The first entry written here for this series, Building Wealth Lessons from the Richest Man in Babylon Part 1, dealt mostly with the most important principle of saving each month a tenth of all your earnings. The second big lesson that the book touches upon is very closely related, but it targets directly one of our biggest weaknesses – controlling our expenses.
The main issue most of us face when trying to save money is the idea of not having enough to actually be able to save. This, however, is merely an idea. You can probably think of someone making 10% more than you, with a smaller family to provide for, yet somehow they don’t have enough money to save. You can also consider what would happen if your salary were 10% lower than it currently is. Would you really have a grim life with no happiness or enjoyment?
The main culprit is our notion of what is a necessary expense. Here is a great quote from The Richest Man of Babylon that is just as true today as it was back in Babylon’s glorious times:
“That what each of us calls our necessary expenses will always grow to equal our incomes unless we protest to the contrary.”
As a high school student, I had a cellphone plan that cost me just around $30/month. Voice plan, little or no text messaging, no data plan. It was for me to call my family. Now, however, I live convinced that if I have no text messaging or an unlimited data plan my cellphone experience would be lacking the essentials. Therefore, my monthly bill is just around three times as expensive, and I stress twice as much about remaining connected to others. I tell myself that I need this data plan but when my iPhone broke a few months back and I was just a few months away of finishing my contract I decided to buy a cheap ($15) Nokia cellphone that could simply make calls and struggled to send a text message. After 2 months with this cellphone I was just as happy, healthy and productive.
This may seem like a silly example, but it is meant to be, because it is through getting rid of all the extra “stuff” that we don’t need but may think we want that we finally take control of our expenses. Why don’t you just give it a try and see how you feel after “giving up” this nice thing for a few months. If you truly feel that your quality of life has diminished and you’d rather not increase your wealth, you can go back to spending the money on such things. Here are a few tips that may be helpful:
- Think about a bigger reward. I pick something I really would like to do, such as paying for a flight to Italy, and think about how much I’d need to save each day in order to be able to go next year. If I calculate the trip will cost me $2,000, that means that I would have to save about $5.50 each day to be able to go in a year. Knowing that I need to save ~$40 each week to be able to go to Italy next year would make it a lot easier for me to skip on buying a $4 coffee and that $2 pastry at Starbucks in the mornings.
- Reward yourself on the way to cutting expenses. Say you find $300 worth of expenses you could control. These are nice things to have that are not necessary, such as some subscriptions, clothes you may be able to buy cheaper if you wait a bit longer for a discount, etc. Why don’t you make the bold move to cut all these $300 in expenses, but instead of depriving yourself of the rewards of the entire amount, you pick something you’d LOVE to do if you allowed yourself to splurge half of the money, and do it. You could go to a great restaurant you’ve wanted to try and spend $100 there and save the other $200. This way you’d reward yourself each month while still saving money.
The techniques are plenty, and the reasonings behind them are always great. Just find a method that works for you and start being disciplined about your expenses. When you do, you will be rewarded by a fatter wallet each month (or healthier bank accounts) and this will payoff by giving you stability and the peace of mind of knowing that you can take better care of yourself and those you love.