A typical approach to budgeting is to start with a lot of focus on the spending portion of the personal finance system. I've read a lot of recommendations that encourage minimizing your spending and living as frugally as possible in order to have more money to enjoy later. I lived this way for a long time; it just wasn't fun. While delayed gratification technically works; where is the joy in generating money if we don't allow ourselves to enjoy it? Another approach is mindful spending. This will enable you to take control of your spending in a way that is meaningful to you. in this post, I present you with three tips to incorporate mindful spending into your lifestyle.
Become aware of your spending
Choose what is important to you
Create a decision point for each purchase
I am an advocate of mindful spending. Someone recently asked me what that is and how to do it. The concept is simple enough, but the execution can be a little more complex. The main idea behind mindful spending is to spend money on things you care about, and don't spend money on things you don't truly value. A key principle of mindfulness is that you are simply becoming more aware of your current actions and making informed choices to improve your state of being. You are not forcing yourself to think or behave a certain way, as opposed to becoming aware and making a decision.
Step 1 is to start with tracking your spending for about two weeks. Simply take a piece of paper and write down every purchase you make for two weeks. The idea is not to alter your behavior, but rather, to observe your current patterns.
Step 2 is to review this data and decide which spending is important. As you review this data, you will start to see what your money is currently doing and you will be able to identify which spending you want to keep and which spending you can discard.
Step 3 is to take charge and alter your behavior. Now that you have awareness, you will be able to alter your behavior in small, decisive ways. One well-known method involves creating a connection between the hours that you work and the cost of goods and services that you consume.
The trick here is to estimate your hourly income after taxes and divide the price of the item that you want by the hourly rate to determine how many hours you have to work to pay for the purchase. This adds some level of consequence to the choices that we make and subtly encourages us to consider how vital our purchase is.
Consider the average annual gross income in the United States of $67,521.[1] According to the IRS, this income is in the 22% tax bracket.[2] Subtracting the tax bracket percentage from the income provides a rough estimate average net income of $52,666. Dividing the net income by the 2,080 average working hours for full-time workers gives an average working hourly rate of about $25 per hour.
As of this writing, the average price of a cell phone for a consumer in the US is $543.[3] Dividing the price of the phone by the average hourly rate determined above reveals that the person would have to work approximately 22 hours to fully pay for this phone.
This data is not meant to either encourage or discourage the decision to purchase the phone. The goal is to conceptualize the amount of effort needed to be able to obtain the cell phone and then make a decision based on the value to you. Have you tried this approach? Let's discuss this in the chat.
References
Average Income in the US: What Is the Average Income in the U.S.? (investopedia.com)
United States Tax Brackets: 2020 Federal Tax Rates, Brackets, & Standard Deductions | IRS.com
Average Cost of a Cell Phone in the US: Smartphone average price United States 2014-2025 | Statista
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