Optimizing Your Money Mindset: Let’s Get Started!
Welcome to Part 1 of the FIThinking guide to starting on the path to Financial Independence! If you’re not familiar with FI, check out our article taking a high-level look: Financial Independence and Retiring Early – Legit or Hoax?
Part 1 will take a look at how we spend money, what some of the issues are, and simple but effective ways to shift your mindset from Carefree Consumer to Intentional Spender.
Wait — don’t leave! I know you’ve heard about personal finance, being good with your money, etc. etc. It all sounds like a lot of work with no room for fun, right? Well, news blast here…
Optimizing Your Spending Habits Doesn’t Have To Be Terrible
…but you will need a great reason for doing it if you want it to stick! This is what’s commonly known as a person’s “why”, the reason they’re willing to transition from societal norms to a life of intentional spending and frugality. Let’s take a look at my personal story to give you some context.
How It Started For Me
I first started exploring ways to make passive income due to frustration with work. Like many, I researched how to build something for myself so I could step away from the traditional 9-to-5. While that frustration started me on the path to FI, it would have been challenging to stay on the path if something more important hadn’t come along. I don’t believe job frustration will be a lasting “why” for most people, because all jobs will be frustrating at some point.
No, the “why” I’m talking about will be something life-changing that shifts your world view. For me, it was learning that I’m likely to inherit the disease that took my mother from us after a long battle at 65 years old. I have the most amazing wife and kids, and knowing that I have a literal 50/50 shot of putting them through that pain turned my world upside down.
My focus shifted overnight.
Wanting an alternative because of some bad days at work transformed to truly dedicating my efforts to retiring early so I can maximize the time I do have to focus on my wife, kids, and passions.
This was the driving force that allowed me to shift my money mindset from material possessions to income-generating investments. I got into the weeds with our expenses and built spreadsheets to optimize everything. I trimmed the fat to make sure that no money was being spent carelessly or wastefully. These days, everything we purchase has a reason and will add value to our lives.
Okay, now that you’re armed with the definition of “why”, we can get into the details of how we do spend compared to how we should spend.
Buying For The Wrong Reason
One of the most empowering realizations I’ve had was that, for my entire adult life, I’ve been buying things to impress people I don’t know or care about, that don’t know or care about me. It’s sickening to think about all the money I’ve wasted on so many things that I don’t really value. I could have been retired already if I’d just been more focused in my 20’s. Hindsight is 20/20, though, and it’s true what they say:
“The best time to start was 20 years ago. The next best time is today.”
So this brings us to another question I’m sure you have: does having a budget mean I don’t get to buy the things I love?
The answer: absolutely not. But it does require some shifts in your money mindset.
Money Mindset Alignment
How often do you buy things impulsively? Are you someone that “goes shopping” just to see if something catches your eye? Do those purchases align with what you really value?
What Do You Value Most?
I’ve got a challenge for you: identify the things that actually bring you value. This will vary from person to person, but to me something provides value if I spend a great deal of time enjoying it and it leaves a meaningful impact on me.
If you’re honest with yourself, I’m sure that you’ll find that a lot of your spending is out of habit, compulsion, or social pressures. I found this for myself when I took a look at my own spending. Weekend drinks, buying lunch at work, coffee on the way to work, energy drink on the way home from work, buying the latest iPhone/Apple Watch/laptop when mine was only 2 years old and worked just fine…these are all common (and wasteful) expenses.
Joe Biden said something in a 2013 speech that really resonates with me: “Don’t tell me what you value. Show me your budget, and I’ll show you what you value.” We can say we don’t have money for the fun things we love, but when our spending shows we prefer to spend $5-7 every day on Starbucks coffee, $75 a week on lunch at work, or $100-200 on drinks and food every weekend, well…that’s where your wallet shows you hold value. Is that true for you?
The Lifestyle List
As an exercise, I’d like you to list what’s most valuable to you in a given day to make what I’ll call “The Lifestyle List”. I’ll go first:
- Time with my wife and kids
- My workouts and nutrition
- My morning pour-over coffee (I seriously live for this. Check out my article on Metabolism-Boosting Super Coffee to see why)
- Reading/personal development
- Learning and recording music (guitar, keyboard, vocals)
- My home cinema experience
..That’s it. I’m a pretty simple guy, and that’s by design. I focus on these things and cut other spending to the absolute minimum. Now it’s your turn.
