Today’s excerpt is from Financing Your Life. It’s taken from Chapter 7: Limiting Financial Waste
When you get into the nitty-gritty of budgeting, you might be surprised to learn just how much money you waste and have wasted over the decades. The waste may have been unknown to you—passed on through mystery charges hidden on your phone bill or overpriced items and services that you neglected to research—or it may have been thoughtful waste. Thoughtful waste occurs when you think about buying something you don’t need, and decide to do it even though you know it’s not necessary. For me, it was Tim Horton’s coffee. I now save $100 per month buying coffee and making it myself at home.
Thoughtful waste can be cheap or expensive. It can take place with the impulsive purchase of a $4 magazine or a $600 designer leather belt.
While waste that stems from charges you didn’t know about is bad and something to be avoided, thoughtful waste is even worse because it allows one of two dangerous emotional and intellectual precedents to be set:
- You convince yourself that you need the item in order to justify its purchase.
- You feel guilty about the purchase and punish yourself, accomplishing little but sabotage of your motivation and future success.
There is a reason why budgets must simultaneously control spending and allow room for fun and impulse purchases. You must give yourself permission to make silly, unnecessary purchases—to have some thoughtful waste—but you must set ground rules in order to do it guilt-free.
In order to allow for some guilt-free waste and still accomplish all the financial goals you’ve set for yourself, you must think about all the money you waste and weed out the unacceptable waste.
The concept of financial waste is different for every individual. While one might find the idea of dining out a wasteful expenditure, yet another might see that as a necessary way of relieving stress and enjoying life. Once you’ve identified which expenses are wasteful, you should attempt to get a sense of just how much money you spend on them. One way to do so effectively is to track the amount you spend on wasteful purchases each day for a month. Multiply that number by 12 and see just how much damage these purchases do over the course of a year.
To identify the things you spend money on that aren’t necessary and then to determine which of those are wasteful for your lifestyle, you must first examine the difference between needs and wants.
Needs are those things that an individual absolutely must have in order to survive. Needs are extremely basic and consist of:
- life-sustaining prescriptions and medical treatments
You may look at our list of needs and find them to be a bit skimpy compared to what you think you need in life. That’s why you might add a secondary level of needs, which would consist of those things that help keep you safe. That might include:
- a cell phone for emergencies
But the secondary level of needs is where it starts getting complicated. Let’s use clothing as an example. We don’t live in a clothing-optional world so if you want to stay out of prison, you generally need to walk around fully clothed. But you could do this after buying only one outfit. Technically, you could wear and wash the same outfit every day and still be safe and law-abiding.
However, it’s not practical to imagine living your life with just one outfit that you wear day after day and, generally speaking, our society would likely frown on it. You could even lose your job if you did, which would put your primary- and secondary-level needs in jeopardy. Bringing variety into an age- and career-appropriate wardrobe is important but it’s equally important to look at your clothing as a need and buy only that which you must have in order to sustain a certain level of societal acceptance.