This article was written by Graham from Moneystepper. Moneystepper provides advice on taking small steps every day, which have a much bigger impact over the long-term. Daily posts cover every aspect of money, investing, saving, real estate, taxes & the economy: everything you need to increase your net wealth in the short, medium and long term.
Today I will share how I do this. It works a treat (pun fully intended) and I hope that it will also work for you.
Step 1: Recognize your “needless” expenses
Advertising is everywhere. It is difficult to avoid. However, this leads to a great deal of expenditure that isn’t really required:
- The rainbow tastes awesome. I need to taste it. I’ll buy some Skittles.
- I’m tired. Coffee makes us less tired. I’ll buy a triple-dipped, double infused inverted maccacappamochachatiato!!
- Sitting on a train for 20 minutes reading a free newspaper issoboring. I’ll buy the latest magazine of celebrities on holiday.
These small, continuous expenses result in you looking at other people taking holidays and enjoying life experiences that you can’t afford. That makes you miserable. You then resort to retail therapy to improve your mental state. And the cycle continues.
Determine the expenses that don’t add real value to your life. Then, for each one, ask yourself the following questions:
- Will my life be in danger or barely livable if I didn’t buy it?
- If I do need it, have I minimized my expense down to the required level? For example, I need a roof over my head. However, I don’t need to live in an expensive apartment in the city center.
- If I don’t need it, do I truly want it? My favorite method for determining this is based upon three tests: a) Would it add significant value to my life? b) Would I be willing to work for it? c) Have I wanted it for a long time?
Step 2: Determining your “treat”
Sometimes, there will be things which fall between a want and a need. For me, here is one example: wine! I have five friends coming to stay with us in France this summer. When they arrive, we’re planning to go on a vineyard tour; I took a couple last year and walked away with some awesome bottles of wine. Last Christmas, a friend and I agreed that our favorite moment of the year was sitting on my balcony enjoying one of those bottles during a sunset dinner.
Therefore, whilst not “needed,” the wine was integral to a memorable experience.
I want to do it again. So this is a treat for me.
Step 3: Building a treat fund
On many occasions, I’ve answered “yes” to questions 3a), 3b) and 3c) above, but still decided not to spend now in order to build my fund later.
My most recent example was last weekend. We were coming back from a day of skiing. We had left the house at 4:30 a.m., skied without a break from 8:30 a.m. to 4:30 p.m., and then got dropped off from the coach at 9:00 p.m.
We were exhausted. The coach drop-off point was more than a mile from home and a taxi cost about $20. We were so tempted to spend money on the taxi, but then we remembered our “treat” fund. A 30-minute walk home followed. It was tough, but putting that $20 towards the wine made it worthwhile.
Step 4: Enjoy your treat and create lasting memories
This step looks after itself! If you have a fully-saved fund for your treat, you will feel no guilt in enjoying the experience, however expensive it may be.
Regarding the memories, the treat is usually something which is planned three months to two years in advance, depending on its expense. When you spend this much time before the event being excited about something, you can rest assured that it will be something that you will remember for years to come!
There we go: a few tricks, to ensure that you can enjoy a treat.
Photo Credit: Jennifer Balaco