In these days of easy credit and constant bombardment by aspirational “lifestyle” adverts, I think the majority of us grow up with the mistaken impression that we are somehow supposed to get the good life automatically. What we can’t afford now, we can nevertheless buy on hock and pay for it later. Well, this might work in days of high inflation and even more rapidly increasing wages, but unfortunately, this is not the world we are actually living in any more. I have to say, it worked for a while in the 70’s, but not since then. Indeed, with credit card rates at anything from 14% to 30% per annum, it has never been a terribly good policy to indulge ourselves by shopping for happiness, because what we actually end up with is a brief relief from stress as we purchase, followed by long-term misery as we pay more and more for our debts. In other words, we get an immediate Pavlovian reward (stress relief) for spending money. In human nature, what gets rewarded, gets repeated; even if it is not in our best interests. The only way around this is to be conscious of it when it is happening and to resist it, preferably by teaching ourselves new habits based on the enjoyment of not spending money; of resisting temptation; and most importantly of saving money first. Use the savings to pay off any interest-bearing debts before you start investing, as debts suck away your money far faster than you can gain from saving and investing, if you only have small amounts available. If your debts are serious or are out of control, I have a lot of advice and a free e-book you can download on my debt management page. Otherwise, we simply get trapped in the rat-race, having to work harder and harder to pay our ever-increasing bills and debts. As in the Red Queen’s race in Through the Looking Glass, we have to run faster and faster just to stay in the same place.
“Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.” – Mr Micawber in David Copperfield (Wordsworth Classics) by Charles Dickens.
Getting back to overspending, I commented in Part 2 of this series that many seemingly wealthy people are in fact spending on unnecessary items, or even on items that cause them regular extra outgoings. This video describes it nicely: watch [10 mins], then read on.
As well as spending less, it is sometimes possible to earn more, if not in your regular job, then on the side. The Money Saving Expert website has some really excellent tips – I have improved my finances by well over GB£500 a month from following just some of these tips. Although it is a UK site, the principles will apply to you wherever you live.