By Dr. Jim Dahle, WCI FounderOne of the keys to being financially successful is to not just live within your means but to actually live below your means. In fact, way below your means.
That's not easy. The reason it isn't easy is that your family, friends, society, and subconscious are constantly urging you to spend as much money as you can. Now, it's admittedly a little easier if you make a ton of money because you can spend just like your family, friends, and society and still save gobs of money. But it can still be difficult.
Here are three things you can do to help yourself get control, spend less money, and achieve financial freedom—all without depriving yourself.
#1 Track Spending
Author Peter Drucker said, “If you can't measure it, you can't improve it.” That might not be true with everything, but it certainly is with your personal finances. The simple act of writing down what you're spending and looking at it will subconsciously help you to spend less and live below your means. You can go even further and budget (i.e. stop spending when you run out of money allocated to a given category).
Still need more help? Go to a cash-based system. Studies show it is more painful to spend the green stuff than the plastic stuff.
More information here:
Doctors Need to Budget, Too (with a Few Examples)
Real Life Examples of Physician Budgets – From the Frugal to the Extravagant
#2 Stop Caring What Other People Think
Think about this for a minute. Do you care what someone else drives? Do you think less of them as a person because they drive a 10-year-old pickup or a 5-year-old Accord instead of a shiny, new BMW? No? Then, why do you think they care about what you drive? The same goes for what you wear, what you eat, where you vacation, how big your TV is, and hundreds of other items.
Nobody cares. So, stop buying things with money you don't have to impress people you don't even like.
One characteristic I've noticed that many wealthy people share is they have stopped caring whether other people thought they were financially successful. They only compare their position to their own goals. If you're not financially successful but would like to be, you might try adopting that characteristic.
More information here:
7 Things Wealthy People Don’t Have to Worry About (and 7 They Do)
#3 Don't Deprive Yourself
Finally, remember personal finance is both personal and financial. The personal refers to your behavior, and the financial refers to math. While this site spends 90% of its time on math, the truth is that behavior is probably far more important.
Imagine going on a diet that left you constantly hungry. All day long, you are thinking about food. You have to exercise willpower dozens of times a day to reach your goals. That's tough and probably not doable. While some of us have more willpower than others, we all have a limited supply. That means you need to be judicious when you use this limited resource. Spend it on the big items—housing, transportation, schooling, healthcare, etc. Don't try to make up for driving a BMW by cutting out hundreds of little purchases. It won't work. The reason why is you'll be constantly “hungry.” You'll feel deprived. And feeling deprived leads to a short-term mentality that leads to failure.
The secret is to go through life not feeling deprived at all, yet still carving out a large percentage of your income to build wealth. You can do that by spending your money on what you actually care about and what actually makes you happy—and not on all that other stuff.
Don't make the budget so tight that it fails. Pace yourself a bit. Treat yourself to a little something (that makes you happy) from time to time. If you're feeling deprived, loosen up the purse strings a bit. Now, if you're spending your entire income and you still feel deprived, you probably need to get a reset on your views on money. But for most of us, losing the occasional battle means winning the war.
The secret is to go through life not feeling deprived at all, yet still carving out a large percentage of your income to build wealth. You can do that by actually spending your money on what you actually care about and what actually makes you happy, and not on all that other stuff.
What do you think? What are the behavioral keys to living within your means? What have you done that allowed you to save 10%-30% or more of your income?
[This updated post was originally published in 2019.]
The deprivation concept is a very important one. As you mentioned in dieting if you deny yourself for too long you can go overboard and binge on food when your willpower breaks (it is not if but when that happens).
That is sort of why there is a tendency for new attendings to have dramatic lifestyle inflation/creep because most of have deprived themselves of a lot during medical school and residency while there non doc friends have been out in the real world building a life. It really takes a lot of restraint to live like a resident for a few years after residency but if you can do it you set yourself up well financially.
For me a lot of it came in actually releasing the budget. In school/residency, I was tight to the dollar on projected utility expenses/etc, but now who cares if it’s $70 vs $90/month on water? Or $290 vs $310/week for groceries? I’m super careful on the big rocks still, but because of being consistent with them, I routinely have a bunch of excess each month even after my budgeted savings.
Now if some important surprise comes up (grandma died and we have to fly the family to the funeral) it’s no big deal / I feel comfortable I’ll have enough to just cover it without even checking the budget, rather than skipping something and being deprived.
Having a plan makes all the difference. Sure there’s math involved, but I see budgeting as a behavioral stepping stone in the process. I continue to track our monthly spending (perhaps mostly out of habit from earlier days). Personally, once we started tracking our savings rates each month and net worth at year’s end, that was a helpful psychological assurance we were following the steps laid out by our IPS. Maybe others will find that advice to be beneficial. We’ve gradually “loosened the purse strings” mostly with contributions to charity, experiences like vacations, and consumption items with good utility/durability.
This post also reminded me of someone we know who could be described as penny wise and pound foolish. Similar to your BMW example in #3, they would rationalize skipping meals as a way to pay for much more expensive items. Track all spending (not just day-to-day), avoid the comparison game, and have a good sense of math.
Luckily this is the way my wife of 51 years and I led our lives. We agreed on most things and raised two great kids and along the way and were very frugal allowing us to save what we needed and live the life we wanted. We really don’t have any worries at this time in our lives.
Thanks for your continued input/output.
BOB
Fear. Fear that I’d have to work until I was old, only to reach financial freedom when I was no longer able to fully enjoy it. That fear took root early in my career but really intensified after I had my first child. My response? I invested — aggressively. I started with single-family rental properties, aiming for enough net cash flow to cover all my living expenses. Once I hit (and actually surpassed) that milestone, I kept working — but funneled 100% of my salary into index funds for several years.
Eventually, work became optional. For the past year, I’ve been test-driving FIRE. It’s been liberating, but also a little unsettling. Recent macroeconomic events have me concerned. Is this just a passing storm or the early winds of a Category 5 hurricane? The uncertainty has rekindled some of the fear I have not felt in many years and has me seriously considering obtaining part-time work to ride out the storm and hedge my bets.
same here. I think if we can “only” get a part time gig bringing us, say, 50-60k/yr, that will allow us to not dip too much into “diminishing” due to stock market war chest, keep us busy, and ride it out. I think that, in the end, we all are going to be OK
As a general rule, if your fear of loss exceeds your fear of missing out in times like these, it is an indication that your asset allocation is too aggressive. The usual approach is add bonds (preferably before a market meltdown) until those fears are equal at times like these.
I suspect you may benefit from reading a book like Die With Zero too.
I appreciate your work. Thanks for sticking with it. I’d like to convince you to tweak your thinking about will-power.
I don’t think it’s quite right to view will-power as a “limited resource”… one that is saved or consumed until depleted. If that were true, then spoiled children would have a pent-up ability to start saving once they get out on their own. It doesn’t seem quite correct or helpful.
Instead, I’d say a more appropriate analogy would be that will-power is like a muscle. A muscle can be injured by overuse or if it’s stretched too far. But a muscle can also becomes more capable if it’s exposed to regular exercise. The most disciplined people I know exercise their will power on the regular. And likewise, a muscle (and will-power) will atrophy and decrease in capacity if regular use is withdrawn.
Fair point. Willpower can be increased, but it isn’t unlimited in any given individual and having your plan require more of it than you possess seems foolish.