Earlier this week, I stumbled across a post published in a personal finance blogger group on Facebook that posed a simple question:
How would you describe what money means to you if you could only use one word?
My answer came to mind immediately.
What money means to me is freedom.
Beginning and end of story right there. Money is choice, money is options, money is autonomy, money is the ability to do what I want when I want to do it.
I get that you only live once and that’s why I’ve worked hard to overcome my scarcity mindset around money and learn to balance enjoying today and planning responsibly for tomorrow. (And I couldn’t have learned how to do that without Eric, who teaches his clients the same thing.)
But if you don’t strategically use your money — which means saving and investing some of it and spending some of it — you’re going to be limited to living moment to moment, day to day, never able to do anything bigger than what your current paycheck allows for you.
That’s the opposite of freedom, and it’s how a lot of people use their money.
Why You Have to Learn to Balance Spending and Saving
If you prioritize spending on what you want now, you’re trading your freedom for instant gratification. Do you really want to be working forever? Do you really want to live small like that, never able to afford more than what you can make in the month?
Of course not. But if you refuse to save and invest, you’re building a cage for yourself. You’re putting limits on your life.
If you want to get up to big things, you need to be smart about money and not get caught up in all the ways you can spend it in the moment.
And yeah, I know: tomorrow is never promised. We’ve all heard that story of the person who worked so hard their entire life, made all the right practical decisions, never took a risk, was the textbook saver…
…and then something happened. Tragedy struck; illness settled in; something happened where that person was never able to actually enjoy life after work, or fulfill their dreams of traveling the world, or experiencing the “someday” they had been saving for over all those years.
I do not want to be that person. But I also don’t want to stick myself in a cage of my own making.
I know what it’s like to not be able to do something because I don’t have the money, even if that something cost me less than $50. I know what it’s like to look at $30 in a checking account before I go to the grocery store, and buy nothing but Mini Wheats and Ramen noodles to eat for the week because I don’t know what else to do.
Those experiences motivate me to work hard, earn more, invest wisely, and grow wealth — but I’ve had to learn how to not let the fear of regressing back to those very experiences overtake the ability to live well today.
I don’t want to find myself stuck and unable to live my life because I overspent on the stuff that didn’t matter. At the same time, I don’t want to squirrel away every cent until some distant “someday” because I know somedays tend to remain that way — someday, never now.
It’s a very careful balancing act that ‘s not easy to maintain. But I’d like to think I’m getting better at it. In fact, we just finalized a decision that would lead to a big life change for us… and a big change in our budget.
When You Exercise the Choice Money Gives You and Intentionally Allow Lifestyle Inflation
We recently made the decision to move out of our home in the South End and into a new place across town. We’re moving from our cozy brownstone to a sleek, modern, managed condo building that sits right on the line between the North End and the West End.
We could not be more excited about this change and we’re both so anxious to move. We only have to wait 3 more weeks and we’re like little kids waiting for Christmas. It feels like the big day will never get here and we can’t hardly stand the waiting!
Everything about the move feels right and neither of us have any hesitation or reservations (and that’s an amazing feeling). But that doesn’t mean the decision was easy to make… especially considering it involved deliberately choosing to rent an apartment that was a thousand dollars more expensive per month.
It’s no secret but I’ll risk stating the obvious: rent in Boston is not cheap. But we had a reasonable deal at our old apartment — and a landlord who took good care of us. In the 3 years we’ve lived here, he’s not once raised the rent or increased our costs.
And for 3 years, that fact played a big part in our decision to renew our lease each spring. Our incomes have steadily grown since we moved in together back in 2015, but we’ve kept almost the same budget since the days when moving into Boston felt like a financial stretch and we both felt a little scared that we might bite off more than we could chew.
That means that our ability to save and invest has only risen with our incomes, since we were diligent about not allowing expenses to creep up. That’s what kills the ability to build wealth for most people: lifestyle creep, or lifestyle inflation.
Lifestyle inflation is when your lifestyle, or the expenses you choose to take on/what you choose to spend goes up as your income increases. Some lifestyle inflation is only natural and is not a bad thing; when you make the choice to have kids, for example, your monthly expenses are going to rise.
But other types of lifestyle inflation aren’t necessary — and they can hinder your ability to grow wealth. Think things like upgrading your car, spending more on shopping, going out more or to more expensive places, and so on.
And of course, one of the biggest culprits of lifestyle inflation: your living space.
