When you distill it to its most basic level, personal finance is simply:
1. What’s coming in (your income)
2. What’s going out (your expenses)
With that in mind, it stands to reason that if you want to improve your personal finances, cutting your expenses needs to be one of the major areas that you focus your time and efforts.
But… most people don’t. Why?
A lot of it comes down to education. Many consumers either don’t have the knowledge of how to cut their expenses or they don’t realize that there is a problem in the first place.
But I also think that many people simply do not want to. At no point in time in prior history have so many people had so much. Always connected supercomputers that fit in our pockets, hundreds of different ready-to-order cuisines with no hunting or gathering skills required, an infinite supply of entertainment, the ability to purchase anything from anywhere and have it shipped to our doorstep within days, fancy all-terrain behemoth vehicles to transport us a mile down the road, etc., etc. We want – no, we demand – the newest, best, shiniest things that we can get our hands on.
When presented with the conscious choice of whether we should give something up in order to cut our expenses, many of us make the decision to not give that thing up. Or, in many cases, we opt to spend more to get the better thing. This trickle of upgrading to more and better things over time is referred to as “lifestyle creep” or “lifestyle inflation“.
And innately do it because it is human nature to want to feel like we are moving forward, progressing, and improving our situation. To give something up or not get the new thing is seen as a great sacrifice, not because it actually may be, but because doing so is an uncomfortable acknowledgement that just maybe we are taking a step backwards (whether true or not).
So how do we combat this? In the last decade or so, I’ve found 2 EXTREMELY effective tactics for overcoming this costly innate behavior that I will share with you today.
Using Re-Framing to Cut Expenses
When analyzing our consumer choices, we tend to think about not making a purchase as missing out on a perceived benefit or value. And that compels us to purchase, because we fear missing out. With a little re-framing around what actual benefits are gained or lost, we can easily overcome that fear and cut our expenses.
- Everyone else is seemingly chasing the American Dream of home ownership – so shouldn’t I? It turns out that home ownership isn’t all it’s cracked up to be – 70% of millennials regret buying a home. What if, instead, we re-framed a home purchase as the time and labor intensive, cash-flow and job mobility (dream) killing, maintenance and money pit that it really is? Your costs and stress will increase, your mobility and free time will decrease. Now do you fear missing out?
- New iPhone is out? Let’s get it! Hold on – if you get the newest model every year, it will cost you $75+/month (probably more than your data plan). Meanwhile, your old and perfectly functional model has roughly equivalent speed and 100% of the utility with all of the same apps. By re-framing the benefits of the old model that way and the lack of benefits of the new one, it makes the +$75 month expenditure seem kind of silly, doesn’t it?
I could go on and on, but I think you get the concept. For as easy as it is to talk yourself in to buying something, it is equally as easy to re-frame yourself out of buying something.
Using Ingenuity to Cut your Expenses
Instead of always opting for the seemingly most convenient option (always the most expensive option), many times, with a little ingenuity in combining alternatives, we can achieve similar end results, often at a fraction of the cost.
- Nearly free unlimited talk/text plan + wifi at home + millions of wifi hotspots can achieve 99% of the benefits of an always connected mobile device on a $75/month unlimited data/talk/text plan, but at a fraction of the cost. And the other 1%? Maybe you splurge for 1 GB of data here and there, if you really need it.
- Biking/walking + public transportation + occasional rideshares/rentals achieves 100% of the getting from point A to point B benefits of having a vehicle, but at a fraction of the cost. And with better health outcomes.
- Grocery items + a little bit of cooking skills can achieve 100% of the benefits of dining out, at a fraction of the cost and time. And with better health outcomes.
- Wifi + some combo of Netflix/Amazon Prime/Hulu/other can achieve 100% of the entertainment benefits of cable TV, at a fraction of the cost.
We pay extreme premiums for perceived convenience. But ingenuity in combining alternatives can usually give you the same or similar benefits (and even some additional ones) for much less money.
I’ve often said that in order to build wealth, you must defy status quo. Re-framing and ingenuity are 2 very effective ways to do just that.