“…b-b-but Dave, some of your Lifestyle List items are really expensive! That doesn’t sound like you’re saving much of anything!”
I hear you, and I totally get where you’re coming from. Let’s take a closer look at one of the bigger expenses to dig in on how intentional purchases can save you money down the road.
My Home Gym
I’ve slowly built out a home gym over the last 4 years to eliminate the ridiculous $115/month I was paying for the gym. The total cost? Around $2,500 over 4 years. That’s no small amount of money, but let’s shift our money mindset and look at it differently: how long does it take for the money I saved by cutting the gym membership to cover the home gym cost? And if I hadn’t bought all this, how long much I have been paying someone a monthly fee to stay in shape, and for how long?
Well, at $115/month I was spending $1,380/year to go to the gym. It took 18 months, or 1.5 years, for me to break even on my expenses after cutting the membership. Now I’m saving and investing that $115/month and am in better shape than when I was a “gym bro”.
But wait! There’s more! The savings go even further – I can reclaim lost time! I wake up at 5 am every morning (yes, every morning), walk downstairs, drink my pre-workout supplement, and get right to it. No commute, no walk to the locker room, no chit chat…just me going downstairs (in my undies if I want) to lift heavy shit. All while saving myself $115/month that, when invested, can help me retire early (to the tune of an additional $19,292.92 at 7% growth over 10 years, to be exact).
Here’s the point: If you have something you’re crazy passionate about that makes you genuinely happy and improves your life…spend your money on it. But be smart about it, be patient, and buy at the lowest price.
Interested in building your own home gym? Check out the FIThinking Home Gym Shopping Guide! Note that prices have increased from what I paid over the last four years due to recent global events.
Spending Wisely
No way to skirt around the bush here – you should always try to avoid paying full price. Why? There is almost no reason in today’s technological age wasting your money paying MSRP. There will always be a deal if you’re willing to wait.
We’ve got Facebook Marketplace, eBay, Craigslist, and deal-tracking websites like SlickDeals that will notify you when something you’re waiting to buy is on sale. Even Costco has great bundle deals sometimes – my basic rower came with 1 full year of an iFit subscription (a $400 value), as did the basic exercise bike! That’s two years of classes that help us to be healthier, further reducing healthcare expenses down the road!
I also went to Plato’s Closet recently with my wife. She’s been advocating for the store for years, but I always thought it was a thing for women.
NOPE.
I was like a kid in a candy store seeing all the like-new Under Armor athletic clothing that I would never buy at retail price – and each shirt was around four dollars. FOUR DOLLARS! I picked up 4 Under Armor shirts and a quarter-zip pull over, easily priced at $40-$50 each, and an Abercrombie button-down shirt. How much did it cost in total? $39 out the door. Yeah, some of my MSRP-paying friends were miffed when I told them they should check it out. What can I say? I just think it’s a fun game to find the lowest price! My money mindset shifted yet again.
All right, so you’re pumped up reading all this money mindset stuff and you’re ready to find some deals! Maybe you don’t have the extra money today, but you DO have that credit card in your wallet…
Debt – Good or Bad?
Let’s get this out of the way: Consumer debt is bad. These high interest rate debt sources (more than 6%) can be title loans, credit cards, rent-to-own purchases, student loans…the list goes on and on. The danger is that you take a long time to pay the debt down, resulting in significantly more money paid in interest than the actual purchase cost.
Title Loans (Avoid! Avoid! Avoid!)
We’ll take a look at one of the worst offenders: Title Loans. These are made to take as much money from you as possible with extremely high interest rates and fees. A few interesting facts to educate you:
- For the average loan amount of $1,000, an additional $1,200 will be paid in fees
- 1 out of 5 people who get title loans have their car repossessed
- Title loans are banned in 25 states
- They have an average APR of 300%
Does anything more need to be said? Don’t use these.
Credit Cards
Credit cards depend on your financial situation. If you’ve paid off all your high interest debt, and you pay the card off every month, these can be great vehicles for free travel and points. I’ll be putting together an article on this in the future to cover the amazing benefits of credit card points bonuses, but these are only relevant if you’re already in a strong debt position.
Money Mindset Focus: If you have high interest rate debt (6% or more), pay that off before putting money into investments or making big purchases.
