Yesterday, I spent some time going through my closet to get summer clothes put away for the season. As I went through my closet, I realized how long I have held on to certain things. As I swiped through, hanger after hanger, like a single on a hot pursuit through Tinder, I realized that I wear maybe a quarter of this stuff. The things I do wear are my favorite things for various reasons. The way they look, the comfort factor, and even the memory associations I have with certain clothes. Does this sound familiar?
This got me to thinking about the other 75% of the clothes currently in my possession. Why don’t I wear these things? How did I come to own these things? Why do I have these things when they seem to have no use to me currently?
The answer to these questions lies in the fact that many of these things were purchased a few years back, and at that time, I did not use mindful spending when buying them. Some of these clothes were “a deal” at the time I purchased them, perhaps on a clearance rack somewhere. But now, they’re sitting in the back of my closet, never to see the light of day. Some deal, huh? If I had applied mindful spending, it would have prevented most of these purchases. I’m talking about clothes here, but there are many other things we buy in our lives where this mindful spending is helpful – new cars, furniture, food items to name a few.
What Is Mindful Spending?
Mindful spending occurs when you have a thought to purchase something, and you take a pause to ask yourself a few questions, such as:
- Is this a need or a want?
- Do I need it now, or could I hold off?
- How would I use this?
- This is only for a certain occasion, could I borrow something?
- …and so forth
Mindful spending is NOT about being a tightwad. It is about being defensive with your hard-earned dollar. It is about making sure the choices you make are in line with your goals. For those of us concerned about environmental factors, it is also about reducing waste. The order of importance on the three R’s we learned in school is Reduce, Reuse, Recycle. Reduction is something we can all do through mindful spending in order to help free our minds from clutter and also protect the environment.
Everyday Millionaires Apply Mindful Spending
One of my favorite books on financial independence, “The Millionaire Next Door” outlines an extensive study of millionaires in the United States. What the researchers find is that the accumulators of wealth (the people who actually have a higher net worth) are everyday people like plumbers and small business owners who live in decent neighborhoods with modest houses and cars. The under accumulators of wealth (the people who have lower net worth) are high-income earning doctors, lawyers and so forth with big spending habits (Note: Not all doctors and lawyers are big spenders :)). The biggest difference between the two is their spending habits. The high earners with lower net worth, feeling that they need to “keep up with the Joneses,” continue to spend on large homes, fancy cars, high-end clothing to maintain a certain lifestyle, while the mid-earners question everything and know when enough is enough. It doesn’t mean they go without. It doesn’t mean they enjoy their life any less. It just means that they ensure their hard-earned dollar is spent wisely.
The Millionaire Next Door illustrates this example on millionaires, but the idea of wealth accumulation applies to everyone of all income and net worth levels. After all, most of these people didn’t start as millionaires, but because everyday millionaires think more mindfully about their spending, they have a larger net worth.
Why is mindful spending so important??
For one, debt is a huge issue with many households. Much of the debt accumulated by individuals is in the form of consumer debt. Time after time, I’ve talked with people carrying credit card balances month over month with significant interest rates of up to 20+%. When you peel back the statement details and see clothing store purchases, restaurant purchases, Amazon after Amazon purchase, it is astounding. When a person can’t pay that bill off in that month, those heavy interest charges come piling on. This is how a debt snowball is formed. That $100 pair of shoes becomes $200 in no time. Debt creates stress which creates health issues, both medically and mentally. Taking precautions, like mindful spending, to prevent it is a big step forward.
Another reason, even if debt is not an issue, is that haste causes waste. That additional money you’re spending on a non-meaningful purchase could be invested and earn some returns vs. sitting in the back of your closet like those “on sale” clothes I mentioned earlier. I’ve also seen people pile on gifts for children, for example, even though those same kids may get fatigued and disinterested after the third gift. When a gift is high quality, meaningful and thoughtful to the recipient, it gets a useful life. Your money is then well spent.
Some things to consider before making your next purchase:
- Pause on it. When a thought pops into my head about buying something, I write it down and wait a few days. Many times, by pausing like this, I end up not going through with the purchase. I’ve been able to stew on it and realize that its not the right thing. This really helps to ensure you do not experience the dreaded “buyer’s remorse.” By doing simple things like holding the items in your online shopping cart for a few days vs. hastily purchasing, you ensure that if you do go through with the purchase, you have done so with a lot of thought and no regrets.
- Ask yourself critical questions. Is this a need or want? Do I need it right at this moment? What is its purpose? Will I be upset if I don’t buy it? Am I paying cash for this? Will I be able to pay this off right away without credit card interest? How many hours of work does this item cost? This thought process doesn’t need to take a long time. When you continue doing this, it becomes a habit. I particularly like the idea of equating how many hours of work something costs, as it puts into perspective the valuable personal time that you are selling to your employer for every hour of work. Is this thing I’m about to buy worth the 2 days I had to work to get it? For me, my annual vacations with my family are well worth the money I spend for these experiences. That is where my spending is most meaningful to me.
- Borrow or find alternatives. I am a huge DIYer, as I’ve mentioned in other posts. Doing so takes a lot of expensive tools. While I’ve accumulated my own collection of tools over time, I also borrow and/or rent when I need certain things. Why? Because that floor nailer will be used once to install floors that will last 50 years, then it will sit in my garage collecting dust. I spent a few years borrowing my neighbor’s tall ladder to get on my roof to clean gutters. I have since purchased my own tall ladder, because I found that I use it frequently. It is useful to me. For those infrequent needs, however, I borrow or rent when needed. Books and media are another example. While we own some of our favorite books and movies that we re-read or re-watch periodically, the vast majority of our other media is borrowed from the library…books, DVDs, etc.
- Buy used…only after you’ve made it through 1-3. If I’m in the market for something, and I’ve paused, asked myself questions and realize it makes sense for me to purchase, I always turn to Facebook Marketplace first. We recently took in a foster child. In doing so, we needed to gear up with things like strollers, car seat and so forth. We saved hundreds of dollars by first turning to local resellers through online forums like Facebook Marketplace, NextDoor, OfferUp, etc. In fact, we scored lots of free stuff along the way. Gently used items with so much life left can be had for a fraction of the cost. Plus, you’re giving something more life vs. piling it into a landfill somewhere.
In closing
Mindful or meaningful spending is a useful tool in your pursuit toward financial independence. Again, it is not about being cheap or miserly. It is about adding a little more thought to the actions you’re taking when you’re shelling out money (or in some cases, piling on debt). Applying mindful spending is like exercising a muscle. Once you do it a few times, you create muscle memory. It becomes a habit. You will find that your self-esteem builds along with this, as you’re no longer in that “buyer’s remorse” cycle that many people find themselves in. Mindful spending is good for your wealth. Practice it.
Until next time.