Controlling the Little Kid Inside

Any time you turn on the TV, open a magazine, or walk down the street, you’ll find a plethora of advertisements for incredible products that you can’t live without.  While many of these products may well be amazing, if you lose control of yourself and let the little kid inside take over, you can end up with a home filled with some cool stuff and retirement and savings accounts filled only with IOUs.  Perhaps worse than that, you’ll find that your resources were unintentionally spent on things you value little, and those priorities that you want to value highly go wanting.  Today we’ll dive into the topic of prudent spending and offer a few suggestions on how to enjoy some of the nicer things in life now, while preserving your future and tempering buying with wisdom.

I Need a New One!

One of the starkest examples I’m aware of that illustrates this danger dramatically is the following story.  A man owns an older car that he had purchased years ago and maintained well.  One day, as he’s tuning through presets on his car’s radio, one of the buttons pops off.  “Well, I can get by with only four presets,” he thinks.  No big deal. A few days later, while setting his coffee cup in its usual place, he hears a loud “Crunch!” as the well-worn plastic cup holder finally gives way.  A week after that, he notices that his brakes start squeaking, and then grinding.

“That’s it, he exclaims, “I’m getting a new car!”  And off he goes to trade his $2,000 car in for a $15,000 brand new one, for which he’ll take out a loan.  Normally our man would know better than to do such a thing, since he’d read the TotalThriver post on the value of saving for large purchases.  But, he let that information drift far from his mind in this moment of weakness since, even though he didn’t have the money saved up yet, he HAD to do this because it was an “emergency.”

Upselling Yourself

Before we’re too hard on our reckless friend, we should recognize how easy it is to let yourself begin down this road, and then justify a higher and higher purchase price, ignoring the fact that you don’t have the money for any of this.  Our man did have a real problem.  His car radio, cup holder, and brakes all needed to be repaired.  Let’s even imagine that in this case, the total repair bill would have been high enough that putting such a large sum into an old car wouldn’t have been wise.  In this case, what our friend should have done was sold the car as-is.  Perhaps it would only bring $1500 because of the defects that he left unrepaired.  But here’s where our man went awry:  He thought to himself, (as we have all done one time or another), “well, since I’m getting another car anyway, I might as well get a nicer one while I’m at it…”  Though this isn’t necessarily a terrible sentiment, problems come when things go too far out of proportion.

A more prudent decision for our friend to would have been to spend $800 or so from his savings account to put with the $1500 that he received from the sale of the old car in order to purchase a $2300 vehicle.  Notice that this is an upgrade from the car he had before, and should definitely include functioning cup holders, a radio, and brakes.  Though a $2300 car isn’t as fun to drive as a $15,000 one, our man would have solved his problem while staying out of debt, thereby preserving his options.  By avoiding entering into a loan agreement, he will have more of his income available to replenish his emergency fund, and then begin his car savings fund.

I’ll Bet You Like Options

This brings us to the more pleasant side of the coin—enjoying the good things in life in a prudent way.  According to the revised plan outlined above, our friend is on the path toward a better car, without the risk and bondage of the debt that came with the “new car today option.” As he saves the money month by month, he can evaluate how important a premium car is to him.  He lives, as most of us do, with some limit on his available cash.  Because we have these limits, we must decide which things are most important to us, and conversely, which areas we will tolerate a lower-quality product.  What we often don’t realize is that when we sign up for a $15,000 loan on a new car, we’ve just locked ourselves into a high-quality vehicle and low-quality everything else—potentially even very important things like a future home, retirement savings, kids college, and many other aspects of our lifestyle.

