[Editor's Note: Today's guest post is from blogger Dr. Latifat Alli-Akintade, of MoneyfitMD. If your socks can spark joy in your life, why can't your finances? We have no financial relationship with MoneyfitMD.
Watch the blog next week for a big announcement. On November 16th, early bird registration for WCICON21 will open! All the details will be presented at that time, but if you have CME money you still need to spend this year, now is your chance! Despite the pandemic, the conference will offer 50% more content than last year!]
Decluttering Your Money and Mindset to Spark Joy
The Netflix show about The KonMari method by Marie Kondo has swept America by storm, leaving in its wake, home organization and mass decluttering. Why can’t we apply this to personal finance? Maybe if our finances sparked more joy, we would be able to conquer them and achieve financial wellness.
Five years ago, I graduated from my fellowship. Like many graduates, I knew nothing about finances. Every time I heard the term 401(k), I felt my heart skip a beat. I didn’t get perfect scores in medical school but graduating from one of the top medical schools in the country surely meant that some of my brain cells were working. Why then was the idea of understanding my finances so overwhelming? Every time I tried to decode this language of finance, it sounded foreign. Fluency in medical jargon didn’t seem to correlate at all with the understanding of finances.
My love for medicine was never a question, and I still yearned to practice for many years. But seeing those who had gone ahead of me experience burnout scared me. I had seen too many casualties through the course of my training.
On one sunny day in the park, I looked at my then 3-year-old daughter and realized I had to do better. I had to dig myself out of this six-figure student debt, the living from paycheck to paycheck, and the poor mindset that enslaved me. My family’s net worth was too shameful to even talk about. My husband and I didn’t grow up wealthy, no one taught us how to relate with money, how to save, or create a spending plan. The extent of my financial education was “become a doctor and have money.” Something needed to change. And most of all, I wanted to be able to enable and educate my children to manage money so that they wouldn’t be in the same position I was in. We wanted to be intentional about the financial legacy we pass on to our children.
This prompted a “We need to talk” conversation with my husband, the first of many money date conversations to come. We sat down and defined our goals. We decided to stop living beyond our means. We came up with a plan to pay off our five-figure credit card debt within a year of starting my attending year. The most aggressive decision that came out of these money dates was to get to a net worth of zero within two years. Impossible goals, right? Yep. We felt the same but decided to steer our finance ship before it cracked against the rocks.
This was when we started the process of decluttering our finances and overhauling our money mindset.
I felt like my quality of life and that of my family was on the line. No one knew the truth that my family was only a few months’ paycheck from bankruptcy. My dream was to get to a place where I would be able to spend money without guilt or fear. I woke up daily with the goal of financial freedom and peace of mind.
I soon found out that Marie Kondo of The KonMari method of decluttering could in fact show us a thing or two on how to be intentional with our spending, savings, and financial goals.
#1 Get a Bigger Why
My love for medicine and my desire to prevent my own burnout through financial independence was my initial why. The power of choice is important in our journey of reversing burnout in medicine. My why was to be able to practice medicine because I love to, not because I had to due to financial restraint. Looking back, I realized we achieved all our goals in less time than we initially estimated. For me to continue, my why had to develop into something more: a need to expand myself.
I believe we are all here for a purpose. I believe we are all talented and gifted in our unique ways. Like seeds that grow and blossom in the right conditions, my goal now is that, at the end of my life, I would have expanded my talents for the good of myself and others.
What is your why? Why do you want to organize your finances? Why do you want to pay off your student loans? Why do you want to be financially independent? If you choose to retire early, what do you picture doing with your new-found freedom? Your WHY has to be bigger and stronger than the work it takes to reach it and it has to continue to evolve as you grow.
#2 Create a Timeline
What is the goal of creating a timeline? To be honest, there will be times when you will not meet your timeline or goals. The win is not simply in achieving the goals but who we become on our way to achieving the goals. Our goal was to have a net worth of zero within 2 years. We ended up with a net worth of six figures within that timeline. Wow, right? What’s amazing is we only realized the degree of our success at the tail end of the 2 years. Creating a timeline helped us focus on the actions we needed to take in order to achieve our goals within that set time. We came out of the experience with the power of exercising time-based goal setting. Secondly, we did it together. This has led to even further growth in our finances, relationship and overall life.
#3 Does It Spark Joy?
When we started on our financial journey, we came in contact with terms like “frugality” and “no-spend-months”. There is nothing wrong with frugality. However, that didn’t seem to line up with our goals. Yes, it is a relative term that can mean different things, but the sense of scarcity it gave us was not in line with our overall goal. My husband lost his father at a young age. I lost a close relative who was waiting to enjoy life but died from cancer prior to her planned “independence”. As Physicians, we have seen these kinds of stories throughout our careers. We had already eaten enough ramen in college to last us a lifetime. Living well was important to us but not to the point of extravagance. To us, living well means joyful, mindful, value-based spending. The idea of cluttering up our lives was one that we did not want. Instead, we wanted to consciously bring into our lives things that sparked joy.
