“The definition of insanity is doing the same thing over and over again, and expecting different results.” — Albert Einstein
You’ve probably seen this quote plenty of times before. It’s easy to dismiss it and think, “I’d never make that mistake.” We know that when it comes to finding a solution to a difficult problem, we need to try a variety of methods to solve it. Why don’t we do this when it comes to our finances?
Too often, we get stuck in a rut. We think trying to find ways to improve our finances is too much of a hassle. Or, after a high spending month, we try to rely on sheer “disciplined” willpower by vowing to spend less next month; but the cycle of over-spending continues to repeat itself. If we keep refusing to make the necessary changes, why do we think the result (failure) will suddenly change and improvement will occur? According to Einstein, this is insanity.
We need to get out of the mindset of what’s “easy” or “comfortable.” As J$ from Budgets Are Sexy says, we need to Challenge Everything (related to our financial mindset). “Challenging everything about our financial mindset” means going through every category in your budget, line by line, to determine which spending areas can be improved upon. This involves calling up the cell phone company and negotiating a smaller bill, or cutting the cable cord, or deciding to spend less money eating out by making a grocery budget and weekly cooking plan. It’s all about cutting out the unnecessary spending so that we’re left with what truly matters.
There are plenty of examples where we can optimize our spending, if we choose to “challenge” that spending instead of just accepting it as the norm. The main goal is to create additional money that can be put towards increasing your net worth (savings, investing, paying down debt). Here are some simple steps you can take to challenge everything in your own budget:
1. First, track your spending. You need to know where your money is going before you’ll be able to identify areas of improvement.
2. Identify the biggest categories in your budget; then, dissect each one. For example, rent is obviously a necessity. But can you move to a cheaper place for your next lease? Do you really need that extra bedroom? Can you move closer to your job to save on commuting costs? Can you shop at a less expensive grocery store? Can you buy store brand products instead of name brand? Can you make bulk meals to help yourself avoid eating out? Carefully consider a wide variety of ways to solve problems and think outside the box.
3. Identify any recurring bills and question their value. This could be bills from your cell phone, cable and internet, car insurance, utilities, et cetera. Analyze each one: is it something you get a lot of value from, or can you get rid of that bill? Can you reduce that bill by reducing usage (for example, heating or air conditioning)?
Research competitor prices to see if what you’re paying matches up with what your current provider is offering. For example: my wife and I found out that we were paying WAY more for car insurance than we needed to be. A simple phone call saved us hundreds of dollars. We also switched cell phone providers and found a much better rate.
4. Chuck or pawn the junk. Go through your house and find any items you no longer use that are just collecting dust. Sell them or give them away.
5. Transfer your rewards. After going through this process, you’ll have found some areas for improved saving and most likely generated some additional income by selling off your clutter.
Instead of spending that extra money or net savings, set up automatic transfers into an online savings account or towards your debt. So for example, if you got your cable bill lowered from $150 per month to $100 per month, take that $50 of savings and use it in ways to increase your net worth. The best part about saving on recurring bills is that you get to utilize those savings every single month! Also, do this with any windfalls that occur in your finances, such as a raise or bonus.
This way of thinking bucks the trend of traditional society. Instead of simply going with what may be easiest or most convenient, it’s a whole new mindset. It’s a mindset that can lead to significant savings. It may seem tiresome to track all your expenses so closely, but it can be life-changing. The eventual goal will be to fully optimize your spending to the point where the decisions you make on auto-pilot will be the most frugal choices available.
Change can be uncomfortable, but it’s necessary for you to reach your goals and build wealth. Simply relying on willpower and going through the motions with the same decisions because that’s “what you’ve always done” doesn’t work well for improving your financial state. If you’re happy with how your finances currently are, by all means continue doing what you’re doing. However, if you’re not satisfied with your finances, take a closer look at the various areas of your life, above.
Track your spending, cut some expenses, automate your savings: challenge everything and truly make some changes. Because continuing to do what you’ve always been doing and expecting different results is insanity.
In what ways have you challenged everything about your financial mindset and made changes in your own personal finance life?
A lifelong Bay Area native, Matt Spillar graduated in May 2013 from Fresno State with a Sports Marketing degree. He currently works on the Content Management team for DealsPlus.com and has worked four seasons with the San Jose Giants. You can read more of his writing on the DealsPlus blog, or his personal blog. He is also on Twitter.
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