Make Cash Spend Music To Your Ears: Spend Equalizer
Are you afraid of spending money? Or maybe you are not saving enough? Find out what money is well spent and what you are likely to regret.
Today's classic is being republished by The doctor philosopher. You can see the original Here.
When Kristen and I get into my truck, a common scene takes place. I turn the engine on, the truck starts and my music that I was playing on the way starts. It's always loud which leads to Kristen asking me to turn it down because the bass is hurting her ears. Loud bass isn't their preference, although mine is. The equalizer settings in our respective vehicles look different. While you like a lot of midrange or your equalizer perfectly flat, I prefer a hefty dose of bass mixed in with some high treble (you can keep the midrange). Our personal financial equalizers are the same.
What should you spend a lot of money on? What should you call back for that? That's what this post is about.
What is a Personal Finance Equalizer?
If you ride with me, chances are you'll hear Jay-Z, NF or Macklemore as well as Alicia Keys, Lauren Daigle or Hootie and the Blowfish. If you don't like hip-hop, pop, rock, pop-rock, or country (I have eclectic tastes) then you probably won't enjoy driving my truck. As mentioned above, your musical tastes and attitudes are likely to be different from mine.
Since I like music with a beat, I dial the mid-rank settings down while adding bass and treble. However, if I turned all the settings up or left them in the middle, it would sound flat and terrible to me. In order for the bass and treble to make sense to my brain, I need to dial down the mid-range settings.
My musical enjoyment is maximized when I turn up some settings and, just as importantly, turn down others. This is my perfect mix. Not yours.
Your personal financial equalization describes your perfect spending pattern that will bring you the greatest satisfaction and satisfaction in the long term. This means changing some spending habits while rejecting others.
In other words, you need to purposely spend your money on some things while limiting your spending on other categories. This will lead to the greatest happiness for you.
Find out your settings
They also don't care what you think of their spending decisions, whether it's their car, house, clothes, vacation, their children's schools, or their favorite restaurants. You're immune to being with Dr. Jones to keep up.
If we want to increase spending in some categories and decline in others, we need to spend some time figuring out what we enjoy most when we are spending. You may think you know what it is, but you are almost certainly wrong if you haven't thought about it deliberately and systematically.
How shall we do it? Here are some helpful techniques and exercises to help you figure this out:
1. The look around
The first technique I encourage people to find out is to look around their house. You can either do this mentally (e.g. when you are not reading this at home) or by physically walking around your house.
Go through the front door. Look at all of the things that you see. You may see your dining room on the left and the formal living room (which you never use) on the right. Your living room is straight ahead. If you look around, you'll notice the dining table, the china in the stable that you haven't touched since your wedding, or the Persian rug you bought.
If you go into the living room you will see the TV, couch and paintings on the wall. Walking through the living room will take you to your kitchen with the appliances and counter that you saw fit.
As you go up, you'll see photos of family outings that will remind you of your time on the beach, ski trip to the mountains, and your family at a younger age. Then move on to each room and write down the things you have there.
As you do The Look Around, I want you to take stock of how much enjoyment you have originally made with each purchase. Then I want you to think about how much satisfaction it brought after those first 3 to 6 months. Do you like it to this day? Or do you hardly notice something? The difference tells you whether the money was well spent or not.
2. Track your expenses
A second way to see how you can optimize your personal finances is to look back at previous expenses. You can do this by tracking your expenses, which can be done through electronic tools like personal capital or mint. Alternatively, you can display the last bank statements line by line.
When you look back on your expenses, do you regret having spent the money? Or was the money well spent?
For example, you can look back on a current date with your partner or spouse. It was $ 100 for dinner and $ 60 for the babysitter. Was that $ 160 well spent? Now compare that to your last purchase on Amazon when you bought that Fitbit or Garmin running watch.
Looking at your past purchases can only evoke one of three feelings – satisfaction, ambivalence, or regret. As you spend more money on the things that made you very satisfied (especially after the honeymoon period is up 3-6 months after your purchase) and less money on the things you regret, you can find out the settings for your personal financial compensation .
3. The children's questions
If the above exercises didn't do the job, then you can turn to one of my favorite life planning exercises. The 3 children questions were made famous by George Kinder.
The purpose of these questions is to help you figure out what is most important to you in life. Why would you do such a delicate thing? Because it helps you discover an important financial truth – we spend a lot of money on things that are not important to us.
Click the link above to review the three questions. Go through them yourself first. Then go over it with a loved one.
Now that you have identified what is most important to you, we want you to compare this list of important goals with your current financial habits. Do your settings match the overall picture? Do you spend a lot of money on the things that matter most to you? Are you reducing your spending in areas that just don't matter?
4. Some universal truths
By going through the exercises above, you will likely come to some universal truths about spending money. While this may not be the case for you, it is true for many that they enjoy spending their money in the following ways:
- Spending money on experiences (travel, vacation, time with family / friends, etc.) as opposed to physical things
- Money that is spent on others as opposed to ourselves
- Spend money on things that are individually important to us (health / fitness, personal development, our business, leisure activities, etc.)
The most important thing is to recognize the pattern for what studies call subjective well-being (SWB). What determines your SWB may be different from mine, just as your musical preferences are likely to be different from mine.
That is, find what is most important to you!
Now that you have determined what kind of expenses result in the greatest joy and satisfaction, I want you to increase that expenses! You heard that right. I want you to spend lavishly on what you love.
However, this will require you to turn down the volume for all of the other things that you now find you are spending a lot of money on, which in the long run will not result in an increase in SWB, happiness or satisfaction.
If you have just exercised, you may be wondering how much money you can use on these types of expenses. For you, I would recommend following the 10% rule.
However, if you find yourself in a person who has achieved many of your financial goals and is free from student loans and no other consumer or credit card debt, you may want to consider converting that 10% rule to a 20% or 30% rule. As long as you pay yourself first – and meet your financial goals – you should be spending your money debt free! And if you have a lot of bucks to spend, you should set this volume to what matters most to you (while leaving the rest of your equalizer flat in areas that don't matter).
After spending enough time in the personal finance blogosphere and podcast world, the echo chamber where you should live a minimalist and frugal life with no expenses can be deafening. And that's not the kind of life Kristen and I want to live.
We want to spend as much money as we want on the things we love. While this requires that we first make sure we meet our annual savings goals, we have moved to a life of no debt and spending large amounts of money on other things that matter to us after that goal is met.
After working through the exercises above, I hope you have more clarity about which expenses are most important to you. Once you do, I want you to kick in the bass (or highs)! Choose your expenses so that they become music to your ears.