There is a new series on CBC called the Stats of Life. One episode was very revealing and reviewed the statistics behind three Canadian families. One struggling on an average income, a self-made woman, worth $100 million and a couple considering bankruptcy. All three had very drastically different views on an often-overlooked concept with Canadians: living within your means. The results were eye opening. For example, the wealthy women justified spending $3,400 on one fashion shopping trip which is the the average amount spent by Canadians per year on clothing.
The concept I wanted to draw from this discussion is what does living within your means mean? How do you live frugally but not feel limited? Let’s visualize it.
Have you ever been to a buffet when you’re on a diet? Not as much fun, right? Piles of cheese, dessert platters, open bar – all for naught. At least for you. Meanwhile, your friends are enjoying every morsel of indulgence. All you want is to join in. Depending on your degree of willpower that day, maybe you do. I know this narrative all too well. I’m often tempted and occasionally cave in.
Living frugally does not mean depriving yourselves. It does, however, require some effort. It’s not just cutting back. It’s more just paying attention to things and planning. Taking control of your budget and living within your means make you think about what kind of life you want to live. It makes you ask the question: What is important?
Frugality revolves around knowing how much money is coming in and promising each other we’re not going to spend more than that. Living within your means is an approach our grandparents had no choice but to take, that generation getting by before relying on credit became the norm. However, it’s a strategy that financial advisors urge people of all ages to embrace.
People don’t really anticipate or realize over time the degree to which their cost of living rises. We don’t really track what we spend very well and inflation in many things is somewhat hidden. There are people that think that what they need to be most terrified of is the stock market crashing. But no, our greatest challenge to retirement is the fact that everything will cost more next year. Everything will be more expensive, and that’s relentless.
In the face of rising lifestyle costs, you need to be aware that the drag you must fight is inflation, the erosion of our purchasing power. You can mitigate capital risk, but have you built an investment strategy and a retirement plan that recognize that the primary risk you have is that everything in the household is going to cost more than it did before.
Feeling financially limited
Unfortunately, when it comes to spending, that counterbalancing quick fix isn’t quite so simple. So, what’s the alternative? After all, nobody wants to feel like they’re on a juice cleanse at a wine and cheese party all the time. In fact, that feeling of limitation can result in poorer financial decision-making.
The scarcity mindset, the belief that you don’t have enough, has been proven to hamper the ability to make smart financial choices, inducing a kind of all-consuming anxiety. In other words, when you feel financially limited, it’s like rose coloured glasses every time you make a money decision.
Here are 7 strategies you can implement to start living and spending within your means without the detrimental feeling of limitation working against you.
Challenge recurring expenses
Find ways of making spending cuts without major lifestyle alterations by getting creative. Your recurring expenses – monthly, quarterly, and/or annual costs, are the perfect starting point. As you comb through your list of expenses, identify which you might be able to renegotiate or replace with alternatives more suited to your needs and budget.
For example, you may be dead set on keeping cable, but you can still call up the cable company (and its competitors) to try negotiating a better rate. Even mundane expenses like your insurance should be reassessed every year to ensure you’re getting the best coverage based on your current needs at the best possible value.
People often live in the moment like tomorrow may never come, but tomorrow does come along with a huge debt load. We don’t have control over so many things, and we’re living in a very commercialized society that’s consumer-driven. But on a micro level, we can each be our own financial gatekeeper.
It’s not just recurring expenses that are up for negotiation. You can save hundreds of dollars on everything from household repairs to medical bills by researching price ranges and challenging costs. Beyond comparison shopping, couponing and use of cash back portals, you can always ask for a discount.
I know this might make my non-confrontational readers uncomfortable, but seriously, when the alternatives are living beyond your means or cutting out a cost entirely, a simple inquiry into the alternatives is worthwhile.
Trim the fat
This isn’t my call for you to cut out every latte from your life. That would be limiting. I know it would be for me. In fact, there’s no need to go crazy on cutting back before taking a closer look at what you’re paying for. Use an app to sync up all your accounts for a full record of your spending and earnings, so you can assess and continually reassess what and how you’re spending.
