by We haven’t met anyone, yet anyway, who said they love diets. We have met plenty of people who have adopted new lifestyles and couldn’t be happier!
Your finances are just like what you put into your body. Short term fads will fade however if you choose to adopt a new lifestyle you will find more freedom than you ever thought possible.
Quick Story of Why a Lifestyle Change Works
Years ago a friend of ours brought up that we had adopted triathlon training as a way of life. We realized they were correct. We had started out training for events, found joy in the training, and just had integrated it into our lives.
We have done the same thing with regular contributions to mutual funds. For the last 7+ years we have contributed monthly to buying funds at Vanguard.
The monthly contributions have continued for two primary reasons:
- We have made a commitment to it
- We prioritize the monthly purchase of mutual funds over other purchases
Developing a Financial Lifestyle that Will Work For You and Your Situation
We are confident you have seen a post, somewhere on the Internet, of someone who ate nothing but Ramen for 18 months, made 100% of their meals, and purchased all of their clothes second hand.
While that will work for some it can be a very difficult and drastic step to take. What we are going to walk you through today is how to develop a lifestyle that will work for the long haul.
Will you have to change things?
Yes!
Will it be easy?
That depends on your goals however we want to put you on a path where your lifestyle will begin to change for the better. Let’s dig in!
Looking at Last Months Statement & Putting Everything in Two Distinct Categories: Needs or Wants
We realize this isn’t fun however it’s a key component to building a new lifestyle. You have to determine which of your purchases are needed and which ones are wanted.
When you look at your bank or credit card statement the initial reaction will be “I needed that” so it helps to define things up front so we have some parameters.
- Need: this is required in order to fuel your body, keep you safe, or make sure you can get to work.
- For example you might need a car to get to work however do you need a Ferrari? No one needs one but they are really cool.
- Want: An item or purchase that might bring joy to your life but not something that will cause you harm if you don’t purchase it.
- For example you might want a new jacket from the North Face (for some reason we love buying jackets even though one of us lives in Southern California and doesn’t need them 11 months out of the year). You may already have a jacket it just might not be as new or in a color you are longing for.
We find this step easiest to do if you can print out your statements. You can then make notes on the statement to determine what was needed and what was a want.
One that might be hard to tell, without the receipt, is your grocery bill. This is a place where it’s easy to buy wants.
For example one of us really likes Oreos. We don’t need Oreos so that is a definite want and turns into a treat.
After you have put everything in one of the categories total it up. You should have two numbers that are how much you are spending monthly on needs and wants.
We would recommend seeing if you could cut your wants by 50%. It’s an aggressive number however we select it for a reason.
50% reduction requires some deep soul searching and really looking at what you are using.
What should you do with the 50% savings?
If you have credit card debt we recommend using the savings to pay that off. If you don’t have an emergency fund we recommend building one until you have at least 1 month of expenses to start.
Are You Paying For Items or Services That You Aren’t Even Using?
If you aren’t using something there shouldn’t be any pain in giving it up. In today’s world with multiple subscription services you may be paying for services that you aren’t even using.
A few items we encourage you to look at:
- Subscription services for movies or audio services
- Gym membership (if you use it great however if the last time you were there was 7 months ago and you have been meaning to go…it’s time to make a call at least in the short term to cancel the service)
- Do you belong to a wine of the month club? Maybe you signed up when you were on a wine tour in Napa and now you have wine just piling up.
We encourage you to find at least one service that you can cancel or at the very least lower how much you pay on it monthly.
Continuing Your New Found Lifestyle
Once you have done the above what’s next? The very next step is to repeat it monthly. Monthly revisit and see what was bought and which category the purchase fell into.
What you will discover is that eventually you will start to identify which items are wants and which are needs.
If possible we recommend having an accountability partner. Someone who will tell you when you are starting to classify things as needs when they are wants. Having someone who is on the journey with you will make it easier to build the new lifestyle together.
Twins Rules for Financial Success
As with all of our content here we want to encourage you to follow three core rules :
- Have an Emergency Fund/Squirrel Funds
- Invest for the Long Term
- Invest Automatically & Consistently