I think we both agonized over the choice to raise our rental budget when we started looking at the options. Neither one of us loved the idea of paying more money for our living space, but we also knew we needed a change — both for ourselves now, and potentially for a growing family in the future.
We didn’t make the choice lightly, though. We started by acknowledging what we could afford to pay for rent was very, very different than what we would pay for rent — and I think that’s a key factor when you’re choosing to exercise a little bit of your freedom via your personal finances.
What Money Means Is Freedom — But You Should Use That Power Responsibly
Money is meant to be used. Money is freedom… and freedom is the power to live the way you want.
And, as I’m sure you know, with great power comes great responsibility. It’s true when you’re saving the world as a comic book superhero and it’s true when you’re managing your personal finances.
But I see people make this mistake over and over and over again: they don’t pick up on the responsibility side of the equation.
People tend to not just use the money they have available. They push their budgets to the max and spend every cent they possibly can. They might not overspend, but the priority is using money instead of saving it.
The thing is, living at your means is dangerous. I love the analogy Eric used when he discussed this topic on Business Insider:
Spending right at your means, even if you don’t go over and spend more than you earn, is like trying to take a race car up to 200 miles an hour with a warped wheel.
If anything goes wrong — you hit a bump, you swerve, whatever — you’re done. There’s no second option when you’re going full throttle in your financial life. There’s no safety net.
If anything changes, your financial plan combusts.
We need to flip the usual way of thinking about money around. Instead of thinking, “let me save at least enough to not be dangerously irresponsible,” think “let me go big with savings and figure out my spending from there.”
Start with your saving and investing goals and contributions. Put those first and push for big amounts here. (We save and invest a minimum of 30 percent of our income but we always put away extra when we can; last year we ended up saving 34 percent.)
Then think about what you can spend once your savings and investments are taken care of.
This kind of framework is the one we used when starting to look for a new apartment. We didn’t start by picking out what we wanted and then checking the numbers to see if we could afford it. We said, okay, what could we afford to spend…
- without disrupting our savings goals?
- while still contributing at least 30 percent of our income to investments?
- without maxing out our cash flow, so that we’d be in a tight spot if anything went wrong one month?
- while still being able to spend on other things we value, like time with friends, nights out together, and travel?
We came up with a range for our new rental budget from there. Ideally, we had a very low number that we were focused on. We understood it might not be realistic, but we wanted to start by targeting that (instead of going straight for the maximum). We also had a max in place that we absolutely would not go over, no matter what.
In addition, we reevaluated our current spending. We knew that if, from a cash flow perspective, we could eliminate existing expenses from our budget that would allow us to spend more on rent without changing our overall spending.
We already operated on a very lean personal budget, and the only ongoing expense that we chose to cut there was our $135 per month gym membership. Our new building has a gym for residents and we both agreed to use that rather than keeping a membership at a separate gym.
We also realized that I had some business expenses that would be painless to cut. As part of the switch to a new place, I plan to drop my $350 per month coworking space (because the new building has lots of common space I can use to work out of when I don’t want to work at home) and a $90 per month bookkeeping service.
That allowed us to free up $575 from our cash flow immediately, which meant we could raise our rent by the same amount without feeling a change whatsoever.
It’s Not Always About How Much Money You Have. It’s About the Choices You Make with It
It felt good to know that we could afford a place that was $575 more expensive per month than our existing apartment without changing the expense part of our cash flow sheet. That gave us an automatic lifestyle upgrade without losing out on anything that offered us value.
Of course, I did tell you our new rent is $1000 more than the old — which means there’s still $425 worth of additional spending we’ll be doing each month. We’ve made the choice to accept that expense for now, with the understanding that we need to honestly evaluate whether or not spending the extra money per month (rather than saving it) is worthwhile.
To be honest with you, I have a feeling it will be, so long as we continue to grow our businesses, push for bigger contributions to our savings and investment accounts, and pay attention to our daily spending to ruthlessly weed out lifestyle inflation in places where it doesn’t matter so much to us.
The great thing about financial success is that there are so many ways to get there and so many options along the way. That can make it daunting, because it is important to make the right choices — but that’s completely within your power to do.
Knowledge is power. Awareness is power. Leverage both to your advantage and you’ll find that you won’t just have more money. You’ll have more freedom to apply the financial resources you have in a way that allows you to live the life you want.
Keep up with the conversation as it unfolds.
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