Hi there, MML readers! It’s Cathy from Fiscally Chic with my first “finance with intention” post. Today I’d like to share a few financial intentions from the Fiscally Chic household and the thought process behind them.
Intention #1: Be happy with enough.
Here’s a consideration for those looking to win the lottery or become the next billionaire. A Roper study conducted for Jean Chatzky’s book The Ten Commandments of Financial Happiness revealed that what you need to feel happy is enough cash to live comfortablyâ€”not lavishly, just comfortably. More money than that won’t buy more happiness. “Understand this,” says Bert Whitehead, author of Why Smart People Do Stupid Things with Money, “and you can quite possibly control your brain and avoid nutty behavior. The true definition of financial independence is knowing how much is enough.”
If you can’t have it all, what do you do? You have to make a choice.
Think back to high school or college economics class, and please don’t have a nightmare. What were some of the first things you learned? Opportunity cost and scarcity. Until you earn more money, the money you have is a scare resource. There are only 24 hours in a day. And you only have so much closet space. Put another way, if I have $75 to spend, I have to choose between a new dress or dinner at the new restaurant in town.
Unfortunately, Americans (and especially Millennials) want what’s bigger, better, newer, and faster. And we want it now! Maybe even yesterday. Especially if Ms. Jones has it. Let’s work on changing that mentality. Because when you boil it down, will “it” make you happier?
Intention #2: Save up for the good stuff.
The NY Times had a fantastic article about that very subject. Studies have found that people are happier and enjoy their purchases more when they’ve saved up and planned to buy something long before they buy it. Even better, buying experiences such as vacations or theater tickets can lead to even longer-lasting happiness. Bonus points if you’ve saved for it. This is because those experiences create memories and you can build stronger relationships with family and friends. Pretty powerful stuff, eh?
Based on personal experience, spending money on a deep sea fishing trip during our honeymoon was more valuable to me than the dress I bought to wear to my sister-in-law’s rehearsal dinner. Why? Because I have some great stories about the mahi mahi and 8.5 foot sailfish we caught.
Intention #3: Live below our means.
“Where money is concerned, people tend to do two things over and over”, says Barry Schwartz, author of The Paradox of Choice. “First, we adapt to how much money we have. Second, we compare ourselves with others. Chances are, if you make an irrational decision about money, one or both of those factors are in play.” So what do you do when you get a raise or a bonus? Instead of increasing spending, create an automatic transfer that moves the increase in pay from checking to savings or investing. When you make savings automatic, you won’t even miss the additional money. You’ll actually have more to use down the line. Or use those funds to pay off your student loan, car, or mortgage a little sooner.
Intention #4: Pay off the credit card bill each month.
Yes, some debt will be inevitable in life and business. We have a mortgage and some of you may have student loans or small business loans. But when it comes to credit cards, if I can’t pay off my credit card bill at the end of the month, I don’t buy it! I’m not bad mouthing credit cards in general since I use one. They’re convenient and you can earn perks such as cash back, hotel stays, or airline miles. I’m talking about the frivolous spending using credit cards. Are those $100 shoes really worth $120 or $150 dollars when you include the cost of interest? Maybe, but most likely not.
I know it’s easier said than done, but we were able to put a 20% down payment on a house in a Chicago suburb by following these principles.
What about you? Would you rather spend your money on an experience or the new “it” item? What are you saving for right now?