- The average student loan debt balance is $37,000
- The average car note is $499 per month
- The average mortgage payment is $758
This implies that a greater proportion of the average American’s income is going towards debts and mortgages than ever before. Using the numbers above, it’s safe to assume that about $1,500 a month [and rising] is going towards those expenses. To make matters worse, each of the stats mentioned above are trending upwards and that’s before considering other debts or costs of living. This phenomenon is known as lifestyle inflation; the slow increase of your cost of living as your income increases. In other words; the financial equivalent of treading water, standing in quicksand, or running a marathon in flip flops.
It is a contributing factor to why despite having a good job and making good money, many people feel like they simply can’t get ahead. There’s no shortage of industries and tactics selling you the promise of increased income to fill the gaps, but lasting change only comes from effectively managing your expenses. Put another way,
the process of ruthlessly aligning your values with your spending enables you to focus your money on what truly brings you joy; everything else be damned.
We did it by rating everything that costs us money from 1 – 10 on a joy scale and it became crystal clear that we valued experiences over things. With that in mind, it made no sense for us to spend $500+ a month on a fancy cable package, ultra high speed internet, a new car, new home etc only to wish we could’ve taken another vacation by the end of the year.
Thinking long term, it also became clear that the grind of a corporate career doesn’t bring us more joy at the expense of our health, time with family and friends, flexibility to pursue creative endeavors and making a meaningful impact on our communities. It simply wasn’t worth it; and thus the plan was born.
Your joy scale may lead you to different trade-offs, and that’s fine too. The important thing is to have one. Now before you pop off that your expenses are as lean as possible, I encourage you to do 3 things:
- Skip the small stuff and dig deep into your housing, transportation and food costs. Those three account for the majority of spending in most cases. Quick savings from coupon clipping and latte-shaming are usually cancelled out by longer-term impacts from high interest on notes and mortgages.
- Look at your fees…differently. We’ve been socialized to just accept fees as the cost of doing business, but “money spent on one thing is the same as money spent on something else.” In other words, $500 spent on fees is the same as a $500 tip at McDonalds. One is no less crazy than the other, so unless paying fees brings you joy, challenge all of them.
- Don’t forget the invisible money (i.e. the money that comes straight out of your paycheck). Learn to view your taxes as expenses and take full advantage of every opportunity there is to minimize them…legally. Also, take a minute to understand the costs associated with your investment accounts. Warning: you may not like what you see.
There are only two ways to ensure you don’t have too much month at the end of your money: you can either reduce the cash going out or you can increase the cash coming in. In a perfect world, you can do both.
Any other option is just debt, wearing a mask.