Control your money; Control your life.
"Too many people spend money they earned..to buy things they don't want..to impress people that they don't like." — Will Rogers.
What does this mean?
Money is like the call of the sirens in Greek myths. The sirens call lures you away from happiness and success and can turn you into a ravaging beast willing to follow the lure of money no matter the cost to the lives of friends or acquaintances. But there is an alternative. Control your money throughout your life.
The first and most challenging thing to do is live within your means.
The money equation is money in (income, salary, paycheck) has to be more than money out (expenses, expenditures, spending, purchases).
As we discussed in "Seven Money myths" and the "seven truths about money," you get income by exchanging your time for money. Some people make a lot for each unit of time they work, and others make less. It doesn't matter which group you are in. You have to control yourself so that you spend less on the goods and services of others than you receive as income to win the money game.
Money out is what we pay for goods and services to others. So the best way to think about your spending is to categorize it into needs, wants, and discretionary.
Maslow's hierarchy of needs breaks needs down into physiological needs: food, water, housing, and then safety needs. Everything else is discretionary.
Needs include such expenses as
- Saving for emergencies and retirement
Needs cover these basic requirements, but you still have to make your own decisions in each of these areas.
For example, when my wife died in the area of housing, I decided I needed a two-bedroom apartment for my living space. After further reflection and looking at the level of my expenditures and other issues, I decided that a one-bedroom apartment would be sufficient. A friend of mine decided they no longer needed a three-bedroom house and moved into a much smaller tiny house.
As you can see from this, needs are not absolute, and we can decide how much of our income goes to each condition. But, unfortunately, the government chooses the amount of taxes for us.
Water is provided in many cities at a cost that is usually very reasonable. But due to global warming, you can expect those costs to go up in your life as we see the water become a scarcer and scarcer commodity. A trending article in PEW shows that future potable (fresh) water will continue to be lower in the drier parts of the country and world.
The trends are red equals a loss of 2 cm per year, and blue indicates a gain. So the wet areas get wetter, and the dry areas get drier. The projections lead the authors to believe that over 25% of the population will live in water-stressed areas by 2025.
Wants can include everything you list in answer to the question I want to have.
- The latest fashions
- The newest and biggest TV
- I want the most recent computer each year
- I want a new car every two years
- I want to attend every theater and concert.
As you can tell from this list, our wants come from other influences like advertising and our neighbors.
Controlling our money
To control your money, you first have to fight the influence of others and control yourself. What others say should not influence your decisions about how to spend your money. Change must start within you.
True change is within; leave the outside as it is. 14th Dalai Lama
- Income is less than expenditures.
You are left with two ways out of this dilemma. First, reduce your expenditures for goods and services or increase your income. This, of course, is a simplistic point of view, but it is the only solution.
2. Income equals expenditures, but you have no savings.
In this case, you have to reduce your expenditures. An example of decreasing your expenditures is to change your habit of buying a cup of Starbucks coffee twice a day. It is much cheaper to make your coffee at home. And that $5 cup of coffee adds to real money each month. Another example is renting a movie rather than going to a theater.
Remember, there are always choices you can make.
3. The best situation is that your expenditures are less than your income.
This is the best because you now have discretionary income that you can use any way you want. Discretionary income is money you receive that isn't necessary to meet your needs.
However, regardless of which category you fall in, make sure you know how much your income is and where you are spending it. Only then can you make the changes you may need to get your money under control.
How to gain control no matter what your current situation
- Keep track of the income and expenditures.
- Then look for places you can make changes to either increase your income or decrease your expenditures. This step requires you to be merciless in defining your needs and wants.
- Build into your life the habit of paying attention to where your money goes.
"Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery." — Charles Dickens