralysis, which is the inability to make a decision due to overthinking and overanalyzing. While taking time to consider your options can be helpful, it’s important to recognize when it’s time to decide and move forward.
Here are a few steps you can consider to reduce analysis paralysis:
Identify Your Values
Identifying your values is an essential first step to spending money with confidence. Values are the principles and beliefs that guide your behavior and decision-making. They are unique to each individual and can include anything from family, community, career, and personal growth. When considering a spending decision, take a moment to reflect on how it aligns with your values. Ask yourself, “Is this purchase in line with my values? Does it support my long-term goals?”
Prioritize Your Goals
Prioritizing your goals is another crucial step to spending money with confidence. Your goals should be aligned with your values and help you to achieve your desired outcomes. Take time to identify your short-term and long-term goals, and then rank them in order of priority. When considering a spending decision, ask yourself, “Does this purchase help me achieve my goals?”
Set a Budget
Setting a budget can help you make more confident spending decisions. A budget is a plan for allocating your income, expenses, and savings. Setting a budget allows you to make a spending decision aligned with your values and goals without worrying about overspending. When considering a spending decision, ask yourself, “Does this purchase fit my budget?”
Trust Your Gut
Sometimes, our instincts can be a valuable guide when making decisions. If you’re struggling with analysis paralysis, taking a step back and listening to your gut can be helpful. Your intuition can help you identify what is most important to you and guide you toward making a confident decision.
Don’t Overthink It
Finally, it’s important not to overthink a spending decision. While it’s essential to consider how a purchase aligns with your values and goals, it’s also important to spend only a little time analyzing the decision. Remember that perfection is not always possible, and sometimes it’s better to make a decision and learn from the outcome.
Saving and spending with confidence often involves overcoming analysis paralysis. By identifying your values, prioritizing your goals, setting a budget, trusting your gut, and avoiding overthinking, you can make spending decisions that align with your values and goals.
Remember that spending money is not just about logic but also about what is important to you as an individual. So, the next time you struggle to make a spending decision, take a step back, consider your values and goals, and trust your instincts.
Spending and Saving Intentionally
Money is a powerful tool that can help you achieve your life goals. However, too often, we pursue money as an end goal rather than as a means to an end. This approach can lead to a never-ending cycle of chasing more money and can lead to feelings of dissatisfaction and unfulfillment.
And adding to these feelings of guilt and dissatisfaction are times when spending and savings decisions go sideways because of unexpected life events.
So what can you do to finally give your money purpose, save and spend with confidence, create your ideal life, and get back up when you have a financial setback?
To start, make a plan to avoid having a financial setback in the first place. Here are a few points you may want to consider to get ahead of financial setbacks.
Understanding Money as a Tool
First, understand that money is a tool. Indeed, money is a tool that you can use to accomplish your desired life outcomes. Whether it’s purchasing a home, traveling, starting a business, or supporting a cause, money can provide the means to achieve these goals. However, it’s essential to recognize that money is not an end goal in itself. It’s a tool that can be used to achieve the life outcomes that are important to us as individuals.
Identifying Life Outcomes
In order to effectively use money to achieve what’s essential in your life, you’ll need to identify tangible goals. This work goes back to our initial work involved in identifying your values and planning your life purpose. And the work often involves figuring out what you want to achieve in your life by first identifying what life may be asking of you. This work can involve sorting through your passions and interests and the kinds of experiences you want to have. When you identify these outcomes, you can then determine how money can be used to achieve them.
Creating a Financial Plan
Creating a financial plan is essential in effectively using money to achieve life goals. A financial plan is a roadmap for allocating your income, expenses, and savings to achieve your desired outcomes. It should include a cash management strategy, a savings plan, an investment strategy to grow your wealth and a set of action items that need to be accomplished in the near- and long-term. Indeed, a financial plan provides clarity and direction and can help you make decisions that are in line with your life goals.
Once you have identified your life outcomes and created a financial plan, the next step is to prioritize your spending. When you prioritize your spending, you ensure that your money is being used to achieve your most important goals. Prioritizing spending can involve making choices such as saving for a down payment on a home instead of eating out or putting money towards a travel fund instead of buying a new car.
Living Below Your Means
Living below your means is another critical component of effectively using money to achieve life goals. This means spending less than you earn and avoiding the cycle of debt. Living below your means can involve making choices such as downsizing your home, driving an older car, or cutting back on unnecessary expenses. Ultimately, living below your means gives you more financial freedom to pursue your life goals.
Track Progress Regularly
Regularly tracking progress is critical to holding yourself accountable for achieving financial goals. Monitoring spending and savings regularly and adjusting the plan as needed is crucial because it provides an opportunity to celebrate progress toward goals and make changes to the plan to ensure continued progress.
Share Goals with an Accountability Partner
Sharing financial goals with an accountability partner is an excellent way to hold oneself accountable. An accountability partner can offer support, motivation, and guidance in achieving financial objectives. Additionally, sharing goals with an accountability partner can help you stay focused on your goals and maintain momentum toward achieving them.
Set Consequences for Not Achieving Goals
Setting consequences for not achieving financial goals is another way to hold oneself accountable. This could involve setting a consequence such as donating money to a charity or performing a challenging task. The consequence, however, should be significant enough to provide motivation to achieve the goal and be tied directly to the goal being pursued.
Holding oneself accountable for achieving spending and savings goals is essential for building a stable financial future. Creating a clear and measurable plan, using automated savings tools, tracking progress regularly, sharing goals with an accountability partner, and setting consequences for not achieving goals are all effective ways to hold oneself accountable.
