The impossible yet important habit of living below your means

[TL;DR: Cut down on expenses, but be warned, it’s really hard]

I know that by writing this I am venturing deep into an area which all my life I have been told was taboo. Personal Finances sit right up there next to Religion, Politics and Sexuality with topics that make us cringe when brought up in public. I personally don’t subscribe to the same view though, I think not talking about money, just like sexuality, politics and religion has become dangerous to us as a society and needs to be addressed more openly.

Let me start this awkward conversation at…

The Simple Beginning

A few years ago I started working a corporate and started enjoying the slow poison which is the sense of comfort that comes with a stable income. It was delightful.

In contrast with my freelancing that came before, I had no worries about where the next paycheck would come from. Most dangerously of all though was this new found access to credit beyond my wildest dreams.

So as one is told and as one is expected to do, I bought an apartment, then a car, then came the credit cards and then came adulthood.

Now for most people this is perfectly normal and has been for generations…

You live your life according to what the Bank has defined for you as what you can afford and end up in a quiet state of angst worrying about income security till you’re nearly dead.

The Complex Problem

Job Security is a Myth

If you think that you are immune to retrenchment or being fired you are completely delusional. Tens of thousands of people are being retrenched every year and that retrenchment package you imagine to be a parachute will not last two months.

Companies are being forced to show bigger returns every year, and even businesses that are seemingly successful and profitable must constantly evaluate the need to cut costs where they can. It is inevitable that in your career at some point you will be retrenched or come dangerously close to it.

Technology is eating your job

Once you wake up to the reality of your single source of income being ripped from underneath you, you will quickly compile a CV and send it out to anyone willing to read it. The problem with this is that by then the nature of businesses would have changed.

Technology is eating up jobs at a rapid pace. Less staff can now be twice as productive, some careers can even be made completely redundant by technology. It’s happened in the past, and it’s happening at a faster rate every day. So by the time you wake up you may just be redundant.

I remember being able to freelance and make marketing websites for brands just 8 years ago, now brands are running to SquareSpace and paying a fraction of what I need to live off.

Saving Money is Dead

Not only are people not saving money anymore, saving money whilst having debt is literally ill-advised. The interest rate that you can get from a savings account at a bank doesn’t come close tot he interest rate on your credit card or home loan. Therefor saving money instead of putting it into your pre-existing debt is a bad financial decision.

Credit is too easily accessible

It has never been so easy to borrow insane amounts of money. You can literally borrow hundreds of thousands and lock yourself into decades of debt in less than a week and some light paperwork. Banking websites now have giant flashing buttons that give you instant access to hundred grand in credit at a 20% interest rate. It’s scary.

Here is some mandatory viewing for insights in the economy:

The Difficult Solution

In conversation with friends and family over the last few months whilst I have been contemplating these issues all of them time and time again have said the same thing… Why not just try to make more money?

Probably the worst advice I have ever heard.

This is not a problem of not having enough income. This is a problem of not living within your means. Most people increase their expenses as their income increases, therefor this problem affects everyone from blue collar workers to white collar millionaires.

The real solution is to create habits in your life of living well below your means. Reducing debt to an absolute minimum, and ideally not having any debt at all.

So in an attempt to practice what I preach I have for the last 3 months embarked on a journey of cutting expenses aggressively.

I can honestly say that it’s not been easy, and will not be easy for you either:

Confusing Access to Credit with Money Available

The biggest problem people have is thinking that a bank giving you access to credit means that you can afford whatever you are setting out to buy.

This applies to everything from buying a house to buying a car. It is in the interest of the banks to give you credit, it’s how they make money. So they will give you longer periods to pay back the money, or higher interest rates in order to make it work, either way this is NOT YOUR MONEY, don’t fool yourself.

Confusing Liabilities with Assets

We have told ourselves a lie, and that is that a home is an asset, and whilst you live in it, it is NOT. An asset by definition is something that you pay for that will make you money. A house whilst you live in it is not an asset. You pay for it and it gives you no return on investment. A house only becomes an asset once you sell it or rent it out. Till then you are sitting on a massive liability and you just have to embrace that reality.

Telling yourself you deserve it

“I work hard, I deserve this BMW” — Complete bullshit. You don’t deserve anything. You are entitled to nothing. Your age, your experience or the amount of hard work you do… none of these are good reasons to buy a car.

A car is a big unnecessary expense that should only be bought if you really need it or if you can buy it cash, ideally both. Otherwise Uber, or buy a budget vehicle.

Thinking your family and friends will be supportive

The most disappointing thing you will find in your journey of cutting expenses is that you will find zero support. Being in debt and spending more than you earn is such a cultural norm that the people closest to you will not be able to empathise with you trying to be frugal.

Listen they may pay it some lip service, but they will ridicule or frown upon you when you downscale your BMW to a Ford Fego and move to a one room apartment from a house.

It’s the most difficult part of it all. Because being financially considerate is just not something we celebrate in most households. It’s all about being flashy and having expensive things.

The most difficult thing of it all is that you will be seen as a failure when you cut down aggressively on your expenses. They will think you lost it all gambling, or lost your job or lost your mind.

The Journey Continues

Living more frugally should be something that we all do more of as a society. It will make us healthier and wealthier in the long run. It will reduce stress at work and tension at home. So just like dieting, we must all try day by day to change our habits with money.

This is an ongoing mission for me. I have personally gone a long way in cutting expenses in various areas of my life, including my apartment to unnecessary entertainment expenses. It’s only the beginning though.

For starters let’s at least talk more freely about it.