Mind The Gap: Part 2

Part 2: Refine the "Gap"

Spend less and earn more, THE END!

Okay, that’s an oversimplification, but it is the root of the solution. There are only two levers to pull in this equation to improve your situation: income and expenses. Increasing your income, decreasing your expenses, or some combination of both will improve your “gap”. It will always be easier to spend money than it is to earn it so reasonable spending is paramount.

In Part 1[i] I broke down expenses into 3 categories; essential, reasonable, and discretionary. Essential expenses are unavoidable and need to be covered no matter what, discretionary expenses are things that you “want” but don’t “need” and everything else is reasonable. Reasonable expenses are ones you could easily justify but you could also trim in a pinch. The amount of income you will need depends on your definition of reasonable.

You might feel like you’re stuck, only spending on what you need and earning as much as you can. There are plenty of resources or articles that list ways to spend less money or earn a higher income, but there are some enormous mental barriers to improving your financial behaviors that are often overlooked by those lists. Let’s explore some of the real reasons “why” people are likely spending money for the wrong reasons.

“The enemy of peace of mind is expectations drilled into you by society and other people[ii].”

— Naval Ravikant

The biggest thing most people could do to better control their expenses is to stop caring as much about what they think other people think about them. This is so important. Notice that I said, “what they think other people think”, it’s surprisingly easy to forget we cannot control or even know with certainty what or how other people think but it’s very tempting to modulate our behavior thinking that we can.

We can all fall victim to the “spotlight effect”[iii], we tend to overestimate how often other people think about us which leads to anxiety. At first you might feel slighted that other people aren’t walking around thinking about you all day but don’t be! When you realize that you’re thinking about yourself more than anyone else thinks about you it’s actually freeing! How many of your counterproductive money habits result from going through the motions of what you think other people expect you to do?

In addition to overestimating how much other people think about us, we also tend to overestimate the satisfaction or happiness we will feel by acquiring a new thing or reaching some sort of milestone. If you walk along the path of least resistance, that is societal resistance, you’re much more likely to fall into this trap.

There’s no way around the fact that you can’t have everything, and you will need to make tradeoffs but there’s a huge amount of leeway with what you decide is important. The tradeoffs that you’re currently making might not be serving your actual goals, so it’s worth it to examine why you spend the way you do to see if you’re making the right tradeoffs or not.

As far as increasing income, there are a bunch of reasons why we have never been at a better point in human history for this which I will explore in part 3.

#money #budget #spending #wants #needs #reasonable #essential #discretionary

[i] https://www.creativewealthllc.com/blog/mind-gap-part-1

[ii] https://www.99signals.com/naval-ravikant-quotes/

[iii] https://www.cabrini.edu/blog/2020-2021-blogs/reducing-social-anxiety-the-spotlight-effect