Tools For Temptation
Waiting on investment returns to make you wealthy is like waiting for the wind to blow. In most cases, we as individuals don’t have control over our investment returns.
Like me, you’ll probably invest the vast majority of your savings into passive investment assets. Returns are usually average, and we have to accept what the market gives us. It’s a “hope for the best” situation, and market forces control a huge chunk of our returns.
With investment returns subject to the whims of markets, and our corporate masters trying to consume ever-more of our waking hours – how can a person win? Where is the way out? By pulling the only lever we have left: Savings
As I’ve said in the past, saving is the most important thing you can do to reach financial independence.
Don’t wait for the wind…get up and row!
Saving, is sometimes more accurately called “Controlling your Spending“. Want control over your life? Start with controlling your spending; It’s the first place you can induce change in your life, and break free from the chains of wage-slavery.
Oh, but the Sirens of Spending call to us!
They call to us via marketing! They call to us via social pressure! They call to us with our own boredom! The siren’s call is a strong one. How can we possibly win against such a world? Earplugs anyone?
The Temptation to Spend
Mr. Tako is even subject to the Siren’s call. I’m not immune. After writing that post (last week) about my clothes, I wanted to try a pair of Dickies work pants to see if they’d hold up better than jeans. Most of my pants are torn and falling apart. Oh how I dream of new pants….
For my new projects, I keep wanting to spend money on cool new tools like this sweet little Makita router, instead of using the old tools I already have. It’s hard not to spend!
Everybody wants to spend. Having a cool new toy is fun! Eating out at a restaurant is easier than making a home cooked meal. Hiring a maid or a gardener will free up time to enjoy life. Hiring a financial advisor will remove the stress of investing your money.
All of these kinds of spending are unnecessary. They’re temporary bandaids for the pain of life. Sure, bandaids help, but they won’t solve the problem.
In a world bent on taking our hard earned labors in exchange for shiny trinkets of distraction, our own human nature works against us. Unnecessary spending is a misstep – A step away from financial freedom and a step towards consumption.
Blocking out the noise isn’t easy. Everywhere we turn, the song of spending can still be heard.
Thankfully, over the years I’ve collected a number of tools to help control my own behavior. What’s the secret sauce? Try some of these tools on for size when the Sirens of Spending begin their call.
1. Put It Off For Another Day
One of my favorite tricks to controlling spending is the “oldie but goodie”: Sleep on it! When facing a new purchase, stop yourself from buying today and tell yourself to come back in 24 hours. What if you delay 24 hours and still want to spend? Then try some of the other tools below!
This has to be the simplest and most effective tactic there is to avoiding unnecessary spending!
2. The Fun Money Budget
Love it or hate it, budgeting is a useful tool for anyone looking to get started with personal finance. Knowing where your money goes and then exerting control over that is a powerful thing.
When developing a budget I highly recommend adding a “fun money” line-item. It doesn’t have to be a lot of money…just enough for a little monthly fun. Maybe $20-$50/month, a tiny fraction of your regular spending, but enough to buy a small hedonic pleasure. Think of it as an allowance for mindless spending.
Want to spend on a new toy that greatly exceeds your “fun money” allowance? Well, you can’t! You’ll need to start saving your monthly “fun money” until you have enough.
3. Find Alternatives
Finding alternatives is another great way to avoid spending unnecessarily. Before you swipe that credit card at the cash register, ask yourself the question “Is there an alternative I could use instead?”
I ask myself this question all the time. Inevitably, I’m able to come up with multiple alternatives. Instead of new pants, I can keep wearing the old ones. Instead of buying high-end designer t-shirts, I purchase (new to me) t-shirts from the thrift store. Maybe I’ll borrow a tool from a friend instead of buying.
Could I find it cheaper on Flee-bay? How about a different model that does the same thing? Can I apply coupons and gift cards to help it cost less? (Don’t forget Ebates!)
The point is: There’s always alternatives to spending. Just use a little creativity to find them. You’ll actually get better at this with practice!
4. Challenge Yourself To Do It “The Hard Way”
When looking at alternatives (#3 above), you may occasionally encounter the alternative called “Doing It The Hard Way”. Spending money to solve problems is often marketed as the “easier way” to do things. This isn’t completely wrong. Money can solve a whole lot of problems, and remove many of life’s discomforts.
Instead of spending like a wimpy consumer, challenge yourself to skip the spending. Do it “The Hard Way”. The hard way is for financial badasses, the spendy way is for wimpy consumers. Which are you? Wimpy consumer or financial badass?
Not only will your own sense of accomplishment be stronger if you do it the “Hard Way”, but your pocket book is going to be fuller! There’s other benefits too – Frequently “The Hard Way” it comes with extra physical activity, and you might learn some new skills along the way! Bonus points!
5. Calculate Costs Per Use of the Purchase
Stopping unnecessary spending is frequently about identifying it. Unnecessary spending has unusually high metrics I like call “high cost per use”.
A good example would be the expensive mixer you purchased to make smoothies every morning. You bought it for $500, and only used it for a month (30 times) before you got tired of that fad diet.
The cost per use ends-up being an astronomical $16 per use. That’s one expensive smoothie!
Sure, you convince yourself you might use it again…but most of the time you won’t. It’s just money sitting there on the shelf, earning 0% interest.
See what I mean about high costs per use?
First, figure out how long the purchase is going to last based on your expected usage…and be realistic here. Most consumer products are designed to fail. Take whatever reasonable estimate you have (based on your past experience) and then cut your estimates in half.
