We’ve all heard those bits of financial advice, like “don’t buy your coffee, make it at home instead” or “cut out the avocado toast if you want to buy a house”, but is this advice really that relevant?
Money expert Shannon Lee Simmons believes there are smarter solutions to saving your money.
Outdated Tip #1: Make a budget and stick to it
Budgeting actually makes us more worried about money. It’s unrealistic to categorize your spending money into these small micro-categories, forecast what you think you’ll spend and then try to live within those rigid parameters. Budgeting like this keeps money at the forefront of your brain all the time, and we set ourselves up for failure. One week you may need to buy pants, and the other week ore cheese. So, you end up “borrowing” from other categories and it kinda feels like you’re bad with money or overspending all the time, even though you’re not. Many people get frustrated and just give up. Budgets make you feel guilty every time you spend money.
According to Shannon, budgets are broken. The only limit you need is something called your HARD LIMIT; a line in the sand between the money you can and cannot spend each pay period. That’s it! Once you’ve put aside all your money for bills and savings, the money left over is your discretionary spending (a.k.a. it’s the money for you!) You can blow this to zero as long as you’re fed and having fun. Who cares what you spend it on and stop trying to track and forecast spending, it’s only making things worse.
Outdated Tip #2: Reduce your disposable income
We often hear that we need to cut back our “disposable income”. Shannon doesn’t use the term disposable income because she doesn’t think any part of our income is disposable. Disposable means throw away. Your spending money, the discretionary spending money you have each month, is the only money that’s left for you! It’s as important as bills and savings. Usually we hear those brow beating truisms – “the latte affect” or brown bag your lunch and these frugal mindset tips as a way to cut back and reduce spending. But if you’re a person who loves their morning latte or doesn’t have time to make and pack a lunch, those tips are going to make you feel guilty each time you spend money on something you actually really enjoy or need. So, Shannon has a term called Happy Spending. Some things that we spend money on make us feel proud, excited, happy. Others make us feel resentful, guilty, insecure. Usually, these are purchases made because of social obligation, convenience or in a low moment. Either way, there’s an emotional return on investment (EROI) to our spending money. When we spend our spending money on things that make us unhappy, or that have a low EROI, it feels like we are divesting from our own happiness. It makes us feel more worried and stressed about money because it feels like none of our money is for us anymore.
The fix is to ensure you’re actually spending money on things that make you happy and reduce those that don’t -regardless of the TYPE of expenses. Here’s an example: Two clients. Both spend $10 a day on lunches out at the office. The first client says that this is a 5/5 for Happy Spending. It’s time with her co-workers, she doesn’t have a lot of time in the or want to cook and take leftovers. The second client also spend $10 a day on lunch and rates it as a 1/5. This person feels guilty and frustrated at himself every time. He doesn’t want to have lunch out and it makes him feel lazy.
So, only the second client should cut lunches out from their spending, not the first. She needs to cut elsewhere to make room for the lunches that actually make her happy.
Outdated Tip #3: Stop keeping up with the Joneses
So normally the phrase “Keeping Up With The Joneses” is a negative thing. You see images of people competing for the best car or best fence. But, that’s not really what “keeping up” actually is.
Comparing ourselves to our peers is very normal. Boringly human. It’s how we see if we are on track or not with your people. It’s not a jealous or negative thing and it’s impossible not to look at our peers and say, “hey, am I on track relative to them?”
The problem is that these days, social media is heightening our awareness of what our peers are up to and making us feel inadequate more often. The more inadequate we feel, the more likely we are to feel broke, worried and make bad financial decisions.
So, instead of the blanket advice “appreciate what you have and don’t keep up with Joneses”, which makes us feel very small and petty and sheepish if social media makes us feel inadequate, Shannon advises to recognize your social media triggers and manage it accordingly.
Go on a social media detox; it will help you spend less money!
- Don’t go on social media in morning or before bed
- Limit the scrolling to less than 10 minutes
- Recognize the people on there that make you feel blue and unfollow them.
Outdated tip #4: Don’t leave your money sitting in cash
Everyone hears this all the time and it makes us feel guilty or bad with money if we have money that’s in savings but not invested. But, in today’s economy, it’s so important to have a large emergency account. Emergency accounts get no love because of this tip. Sure, they are boring… they aren’t as exciting as investing, but having an emergency account is the NUMBER ONE way to stay out of debt forever and it’s like a warm blanket of calm when you log into your banking. If your furnace breaks, you’re covered. If you have to make a large unexpected purchase, you’re covered. When we don’t have emergency savings and we have to use debt to bail ourselves out of a sticky situation, we feel broke and bad with money. It perpetuates the negative and worried feelings around money. So, make it a priority and recognize that money sitting in a savings account, even if not invested, is working for you.
Outdated tip #5: Make sure you have $1-million to retire
Sure, some people do need this. Some people need $4-million and others $400,000. It’s TOTALLY CUSTOM to each individual. So, if you’re not well on your way to a million, it’s OK. The best advice: a little bit goes a long way and do what you can. Being realistic about what you can afford to do is important and also perhaps shifting what your expectations are to match what you’re able to afford. The important thing is to not give up and do something to move yourself forward with your finances. Don’t get discouraged and be realistic for your own retirement expectations and savings capabilities.