Written by Carissa Abazia
When we talk about money and building wealth, there’s a lot of chatter about how to cut spending. Many of us believe that if we spend less, the golden key to the land of riches will miraculously fall into our lap.
But spending isn’t always bad. Spending can improve your quality of life and even help you reach your long-term financial and lifestyle goals. The key is to align your spending with your values so you aren’t wasting money on things that don’t matter to you.
Rick’s Law of Money
Rick Ruby is one of the owners of my (awesome) company, Summit Funding. Rick has been instrumental in teaching hundreds of mortgage and real estate agents how to become true millionaires and save for retirement. He strongly believes in working hard and teaching others how to build true wealth. His motto is: “Make, save, and give.”
A simple, yet profound, rule he reminds us to follow is the Law of Money: You must save 20% of your taxable income every month, and never touch it.
Many people underestimate how much they should store away in order to live comfortably throughout retirement. If you follow the Law of Money, in addition to contributing to your retirement account(s), you will inevitably be in a better place when the time comes to retire. The more you contribute early on, the more you’ll collect over time.
Identify your values
Start by identifying your values. What matters most to you? What do you want to accomplish with your money?
I have listed out what matters most to me, to give you an idea of what I mean by this:
- Health. Because health is a priority, I do not feel guilty if I spend more on high-quality foods and fitness-related items such as long-lasting workout clothes and a gym membership.
- Real Estate. Every client of mine who owns multiple properties attests to owning real estate as the number one tactic that has helped him or her build wealth.
- Travel. I love to travel and I plan on doing a lot of it throughout my life. I took a trip to Italy last fall and it was one of the most memorable and greatest adventures I’ve ever experienced – it was worth every penny.
- Retirement. I have seen first-hand what it looks like to be of retirement age and have no money saved up to live a long, healthy, fulfilled retirement – and it breaks my heart. Saving for the future is a must.
- Cash Flow. My dad would always say: “Sweetie, multiple streams make for a big river.” Over the years, I’ve noticed that nearly all of my high-income and high net-worth clients and friends have several different streams of income i.e. cash pouring in every month.
List out your values and what matters most to you so you can refer to the list. Think about how you want your money to help you and others, from saving for a child’s college, donating to charity or being able to travel more.
Review your spending
Once you’ve identified your values, go through your spending. You can look at your bank statements for the last two months to make this easier. Highlight the times you’ve spent money on things that don’t align with your values.
Here are some of the ways I have cut my spending to better align with my values:
- I no longer have cable because I don’t watch much television. I still watch some shows on demand, but I am no longer locked into an expensive monthly plan.
- I don’t have an expensive car payment because driving a fancy car, albeit nice, is not a top priority for me and I’d rather use that monthly payment on travel.
- I no longer buy a lot of new gadgets as I’d rather use that money on a weekend getaway.
Once you begin comparing your actual spending habits to your professed values, you’re likely to see inconsistency — and you can begin to remedy the problem.
Spend on things that matter to you — even if that means being extravagant
Spending is highly individual. So, rather than instructing you “spend on this” or “don’t spend on that,” challenge yourself to figure out what matters to you and making sure that when you do spend money, it’s either on things that you need (housing, food), things that help you reach your long-term goals (retirement, buying a house) or things that enrich your life (travel, fitness, giving to charity).
If your spending isn’t helping you reach your lifestyle and wealth goals, it’s time to re-evaluate where the money is going and shift those resources in a way that will help you build wealth for the future while allowing you to build the life you want now.
Thanks for reading!