Second, ask yourself how committed you are to using that purchase. If it’s hobby spending, remember my 5.5 year dedication rule for a hobby? Are you really that committed? In the past, how long have you really stuck with something?
We self-delude ourselves into thinking we’ll really use a purchase. The sad reality is we hardly fulfill those dreams. This makes our cost per use astronomically high.
For me, calculating the cost per use (on a purchase) is an important way to stop myself from spending. I can’t argue with my own metrics!
6. Get Yourself Some Backup
Warren Buffett is famous for many things, and rarely for bad investments. When he owns up to his mistakes, pay close attention. His airline investments were particularly bad. Warren is famous for saying, “I now have an 800 number I call every time I think about buying a stock in an airline. I say, “I am Warren and I am an air-aholic.” They try to talk me down.”
What he’s talking about here is backup.
On my own Road to Financial Independence, I could have easily given into many temptations. Thankfully, I had a partner in crime: Mrs. Tako.
Mrs. Tako kept me on the straight and narrow when I wanted to spend. Every time I had the temptation to spend on silly luxuries she’d say “That’s a waste of money“. She was totally right!
Mrs. Tako played the key role of “backup” in my life. When my willpower was weak and I yielded to the Siren’s call – Mrs. Tako was there to give me a nudge in the right direction. A nudge to use some of the tools discussed in this article.
It doesn’t have to be a spouse to be a good backup either. It could be a friend, a parent, a sibling, or even a next door neighbor. Who’s going to talk you down?
7. Change your environment
Spending is actually greatly influenced by our environment – More than we often care to admit. Certain environments are definitely going to cause different spending than other environments. Control your environment and suddenly you control your spending!
Here’s a few examples of how you could change your environment:
- Got friends that like to engage in retail therapy? Avoid the retail environment. Get them to go hiking instead of shopping!
- Have a workplace where eating out is considered normal? Try changing where you work.
- Live in a city where owning a luxury car is considered the standard way of doing things? Move to a different city!
- Tired of going out for drinks with friends and spending gobs of money every weekend? Don’t go out to a bar for drinks! Try having a potluck picnic at the park where it’s BYOB!
- Got kids that think you’re made of money? Get different kids! (Ok, I’m kidding on this last one)
The Mental Earplugs
As you can see, there’s a number of tools for getting spending under control, but ultimately it comes down to you.
That’s right, YOU. The only person that can put in those mental earplugs in is YOU. Until you decide to break free from the Siren’s song of spending, that 50% savings rate is going to be elusive.
Silence is definitely a wonderful thing…
14 thoughts on “Tools For Temptation”
Great post. I totally agree and you give some great tips. I just started following your blog and it’s hilarious! Keep it up.
The Green Swan
Thanks Green Swan! I do my damnedest!
I absolutely agree on the sleeping on it tip. I would add that ideally give it 2 or 3 sleeps. If you haven’t worked it out of your system by then it’s time for the big guns 😉
One of my favorite tools: get off mailing lists, and throw away all catalogues that arrive in the mail before they even get in the house. Same goes for solicitations for donations that come in the mail. We have a budget and a schedule for giving – no need to even look at the 10s of request we get every month.
Thanks for the cool article señor Tako.
Cool tip Aperture, thanks!
Love the picture at the beginning of the post, very neat!
We have done the “calculate per use” as per note 5, but don’t forget that there is always some residual value in stuff. As an example of the Vitamix, they actually hold their value fairly well (and they are brilliant by the way – disclaimer: we don’t own one). But your point still remains very true….
It’s true – every product has a depreciation curve. Some are steep, some are flat.
I suppose you could try and sell them on ebay if they’re still worth something.
Love the points about the change of environment. I tried changing kids, but my wife didn’t like the idea so instead we implicitly agreed to make them educated about the cost of things. We’re still getting there, but the oldest (5 year old) understands that things cost money and we can’t afford everything. He’ll get there, and I’m crossing fingers that my children will be more financially educated in their twenties than I used to be.
Me too! My kids have just gotten to the “I want it” stage about things in the store.
Great site. This is my first visit.
I do like the “cost per use” analysis. I have so many items sitting around the house that have barely been used. It’s even worse with children. They would get so many toys and most of them would never get played with. Sometimes, they would never even get removed from the package.
We have started to donate those gently used items. The tax deductions are nice, but I would rather have never spent the money in the first place.
Welcome Dave. Glad to have you as a new reader. As you have kids, you may enjoy my post The Myth Of The Expensive Child.
Of course, having $2M net worth, a dayily $100 stipend is a dependable 0.005% of your net worth. As long as you are invested in very safe long Treasury bonds or living on S&P index dividends, your yield is roughly equal to super low inflation and 2% real return, which should pay about 40k per year, or slightly over $100 per day. I really don’t care if you don’t spend it, but you can. Times may be tougher in the future, or they may not, but you certainly won’t run out of money either way, even if you buy that sweet router or take your wife out to eat. You have won the game!
I guess the point isn’t that I can spend lots, the point is that I don’t. That’s how I got to where I am today. Those habits don’t just disappear.
That’s cool, no one can tell you what to do, which is awesome. For me, with the net worth still going steadily up YoY and inflation and interest rates low, I’ve started to loosen up on the little things. My favorite is to tip generously and get to know people in the service industries better, it’s a fascinating world out there with millions of great stories.