I recall when we spent $300 per month on Starbucks and $300 monthly on lunch. We nipped these expenses very early. Going on vacations sparked joy for us. Seeing the ocean sparked joy. The feel of sand beneath my feet as my face turns toward the sun is the closest I believe I can get to heaven on earth. Having a cup of good quality coffee brewed at home brought us joy. Thankfully, we live in California with unlimited, drivable vacation options. With the cost of a monthly Starbucks trip, we could instead enjoy a night or two away in Lake Tahoe or Pismo beach or a weekend in San Francisco. We’ve come to enjoy the simple, mindful, yet rich things in our life.
Although the size of our budget has increased as our net worth has grown, we still choose to spend in a way that is value-based. What we do now is to ask ourselves, “in six months from now, would we be glad we bought this or would we wish we had the cash?” This is not to suggest that we never buy for pleasure. However, cluttering not only leads to financial loss but can also lead to mental clutter. Impulse buying triggers dopamine release that helps us feel good in the short term. In fact, it can be addictive. Other times, buying comes from a place of emotional buffering. The term buffering refers to something we do to distract or numb us from feeling a less than ideal emotion like boredom or sorrow. Buffering robs us from dealing with these emotions the right way. Does the term retail therapy sound familiar?
The goal is not to avoid spending overall. The goal is to avoid mindless, impulsive purchases that don't spark joy in the long run. Imagine a kid with a new toy, playing with it for perhaps a few minutes or days only to then add it to the pile of toys in the corner that no longer get attention. That image continues to save us a few hundred dollars per month.
You can apply this mindset towards debt. Does paying 25% interest on your credit card balance spark joy? If not, then get rid of it.
#4 What Sentiments Are You Carrying Along?
My sentiments had to be challenged with new thoughts about money that created the results that I wanted.
As we started digging through our numbers and decluttering our finances, we started stumbling on thoughts and beliefs that had to be addressed. I realized that I had beliefs about money that were not serving me and were, in fact, costing me. When it comes to money, we all have different stories. We all have interwoven thoughts that have been created consciously and unconsciously throughout our lives. For example, thoughts such as “money is complicated”, “understanding money is hard”, “I don't deserve this money”, “I shouldn't spend too much money on myself, but you only live once”. Some others included “money is the root of all evil”, “rich people are greedy”. Thinking that money was hard, made me want to avoid it. If I thought money was the root of evil, of course I was not going to want to have anything to do with it. Thoughts like these made my spending vary from guilt-filled to mindless to too restrictive. It felt like a chaotic mess.
These limiting thoughts also affected our investments. Such thoughts included “investing in direct real estate will be too stressful”. I had so much fear of losing money via investments that we were in fact losing money by not investing. I changed my belief that “every debt is bad” to” debt that increases my net worth may be good”. “Leveraging is dangerous” became “leveraging can build wealth, over-leveraging is dangerous”. I had to undergo a mindset transformation in order to forge ahead and grow my wealth. I unwrapped my money story and started questioning every single, deep-rooted belief. I realized that my thoughts had caused the results I was seeing.
What is your money story? Addressing those sentiments, thoughts, and beliefs can be transformative to your financial life. There is no one size fits all. You get to decide your own story.
#5 Declutter by Category
Once we identified the power of our mindset and the need for transformation, we began to write down our to-do list of financial decluttering in the order of importance. We numbered them and tackled them one by one. For us, we decided to find out why we were running out of money before the end of the month. That required looking closely at our monthly expenses. We focused on our fixed expenses and then our variable expenses. We were surprised by what we discovered when we got down to the nitty-gritty. Focusing on one thing at a time decreased the overwhelm we had been feeling. Even though we wished we could transform our finances all at once, we knew that we were in it for the long term, and tackling it progressively would provide compounding benefits.
When it comes to finances, the importance of compounding cannot be over-emphasized. It is commonly used in reference to interest growth over time. Understanding that the concept of compounding could also be extrapolated into other parts of our lives provided us with the patience that was needed. The White Coat Investor didn't become a money mogul overnight (I thought, LOL). Compounding habits, compounding interests and compounding knowledge. The list goes on. Pick one category at a time. What do you want to learn? What do you want to be better at? What steps do you need to get there? Choose your specific timeline, it could be weekly or monthly. Take one step at a time. By the end of the year, you may just be amazed by the amount of total transformation in habit and financial state that you will have attained. This is the best way to achieve sustained growth while minimizing overwhelm.
#6 Mindset Shift
Ultimately, sparking joy in your financial life comes down to a mindset shift. Don’t let the fear of numbers make you go screaming into the wild. Our money mindset is tied to a change in the way we use money in our life, and we need to take charge of the power our money has over us. Our thoughts and relationship with money will create the results that we see in our financial lives.
What steps have you taken to declutter your money and your money mindset? How do you use money to spark joy? Comment below or join the discussion on our White Coat Investors Facebook Group!