How a Mindset Shift Unlocks Financial Freedom
"Wealth consists not in having great possessions, but in having few wants." — Epictetus
Wendi and I were discussing my current career break and how fortunate I feel not to be stressed about the financial impact of not working right now. She made a comment that I’d ‘made sacrifices along the way to put myself in this position.’ I paused and reflected on her comment for a minute. I responded that I ‘don’t feel that I made sacrifices at all.’ I indulge my wanderlust as schedules allow, live in a beautiful house in a desirable neighborhood, and my son attends a school where he thrives personally and academically. I just don’t have a lot of wants.
A financial plan is a good opportunity to reconsider your priorities and scrutinize where you are spending your hard earned funds. It allows you to take control of your financial life.
Compared to fixed expenses (e.g. rent or student loan payments), you have more control with how much you spend on variable expenses.
Housing Maintenance - You have predictable maintenance expenses and planned major expenses, such as major replacements for roof, water heater or appliances. It is more transparent to track your expenses if you have one line each for frequent services, periodic services, and major expenses.
Frequent Services - If you have weekly lawn service or house cleaning, you may be able to reduce the frequency to every two weeks. You can perform light maintenance yourself for the off weeks.
Periodic Services - You may have annual services, such as HVAC inspections, tree trimming, window cleaning, or gutter cleaning.
Auto
Gas - Estimate weekly gas spend based on your historical spend. Can you take public transportation instead of driving to work? Can you arrange carpools with other families?
Maintenance - Similar to housing maintenance, you have periodic services ( e.g. oil changes, car registration), more significant maintenance (e.g. new tires), and major repairs. You can add expected expenses to your financial plan and use your emergency fund for unexpected major repairs.
Food
Groceries
Estimate weekly grocery spend. If your historical grocery spend is $300 per month ($75 per week), could you reduce your monthly spend to $260 ($65 per week)? Allocating a weekly amount makes it easier to manage spend with your weekly grocery shopping. You could use the $40 per month savings ($480 per year) to pay off debt, add to your emergency fund, or invest. If you invest $480 per year at an average annual return of 7%, you will have $7K in 10 years and almost $20K in 20 years. Small amounts add up with time and compounding interest!
A quick internet search will give you many ideas on reducing your grocery spend - planning meals around grocery sales, buying in bulk, focusing on plant based meals, etc. Our household is what my son calls an ‘ingredient household.’ We primarily buy ingredients required for our planned meals and rarely buy snacks. When we want a snack, we will walk down to the nearby gas station to buy a small bag of chips, a bottle of soda, or candy. Each individual purchase may be more expensive than buying it at the grocery store, but overall, it is cheaper than buying snack foods every week as part of our routine grocery list. This habit also prevents us from making snack foods a normal part of our diet. Most of the time, the snack craving is not enough to justify the five minute walk in the cold drizzle of Seattle.
Dining Out - Estimate weekly dining out. If your historical dining out spend is $400 per month between dining out, carry out or delivery (ie: any meal not cooked at home), could you eliminate carry out / delivery and allocate one dining out experience per week at $50 each ($200 per month)? You have flexibility in spending your $50 per week allotment - you could eat lower cost menu items and avoid expensive alcoholic drinks. Rather than expensive carry out or delivery, you could meal prep for the week or buy frozen meals, so you have ready to eat meals when you just don’t want to cook. TIP: We always have ‘reserve pizza’ in our freezer that is a delicious deep dish pepperoni pizza for those days when we’re hungry but don’t want to cook.
Other entertainment - Are concerts, sporting events or other live events important for your happiness? Allocate an amount that you are willing to spend per event and how many events you want to attend. For example, if you want to attend 4 events per year and you are willing to pay $200 per ticket, you will allocate $800 for the year. If an event costs more than $200 per ticket, you may decide that the event is worth the extra cost and you are willing to make the trade-offs to forgo one or two other events to stay within your annual allocation for this category.
Medical - You have known recurring expenses, like insurance premiums, prescription drugs, physical therapy, dermatology and other treatments, that you can plan for the year. Then, you may have expected major treatments. TIP: Call providers to obtain Good Faith Estimates and ask your insurance provider for your estimated out of pocket costs.
Travel - My family values domestic and international travel to visit family, experience different cultures, and savor delicious foods. When we develop our annual financial plan, we estimate the total cost of each trip - airfare, lodging, ground transportation, experiences, and meals - and set aside funds in our financial plan. On our recent trip to Japan, we prioritized lodging located near public transportation and attractions, and happily stayed in boutique hotels with smaller and moderately priced rooms. In contrast, we had a generous allocation for food, so we could indulge ourselves in street foods, convenience stores, and restaurants. It helps to be clear with yourself and your travel companions on your priorities and tradeoffs. We enjoy local lodging and public transportation, which then frees up funds for activities and food.
Beauty Treatments - Aside from regular haircuts for my short hair, my beauty regimen is minimal. Instead of cutting my hair every six weeks, I extended the time between haircuts to eight weeks resulting in two less haircuts per year. Your financial plan is a good opportunity to reconsider which beauty treatments are most important to you. Can you do it yourself? Can you extend the time between treatments? Is there a less expensive alternative?
This process can be challenging at first. It requires reflection on your values. It requires discipline in making tradeoffs and delaying gratification. It requires setting boundaries with others. Over time, it will become a habit. You will realize that what you gain in accomplishing your financial goals will be worth it.