Just about every client I see starts our first meeting with a sentence similar to this: “we never go out to eat, it’s so expensive,” “my kids wear hand-me-downs only” “I only shop at TJ Maxx for myself,” or “we drive old cars.” Ok, I get it, you do not want your financial planner to think you’re a spendthrift (someone who spends extravagantly).
Here’s the only issue I have with all your confessions of austerity: you are still spending more than you earn. We talked a couple of weeks ago about Annual Needs and how they get overlooked a lot. Here’s another one to add to your “overlooked” list: frequency.
There’s severity: “I just bought a Porsche” and there is frequency, “I only buy at TJ Maxx, but I go a lot.”. If you buy something small at Target one hundred times, it will add up to something big.
Target, or Tiffany’s, you will feel the need to treat yourself about the same amount. Severity or frequency, the total will be about the same. I wish I knew why, I just know it happens that way. So, if you’ve ever heard that little voice in your head say, “it’s just a take-out salad. That’s no big deal.” Tell that voice to learn some math.
Frequency can definitely throw you into that overdrawn, revolving debt place and you have literally nothing to show for it. At least if you bought a Porsche, you’d have an asset to sell even at a lesser value (no, this is not permission to buy a Porsche).
Here’s the deal: Everyone feels they deserve a little something once in a while and I applaud you in your efforts to not to buy it at Tiffany’s, but either way, you are approaching your finances from a POSITION OF SCARCITY and that’s THE WRONG POSITION.
No matter what your take-home pay is and no matter what your expenses are, there is some amount of money left at the end for Full Discretionary Purchases (FDPs) like clothes, home or kitchen items, kid’s stuff, entertainment, sports equipment, and going out. I think deep down, you know what is on that list.
Embrace your humanity. You need a little something now and then. I am only entreating you to know how much you can spend in FDPs each month. DO NOT GO A PENNY PAST IT. Get 100 things at Target or go to Tiffany’s once and knock yourself out. I don’t care as long as you stay within your FDP limit.
Do not feel scarcity (hiding, making excuses, feeling shame), feel abundance (“I have $500 of FDPs each month and I am going to do whatever I want with it”). No matter how large or small your FDP number is, it’s yours, feel good about it. Abandoning scarcity will DECREASE YOUR NEED TO BUY. I guarantee you will spend less if you view your finances this way.
Take your take home pay, subtract all your necessary expenses (rent, utilities, haircuts, gym, groceries, childcare, gas, cell phones, etc.) and see what comes out the bottom. BE HONEST with yourself about your necessities. Do not forget the house cleaner, credit card minimums, student loans, etc.
Monitor your FDPs through the month. Use an app, piece of paper, or email it to yourself. JUST DO NOT GO OVER THAT FDP NUMBER and the rest of your monthly expenses should be taken care of. Enjoy!