Have you ever questioned your spending? Ultimately, the real reason we spend money is to find a certain quantity of happiness. I’m not talking about the momentary happiness that the purchase of a piece of clothing or the latest popular electronic gadget will bring you but real happiness, from what we consider that this purchase brings us in terms of our core values and life objectives.
By tracking our expenses and by exploring in which ways they truly meet our values, we realize that having more isn’t always synonymous to having more happiness and often goes against those values.
The modest millionaires are of the view that simplicity is the solution to better allocate our money and efforts to respect our values and live according to our true desires.
What am I looking to gain through my purchases?
In the article Establish a Realistic Budget by Tracking your Expenses,I describe the importance of tracking your expenses and I explain how I do this exercise. This is not only the best way to see where your money goes and to make the conscious choice to change your spending but also a great way to determine what you are looking to gain through your purchases.
That idea is really well described in ‘’Your Money or Your Life’’ written by Vicki Robin and Joe Dominguez. This is a fantastic book, that is pretty much the mother of all financial independence books and blogs, for a terrific summary visit Vicki Robin’s website. Briefly, one of the crucial steps of the book explains the importance of knowing where your money goes and consequently, where your vital energy is spent (the term used in the book to describe our share of time here on Earth).
Therefore I highly recommend that you track your expenses over the period of a month. Once you have listed all your total expenses for a full month, push the exercise further by asking yourself these questions:
- With which value or life objective is this purchase or category of spending aligned?
- Are those values the ones most important to you?
- What are you looking to accomplish in your life on a daily basis, how about in the long term?
- Sometimes the actions we pose on a daily basis, although they might bring us certain happiness on a shorter term, might be in contradiction with our long term objectives which would bring a much greater quantity of happiness.
- Which value would help you accomplish those objectives?
By running through these questions, you will be in a better position to align your spending with what is truly important to you. You will possibly realize that buying or having more things is not always synonymous to having more happiness and even often contradicts your values.
This realization depends on an important concept from ‘’Your money or your Life’’, which is the importance of thinking about the cost of your purchases in terms of your time, or in the wording of the book, in terms of your life energy.
The real costs of my purchases:
When we look at our spending, we normally think about it in terms of dollars. However, it is important to add the time associated to those expenses. The first part is, obviously, the time it takes us to make the money needed to pay for the purchase, then the time allocated to making the purchase and all other time of our life that will be associated with what we purchase whether it be to maintain it, assemble it or simply to benefit from it.
In ‘’Your money or your Life’’ you are encouraged to calculate your real hourly wage, that is, you reduce your salary by all the costs associated to doing your job (cost of the clothes to wear at work, cost of commuting, etc.) and you divide this new amount by your total work hours as well as all the time indirectly related to doing your job (time spent commuting, eating, winding down). You can then translate this new hourly wage in terms of time, called life energy. For example, a person that arrives at a real hourly wage of $8/hour must dedicate 15 minutes of their life energy to working for every purchase of $2.
One of the crucial steps of the book is to include in the tracking of your spending, the cost of each purchase or category of purchase in terms of number of hours of life energy, that is, by dividing the amount spent in terms of dollars by your real hourly wage in order to obtain the amount of time that needs to be dedicated to work to make that purchase. You are then indicated to ask yourself these three questions:
- Did I receive fulfillment, satisfaction and value in proportion to life energy spent?
- Is this expenditure of life energy in alignment with my values and life purpose?
- How might this expenditure change if I didn’t have to work for a living.
These questions and this process help better analyze your spending habits not only in terms of your values and life objectives, but also in terms of your time. It allows you to become aware of the actual cost of your purchases.
I believe it is then important to do the exercise of reflecting on if each purchase generates additional indirect spending in terms of life energy. In order to do this, ask yourself these questions:
- How much time did it take you to make the purchase (research, going to the store, etc.)?
- Does this purchase require time or additional spending to maintain, assemble or even enjoy it?
- What is the new approximate cost in terms of life energy of this purchase if we take into account the additional time related to it?
A significant example to better understand this is the process of buying a house. You will spend a large amount of time to proceed with this purchase and that is normal, considering that the impact of this decision is significant. If you choose a larger home, it will not only have a higher purchase price, but it will also have other higher costs such as higher heating costs since you have a larger surface to heat. It will also require more life energy in terms of the time spent to maintain this bigger house.
The actual cost of this purchase can therefore end up being more important in terms of life energy and thus, in terms of the additional time you will need to work in order to pay all those additional expenses.
Simplicity as the solution:
For the Modest Millionaires family, the solution to this exponential cycle of spending is simplicity in term of having less things, less recurring expenses and less activities scheduled on our calendar to focus on our core values and life objectives.
Our priorities are mostly aimed towards spending time with family and friends, learning and pursuing our passions, and, most importantly, having the freedom to allocate our time as we please to the priorities listed above. Luckily, these are priorities which can be put into focus without having to spend a lot of money.
Indeed, by focusing on our core values and life objectives, it is easy to eliminate the desire to make purchases that would provide us pleasure on a short term basis but that would contradict with our priorities. For example, it is easy for our family to refuse to get cable since that additional expense would push our financial independence further in the future. We know that this long term goal will bring us a greater amount of happiness than cable would since it will allow us more freedom to allocate our time to what is important to us.
Having less activities scheduled to our calendar falls into the same line of thought. We are fine with having our kids participate in, for example, an organized sporting activity here and there but we want to avoid having a dozen of activities overlapping around the same time of the year. That allows our family to decide to spend our time doing activities that interest us at the moment, and avoids wasting some of that precious life energy by running from one scheduled event to the next.
Simplicity can therefore be practiced through different aspect of your life in order to better align your expenses, both in terms of money and time, with the values and priorities that are important to you.
As a final note, if you are interested in learning more about ‘’Your money or Your Life’’, Vicki Robin was recently a guest on Mad Fientist’s podcast (click here to listen to it). It is just a wonderful interview, I highly recommend listening to it.