The point is that by having the cash saved up, you have multiple options.  You can think about what areas you desire a quality product, and what areas you’ll tolerate something lesser.  Perhaps you want a really nice car and don’t care about eating at restaurants or buying expensive gifts for others.  Or perhaps you don’t mind driving an old car but you’ve got to have a new iPad and an unlimited data package.  For you ThirveFit members, perhaps your priority is high-quality weight equipment, supplements, and nutritional products, and you’ll put up with a five-year-old computer and TV without complaint.  Whatever your combination is, the important thing is that you find out who you are—what’s important to you—and then make sure to limit your big purchases in lower-priority areas.  Though this sounds obvious when put this way, it is so easy to find ourselves “ponying-up” for a great ______, (car, tv, washing machine, computer) when we can’t really afford it, and then later regretting having so much money tied up in that item.  The point isn’t that you can’t have nice things; it’s that we all must be vigilant to resist the “kid in the candy store” mentality ruling our every purchase.  We are wise to remember that money saved on a purchase today is money we’ll have available for those things we truly value.*

*Incidentally, this could be another purchase, or something even more valuable like giving to others or supporting spreading the Gospel.  But we’ll save that topic for another day!  🙂

What’s Important to You?

What would you think if I told you that you have two sets of priorities?  Or that you have two sets of values?  Perhaps you will deny it—“of course not!  I know what’s important to me, and my values are clearly sorted in my mind.”  Maybe so, if you’re like many people, your bank statement will demonstrate quite a disparity between the list of priorities in your head and the true priorities according to which you spend your money.

Your Treasure and Your Heart

Jesus taught this principle quite clearly in Matthew 6:21 when he said, “where your treasure is, there your heart will be also.”  For example, if I look at my bank statements and notice that I spend 5% of my household income on golf in an average month, this demonstrates that golf is important to me. Conversely, if I say, “international missions are very important to me,” yet none of my money is given to support international missions, I’ve demonstrated that my imagined priorities are quite different than my actual priorities.  Your treasure will go to that which your heart values.

An Eye-Opening Experience

Now, if you’re anything like me, the first time you sit down to look at where your treasure went, you will be very disappointed with yourself.  I remember the day, years ago, when I sat down to start getting my finances in order.  I first developed an imaginary budget, allocating something like 2% of my salary to entertainment.  This made my budget work out very well, apportioning a solid sum of money towards saving and paying off debt, which I thought were high priorities to me (my imagined priorities).  Then, I looked at the previous month’s bank statement.  To my chagrin, I found that my actions demonstrated a high priority of enjoying activities with friends and buying drinks at the bar.  Instead of working toward a place of financial strength, I placed high value on having fun with money now.

If you find yourself in a place like I did—with “real” priorities rather far from the ideal you imagine, take heart, for change is quite within your reach.  Start by creating your budget for next month, using your bank statement as a template.  Then, adjust down slightly the categories that you think are too high (entertainment, in my case) and increase other more desirable categories by the same amount.  The trick is to not go “scorched earth” in your first month.  If you try to reduce entertainment from 5% of your budget to 1% on the first try, you’ll be tempted to “forget the whole thing” a few weeks from now.  Instead, focus on incremental progress, one month at a time.

Some Practical Steps

Herein lies the beauty of a zero-based budget.  Before the month begins, spend all the income you expect to receive on all the categories of expenses that you will have.  Allocate every dollar to the appropriate category, then get several blank envelopes.  Write the category name on each envelope, and withdraw the appropriate amount from the bank after each paycheck is deposited.  Now, if you will restrain yourself to only spend from your envelopes, you have no choice but to follow your budgetted plan. 

Staying Flexible

When something unexpected comes, as it always seems to, you may have to go back to your budget mid-month and reallocate.  This is perfectly acceptable, so long as you reduce one category by the amount that’s needed in another category.  Just make sure to do this with all your numbers in front of you, so as not to start the month with 2% allocated to clothing and find at the end of the month that you gradually ratcheted up to 7% by not paying attention.

All in all, this practice of advance cashflow planning is a great tool for spending your money on things that are truly important.  The sense of accomplishment and satisfaction that comes with switching expenses which bring you little value for those that you truly care about is magnificent, and will serve you well on your path toward the thriving life.