As you scroll through your spending history make a note of any surprises or obvious wastes of money, not that they’ll always be obvious, but you never know until you look. Did you totally forget about the meal planning subscription that’s been automatically billed to your credit card for the past year? Trim it! Some who know me will say this is directly related to me, but it works for me and I will keep it.
Maybe stop paying for the privilege of things you can get for free! Basic chequing accounts and ATM withdrawals, for example, can be a waste of money. Review your banking fees, optimize them, and bank smartly.
Small, non-sacrificial trims, like avoiding fees and shedding vestigial expenses, can help you bank extra money each year or use your added budget breathing room to finance other, more exciting ventures.
Spread out splurges
Another great option for reducing costs without cutting them out entirely is rethinking their frequency. Just as you might transition from daily to weekly happy hour for the sake of your health, adjusting the timeline of your spending splurges can go a long way in supporting your financial health without resorting to total deprivation.
For example, if you indulge in a monthly massage, try changing to a quarterly schedule. Or if you go in for a haircut every 6 week, try stretching it to every 8 or 10 weeks.
Budget from zero
Set up and stick to a budget. You need to know exactly what your lifestyle is costing you to properly prepare and avoid impulse purchases. Once people acknowledge they need to be preparing for inflation and controlling their spending, it changes their investment strategy. Instead of focusing on their monthly account balances, people should concentrate on how much income their portfolio can reasonably generate over time.
Now that I’ve laid out some tactical strategies for living within your means without feeling limited, let’s talk mindset. One of the most powerful shifts in perception I’ve experienced in my preaching for better financial habits is that of building a budget from zero.
Instead of thinking of budgeting as a call to cut back and sacrifice, start building a spending plan from zero each month and focus on building up from there, making note of every line item you can afford with gratitude – your wonderful home, the convenience of your car, delicious food from the grocery store. Rather than maintaining some arbitrary, hyper-consumer status quo and seeing everything that falls short of the luxury loaded image as a sacrifice, try shifting your perspective to recognize all the abundance you already enjoy, in whatever form it takes.
I written about this before. Recognizing and giving thanks for every expense you already afford is a habit that can extend far beyond your monthly budgeting. Practice mindfulness and gratitude daily.
Recognizing the enormous value of everything you already enjoy – experiences, relationships, and opportunities goes a long way in combating feelings of limitation, even when your means are relatively limited.
Make more money
This might not be quite as simple as adding an extra workout to your routine after a particularly indulgent evening, but making more money is one of the best ways to afford more spending flexibility and ease any feelings of limitation that arise from struggling to live within your means.
Ask for a raise. Seek out more lucrative markets for your employment prospects. Cultivate a side hustle. Avoid the limiting belief that your earning potential is set and actively seek out ways to increase your means such that living within them is no sacrifice.
Frugality has become trendy over recent years. I think in this type of economy people are forced to be more frugal. It’s good to learn to live on a tight budget because it forces you to go through the exercise of keeping track of expenses and being more conscious of your spending. Frugality is often looked at as a negative term, but a lot of good things come out of it, no matter how much money you make or what stage of life you’re in; it’s good to be conscious of your spending habits and patterns.
Being frugal does not mean being cheap. Taking the cheap route can cost you more than you bargained for. Frugal means making good financial decisions accounting for your needs for today but also your needs for tomorrow. That’s at the core of our mantra: Financial Life Planning. We believe leading a frugal lifestyle really pays off over the long run because there’s less financial stress and more planning. It doesn’t mean denying yourself; it means planning wisely and making thoughtful fiscal decisions.
The key to Financial Life Planning involves setting goals that can help people become thriftier. We advocate drawing up short, medium, and long term goals. Having a bigger picture in mind helps people adjust to frugality since they have something to work toward. Being more aware of your finances and concentrating on needs versus wants benefits you in ways you may never anticipate.
The whole mission with this is to keep our family oriented to what’s important in the world and in our lives. Being frugal makes you slow down a bit. It really makes for a better life and in Keeping Life Current.