The common ground here is that these debts allow us to purchase something when cash isn’t available. You want something now, and despite not having the cash you have a way to get it now! But is that a good thing?
Delayed Gratification is Actually Amazing
Something we miss out on today is the very valuable sensation of delayed gratification. With debt, we don’t need to earn the money before making the purchase. We buy things with other people’s money today, planning on “earning” the purchase later. Don’t fall into this bad habit!
Buying on credit because you don’t have the money available today trains you to do more impulse buying. It also increases your chances of being hit with insane interest rates if you don’t pay off the statement balance every month. Neither of these are healthy for you, and that minimum payment does not protect you from the high interest!
Waiting to get something feels tedious in today’s age of instant gratification, but man does it feel good when you wait it out and get exactly the price you wanted. Or you realize you didn’t really want it that badly in the first place. You played the game and won!
One of the best tips I’ve come across when it comes to spending is to wait at least one full day before making a purchase, which removes the impulse from the equation. I find that when I want to buy something, I often wait and just…forget about it. No joke, it just disappears. When the stimulus that triggered the desire to buy is gone, the desire itself goes away.
If you still want the item as badly the next day, make sure you’re getting a good deal and go get it. At least you know that it wasn’t a fleeting thought.
Do You Know Where Your Money Is Going?
Okay, so we’ve covered impulse purchases and debt. What about behind-the-scenes, “set it and forget it” purchases?
If you’re anything like I used to be, you’ve taken a look at your bank account and wondered where all your money went. I fear this is extremely common today – it’s so easy to make a purchase and not feel or see the money leaving your possession. Digital transactions are just 1’s and 0’s moving from one account to another. Everything has a subscription now – apps, video streaming services (holy crap, there are too many), video games – and when they’re automatically set to recur every month, forgetting about them is losing money.
Go ahead and take a close look at your bank statement. Are you making full use of everything you’re spending on? Or is there room to trim the fat to save for your future? Any free trials you signed up for and forgot about?
Where Do You Need To Spend Your Money?
Some things can’t be cut, of course – mortgage/rent, food, utilities, etc. When it comes to those bills, though, how cost effective are you? Some questions to get you thinking:
- Did you buy the most house you could afford instead of the house that gives only as much as you need?
- Are you being efficient with your utilities instead of setting the thermostat to 80 degrees when it’s 15 outside?
- Are you paying for unlimited data on your phone when you work from home and can use your wifi instead?
- Did you buy a luxury car (that will be very expensive to repair) instead of a reliable, slightly older vehicle that will last a decade or more?
We all have expenses we can’t avoid, but when it comes to living intentionally it’s important to avoid being wasteful. Give your spending habits some thought and make the effort to track and review your accounts every month. It sounds tedious, but if you don’t already look at them regularly I guarantee you’ll be shocked with what you see.
I recommend Personal Capital and Mint to track your spending and savings!
Conclusion
Whew, we’ve covered a lot here! Let’s have a quick recap.
- Shifting your money mindset toward spending doesn’t result in a life of deprivation! You can still have what you want, you just need to focus on getting financially healthy by optimizing your spending and trimming the fat first.
- Consumer debt is bad. Pay off all high interest debt (anything over 6%) ASAP. Start with the highest interest rate debt first, and pay down with extreme intensity. You can’t imagine how good it feels to have it all paid off.
- Stop buying things to impress other people. No one that matters will care what car you drive, how expensive your clothes or sunglasses are, or how much you spend on drinks and food.
- Open your mind to buying used. There are so many things you can get for pennies on the dollar if you buy second-hand – clothes, appliances, electronics, tools…you name it, you can buy it cheaper from someone else.
- Spend on the things you’re passionate about, but spend wisely. Wait for a deal and make sure it will last. Think of my home gym example – I was able to save money by making intentional, long-term purchases up front.
- Stop with your impulse purchases! Wait until you have the cash in hand to buy the item, or are able to pay the purchase off immediately on a credit card. Going a step further, wait a day to make a purchase to see if it was really something worth spending on.
- Track your money at least once a month. Look at your bank and credit card statements using Personal Capital or Mint to make sure your money is going where it’s supposed to!
- Live the life you want! Just make sure you’re not wasting money on things that aren’t on your Lifestyle List and aren’t a need.
And there we go! After reading this you’re well-equipped to take the first steps of your FI journey. Don’t worry, there’s much more coming to help you on your way!
