When we talk about spending money it’s usually in absolutes. There’s good spending and bad spending. Spending money that you have budgeted for on healthy food is good and spending money on daily coffee is bad.
Impulsive purchasing of consumer items and clothing is going to kill you in your sleep. That’s bad spending.
But is it really this simple when we talk about spending? or are we simply missing something when we talk about spending?
New Zealand in a Debt Crisis?
New Zealander’s personal finance has become more and more about debt. Nearly half of all kiwis over the age of 15 are in debt (most are in debt with properties thought) and the New Zealand household debt to income ratio has reached 164%.
Our relationship with debt is becoming unhealthy. Easy access to credit through credit cards, hire purchase, and finance companies are crippling many Kiwi families. Some situations are so dire that families are having to borrow money just to pay the rent.
But that’s not to say that you need to be super frugal- only ever eating beans and rice. This can also be as unhealthy as crippling debt, on both your body and your mind. There is some pleasure associated with spending money and that is healthy. Spending money can bring people together, and improve relationships. Spending money can make you happy.
Can You Be Too Frugal
If you are trying to be super frugal, problems can arise when you spend money. If you become too frugal you might start having unhealthy thoughts and behaviours related to spending any money.
If spending any money makes you anxious- You need to create a better relationship with spending money. You can not only live a more frugal life but also enjoy spending money without any guilt.
Simple things are lovely. And it would be great if you could simplify spending money into two categories. Bad spending and good spending. But that is just a massive oversimplification. This oversimplification can lead to impulse purchases and shopping addictions.
Strict Diets Don’t Work
Some people think of your spending as if it were a strict diet. A strict diet can make you develop food anxiety. Sticking to a strict diet generally doesn’t work in the long term. You may adhere to it for several months, but then one day you crack and start binge eating.
It’s the same when you are trying to be super frugal. One day you will snap and all bets are off. The credit card is getting a workout.
And then there is being super frugal.
The downsides of Super Furgalness
There are many downsides of being super frugal in an attempt to fast track your journey to financial freedom. Going out with friends on a Friday night can become an anxiety-producing event if you are super frugal. You don’t want to have to spend any money and hinder your progress towards financial freedom.
Eventually, if you keep declining to go out with friends, they will stop inviting you. And even though you will have made excellent progress to your financial freedom, you will have lost the human capital you need in your life.
Rather than simply declining to attend social events, you need to actually discuss it from your point of view. You need to share your morality on spending money with them- with a possible resolution of going out to somewhere that is reasonably priced or host a dinner party yourself- rather than not going out at all. After all, you need to maintain your relationships with people.
Spending is Neither Good or Bad
When you categorise all spending as either good or bad, right or wrong, you are setting yourself up for money anxiety in your life.
What happens when you unexpectedly go out for ice cream or coffee with friends? After all, that extra cup of coffee- compounded over your entire lifetime amounts to a squillion dollars. Is that spending bad? or was it good?
If you invest the money you spent on coffee instead, it can compound over your lifetime to a squillion dollars
It’s bad in terms of you not having the money anymore, but its good in terms of the investment you have made in social capital.
When we start to understand that our personal finance isn’t made up by just one purchase, or one shopping trip, we can start to relieve some of our money anxiety.
No one has filed for bankruptcy because they bought a single ice cream. And no one has become a multimillionaire because they didn’t buy that one coffee.
No one loses all their progress towards financial independence by going out to dinner for one night. And no one became a personal finance genius because they stuck to their budget for a week.
Everything Over Time
Our personal finances are dictated by everything we do overtime. The more we can realise that one purchase isn’t good or bad, right or wrong, the less anxiety we’re going to have with money – which is really what the main goal should be. To develop a healthy relationship with money.
But just because I’m saying that there’s no such thing as bad spending and good spending doesn’t mean that you should go out and spend all your money. I’m saying that you need to decide what’s good spending and what’s bad spending.
If you decide that the latest phone is going to bring immense value to your life then go and buy it. Just know that you will have to cut back in other parts of your budget to afford it.
You need to think about what our goals are from the beginning, not when you are at the checkout. Set a budget. A budget that allows for some discretionary spending. And stick to it.
Focusing on cutting out the daily coffee because that’s what all the personal finance bloggers are saying- including me– isn’t going to help you sort your personal finances unless you take a holistic view of your entire budget.
The Personal Finance community can be a confusing place to navigate. It’s overloaded with opinions and experts while there’s a wealth of helpful knowledge it can be difficult to discern what’s best for you and the truth is, it really depends where you’re at on your own personal finance journey.
One of the best coffee examples of this is that for one person not buying the daily coffee is going to help them stay on track with their spending, it’s going to help them out with saving money- it’s part of their budget. While another person might say yes to the daily coffee as a reward for implementing an automatic savings plan and budget which they stick to and have made an allowance for daily coffees.
When you first get into personal finance and saving for financial freedom it’s very easy to place a large red X on spending that is bad and a green checkmark on spending that is good. I know- I use to be like that too. But it’s might not be the best long term approach.
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