Every month, we receive payments that are hopefully enough to take care of our families and to live a joyful, fruitful life. Unfortunately, that’s not what typically happens. People end up in bankruptcy or with heavy debt that is very difficult to manage, and the vast majority of people do not have anywhere near the freedom and joy in their life that they so desperately crave.
I know I personally would like to be able to travel much more, and to not have to worry about bills and paying for college for my children. Unfortunately, I don’t have that freedom, at least not yet.
So where does all that money go each month?
Value = Treasure + Time
When you look through your expenses and the things you buy every month, you’ll start to see patterns. Maybe you go out for drinks every few nights with friends and spend $100 a week. Perhaps you go shopping for clothes every weekend, and that’s really cutting into your budget.
As you’re looking through your bank statements, you’re really looking through an assessment of what you value in this life. Wherever your treasure is (your money), those are the things you value most highly. The same goes for time. Anything that you spend money and time on is something that you place a lot of worth on.
That seems obvious for some things, like groceries or date nights or something else. However, when you get into the details of why you’re spending $50 a week on fast food, you may disagree. I don’t value fast food (or shoe shopping or magazine subscriptions or…insert whatever you spend too much on here). The problem is, your bank statement doesn’t lie.
It’s not that you actually value McDonald’s cheeseburgers. It’s more about what else you receive from the McDonald’s cheeseburger – such as extra time, the freedom to not have to cook, etc. You are placing an emphasis on something, and that is causing you to buy things you don’t need.
Keeping Up with the Joneses
This idea is at the heart of the American competitive economy. Most people don’t place any intrinsic value on, say having a smart refrigerator. I think we’d all agree that the refrigerators we had 20 years ago worked well enough. However, we do value status, whether we want to admit it or not. Because of this, the market has told us that having a refrigerator that can tell us when we’re out of cheese will make us the envy of our neighbors, and that’s something we do value.
Therein lies the power of Facebook, Instagram, and other, similar social media sites. You can put your best foot forward and make everyone around you think you’re living the best life and have the best things.
This is the root of the vast majority of the nation’s financial issues. If you surveyed Americans with some form of debt, most of them would say they had spending issues, not that they had some terribly expensive medical procedure or something similar. Simply put, we want to maintain a perception of being better than those around us, and to do that, we have to spend money – often money that we don’t have.
Valuing Financial Stability
In reality, our mindset has to change if we’re going to overcome the obstacle of righting our finances. All too often, our mindset is on appearing rich, instead of actually being financially stable.
It’s simple mathematics at its heart. Let’s take a look at an example of two friends, one you may have heard recently. We’ll call them Richard and Brian.
Brian and Richard live nearly identical lives. They have very little in savings, they make the same amount of money for the same hours worked, and they spend the same amount of housing and utilities every month.
Brian decides that he wants to buy a brand new sports car (you can imagine any car of your choice. I’m not a car guy, so I don’t want to embarrass myself by talking about a vehicle that I don’t understand). The car costs $30,000, and he puts down $3,000 upfront.
Now, Richard needs a car as well. Instead of buying a $30,000 sports car, he buys a used, $3,000 Volvo (that’s the kind of car I’m familiar with). Let’s assume, also, that his car has no functional flaws (they both did their due diligence to make sure the cars were good, effective cars).
Brian appears to have more wealth than Richard. His Facebook posts are all of him sitting on the hood of this new car, and when he drives it around town, people look at him and think he’s very important. Richard doesn’t appear to have much wealth, because he’s driving his 2006 Volvo with a long dent in the side and a discolored bumper.
But who actually has more value?
Brian has $3,000 equity in a $30,000 vehicle, which means the net value he has in the car is -$24,000 (he has a debt of $27,000 plus the $3,000 equity). Richard, on the other hand, owns a $3,000 car with zero debt, meaning he has a value of $3,000. Obviously, this ignores a lot of the economics of depreciation and property ownership, but the basic principle stands. While Brian may look wealthier, Richard has significantly more wealth because of basic financial sense.
The Uncomfortable Truth
We must confront our own hearts and desires about what we’re looking for. This scenario – wanting to seem wealthy – doesn’t apply to everyone. For some people, shopping is a coping mechanism for depression or anxiety, and so they must find better a better mechanism so they can keep their financial life in check.
Whatever the issue is at the heart of it, spending money is not truly to main problem. There is something upon which we are placing a higher value than our own financial stability and future. It takes diligence, and most importantly, self control.
Imagine the gratification of being able to say you have retired at 45 because you saved and invested well. Or the feeling of security you’d receive by knowing you have a substantial savings account and all your needs are met. The true fulfillment of those things we value more highly than our financial security comes if we pursue financial security diligently. They are byproducts of smart financial sense.