In becoming a better minimalist and living more intentionally, I have realized that we humans need rules and system in place to ease the daily burden of decision making.
We should spend less money on unnecessary stuff, and direct our energy towards the more meaningful parts of life. However, society and TV-commercials have a tendency to persuade us to do otherwise, and their influence is exactly what we need to resist – with daily rules in place to help us live better lives.
Life can be chaotic and frustrating sometimes, but personal finances is actually an area where we can be in control. So setting up guidelines for how we manage and spend our money can be extremely liberating and ultimately a good business decision.
The problem is, most people spend their money according to their gut feeling. They’ll say: “I think I deserve to go shopping and buy some new sneakers” or “I haven’t treated myself in a while – therefore I should”. Meanwhile, they’ll go out and do these things, without feeling completely confident, that now actually is the time to treat themselves. They are not necessarily sure that their gut feeling is correct. But oh well, they have done this a 100 times before, and always managed to pay the rent the next month somehow – so what the heck!
I say this is a non-optimal way to act, and for 3 reasons:
– Firstly, this way of thinking comes with a decisional cost. You have to make the decision, whether or not you “deserve” a treat every time you buy something. And as we know, decisions are a finite resource and should be conserved when possible.
– Secondly, there is always a build-in guilt component to basing your buying decisions on “deserving it”. Since you are more likely to buy something on impulse, when you are your weakest, you are also more likely to feel guilty about your choices afterwards.
– And thirdly, in this context, most of us (me included) have a propensity to spend a little more than we should, because we tend to lose track of our long term goals when we find ourselves in a shopping mall.
So we obliviously need another way of thinking about this. And I like to use the Champagne Tower Analogy.
It works like this:
In a champagne tower, the second layer of glasses won’t see a drop of champagne before the first is completely full.
I call it “extreme prioritization”, because the second layer of priority is completely ignored until the first level has been fully attended to.
Now think about your monthly expenses in terms of extreme prioritization.
First, you make sure that you can feed yourself in the coming month, when you get your paycheck. Not until you have money for food, do you have money for anything else!
Afterwards, you might think about how you can put a roof over your head.
Not until you have money for a place to live, do you have money for anything else.
And so on….
I assume you already do something like this unconsciously, but my suggestion is to KEEP GOING! Until the very end.
Keep adding to your list until you have all of your priorities listed.
Maybe include some things you are saving up for, or loans you would like to get paid off quickly.
Make sure to prioritize everything in its correct order, so you will always fill up the most important champagne glass first.
Whatever “spills over from the champagne tower”, you may buy jeans or booze for.
Unless you have made jeans a priority in the tower itself of course.
I have personally set it up so that everything that is left after my champagne tower has been filled, will be split up into 3 equal amounts: Vacation, Invest, Have fun.
The Have fun part is for going out and buy my jeans.
This completely eliminates all feelings of doubt of when I might deserve to treat myself. I know exactly what I deserve, because all the important stuff has already been taken care of.
One more tip: I have opened up a lot accounts in my bank to make this system work for me. I get the feeling that my bank finds it annoying, but they have accepted it.
I think though, you could easily get this system to work with a single bank account a spreadsheet.
Hope you guys found this to be helpful. Have a nice day!