By implementing these strategies, you can develop a sense of ownership and commitment to your financial goals, ultimately leading to greater financial stability and success.
Signs that Your Savings and Spending are Out of Alignment
Now, making financial choices that align with personal values is essential for creating a fulfilling and satisfying life. Indeed, it can be challenging to ensure that financial choices are in alignment with one’s values.
However, once you figure out how to use your money to create your ideal life, what can you do if you still do not feel good about your financial choices or experience a setback in your plan?
Well, feeling anxious, stressed, or guilty about your financial decisions can indicate that you’re not making choices that are in alignment with your values. That’s why it’s essential to pay attention to these feelings and reflect on how your choices may be misaligned with your values.
The fact is that life does not move in a linear fashion. Indeed, we all have setbacks occasionally that threaten our best-laid financial plans. But with a little foresight, you can get ahead of those setbacks and quickly get your savings and spending plans back on track when the inevitable roadblock pops up.
Here are some things you may want to consider when you face inevitable challenges with your financial goals:
Don’t Lose Hope When Plans Go Sideways
Holding oneself accountable for achieving spending and savings goals can be challenging, especially for individuals who struggle with seeing their plans through. However, accountability is crucial for achieving financial goals and building a stable financial future.
Evaluate Whether You’re Prioritizing Instant Gratification Over Long-Term Goals
Prioritizing instant gratification over long-term goals is another sign that your financial choices may be misaligned with your values. If you consistently choose short-term pleasure over long-term satisfaction, it’s a sign that you may not be making choices that align with your values. Pay attention to your choices and reflect on whether they align with your long-term goals.
Your Spending is Not Supporting Your Priorities
If your spending is not supporting your priorities, it’s a sign that your financial choices may not reflect your values. If you prioritize spending time with family and friends, but your spending habits are preventing you from doing so, it’s a sign that you’re not making choices that are in alignment with your values. Pay attention to how your spending aligns with your priorities, and make adjustments as needed.
You’re Not Saving Enough for Your Future
Not saving enough for your future is another sign that your financial choices may be misaligned with your values. If you prioritize financial stability and independence, but you’re not saving enough for retirement or emergencies, it’s a sign that you’re not making choices that are in alignment with your values.
Your Financial Choices are Compromising Your Health or Relationships
Another sign that your spending might be out of alignment with your values is if your financial choices compromise your health or relationships. For example, if you prioritize physical health but are overspending on food and dining out, it’s likely a sign that you need to make choices that align with your values.
Bouncing Back from Financial Setbacks
Make no mistake, falling back on old financial habits can be discouraging, especially if you’ve tried sticking to a savings and spending plan in the past but have come up short. Finding the motivation to get back on track and work towards a recovery plan can be difficult in times like these.
So what can you do if you find yourself in this situation?
Practicing self-compassion is essential in motivating oneself toward a recovery plan. Self-compassion involves treating oneself with kindness, care, and understanding. It means acknowledging that financial setbacks are a part of the recovery process and reframing the situation with self-compassion rather than self-criticism. By practicing self-compassion, you can shift your mindset towards a positive and constructive perspective, which can provide motivation for moving forward.
Refocus on Your Life Goal
Refocusing on your life goals is essential in motivating oneself after a financial setback. This work involves reevaluating the goals you’ve set for the year, breaking them down into smaller, achievable steps, and identifying what led to your financial setback. Once these steps are established, you can shift your focus towards the process of achieving your goals, rather than the setback. By shifting focus towards the goal and the positive steps that can be taken, you can create a sense of momentum and motivation for moving forward.
Use Positive Self-Talk
Using positive self-talk can also be a powerful motivator when recovering from a financial setback. Positive self-talk involves speaking to oneself in a kind, compassionate, and encouraging manner. This can include affirmations such as “I am capable of achieving my goals” or “I am making progress, even if it’s slow.” By using positive self-talk, you can create a sense of self-motivation and self-confidence that can help you overcome setbacks.
Celebrate Small Wins
Finally, celebrating small wins is an effective way to motivate oneself after a financial setback. Small wins can include achieving a smaller goal, completing a step towards a larger goal, or making progress towards a habit change. By celebrating small wins, you can create a sense of achievement and momentum, which can motivate you to continue making progress towards your long-term financial plan.
Money is a tool that can be used to achieve life outcomes. However, it’s essential to recognize that money is not an end goal in itself. By identifying life outcomes, creating a financial plan, prioritizing spending, and living below your means, you can effectively use money to achieve your desired outcomes. When money is used as a tool rather than pursued as an end goal, you’re more likely to achieve a sense of fulfillment and satisfaction in your life.
And aligning financial choices with personal values is essential for creating a fulfilling and satisfying life. If you’re not feeling good about your financial choices, prioritizing instant gratification over long-term goals, spending in ways that do not support your priorities, not saving enough for your future, or compromising your health or relationships with your financial choices, it’s a sign that your financial choices may be misaligned with your values. Paying attention to these signs and reflecting on how your financial choices align with your personal values can help you make more fulfilling and satisfying financial choices.
And finally, recovering from a financial setback can be challenging, especially if you’ve tried to make financial progress in the past and seem to be repeating the same mistakes over and over again. However, you can motivate yourself toward a stable savings and spending plan by practicing self-compassion, refocusing on the goal, using positive self-talk, seeking support from others, and celebrating small wins. Indeed, by staying focused on the process of achieving your goals and reframing setbacks as opportunities for growth and progress, you can create a sense of momentum and motivation towards becoming the master of your financial independence journey.
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