This post is about lifestyle inflation, conscious spending and buying the future you really want!
As part of the Take Control of your Finances (TCF) course I have updated this article on 11th August 2020. Enjoy. Get conscious with your spending!
Where does all the money go?
Life style inflation is a way of saying that every time someone gets more money, whether through a wage increase, winning some money or being given some money at Christmas they are going to spend it on buying a "better" lifestyle. Some examples of this:
These are all real examples of what people do when they get extra money. This happens all the time! We are trained by society to spend any extra money we get and it makes me mad. People are not conscious of what they are spending their money on they just get it and spend it straight away!
No one saves! No one spends their money on investments or savings. No one buys their freedom first! We'll come onto what does buying your freedom first mean shortly.
According to a recent survey a quarter of British adults have no savings at all! NONE! They regular spend more than they earn! 55% of British adults have between £1 - £50,000 savings only! We just don't save and invest and that is because we are trained to SPEND!
Here is how society trains us to spend our money without thinking about it:
Society trains us to spend our money unconsciously on bigger houses, bigger cars, more stuff to put in the houses and we just go along with it without thinking about it. The whole world of marketing is designed to get us to part with our money!
There are entire teams of people in companies around the world whose only job is to get you to part with your money for a bigger car or a hot tub for the back garden. They hire the brightest and most capable people around the world to get you to give them your money.
I know this because I train some of them! I have spent years teaching sales to organisations and then individual entrepreneurs at PopUp Business School. We work so hard to part you from your money. If done ethically at least we are giving some value back.
The system is set up to part you from your well earned cash and most people in the UK fall for it and spend all their money on stuff that doesn't actually get them where they want to go!
Death by 1000 cuts
Katie and I came up with the concept of death by 1000 cuts in your finance. People sign up to subscriptions (amazon prime, Disney+, magazines, gyms, insurances etc.) and the money slowly drains out of their accounts.
They spend money every day on a sandwich at work saying £7 won't hurt. They sign up for a magazine subscription saying £15 a month won't hurt. They have two gym memberships saying well £18.99 won't hurt.
It is crazy the tiny little ways that money leaves our lives. It is death by a thousand cuts as we bleed money from our bank accounts on things we don't use and/or need in our lives.
This weekend we were sat chatting to one of our friends. We decided to practice our slides for TCF on her! We know how to entertain our friends. As we went through the section on spending she told us about a £5.99 charge from her bank for some kind of insurance that she had been persuaded to buy.
We asked her what it covered, what it was for and she didn't know. She has been looking at it leave her account each month wondering "why am I paying for this?" but she had never cancelled it.
The money bled away unconsciously.
This is death by a thousand cuts. Bring up your bank account and look for what subscriptions you are paying for and ask "Am I getting value from this?" "Am I using this?"
Start to work out how money is leaving you and plug those leaks!
What I am advocating is that you are conscious of what you are choosing to spend your money on and the opportunity cost of that money. Every pound or dollar you spend on aftershave or perfume could have been spent on investments or your freedom!
There is money that is leaving your account every single month that you get ZERO value from. Stop spending it and use it buy a brighter future instead.
Most people don't consciously decide what they are spending their money on they just spend it and wonder where it has gone at the end of the month!
You could spend your money on anything. You could buy coffee at Starbucks, you could buy perfume and aftershave, clothes, cars, holidays, investments, houses to rent out, stocks and shares or anything!
Whenever you spend a £££ or $$$ on one thing there is an opportunity cost that you could have spent it on something else. For example if you spend all your money this month on meals out you can't invest that money. So you are trading the money you are spending on entertainment for an investment that will buy you a return.
Most people don't think like this they just blow all their money on extra stuff! They look at their account at the end of the month and see money left over and think "YAY! party time!"
Are you conscious what you are spending your money on or do you just let it all disappear from your hands every month?
Assets versus liabilities
How much of your money every month goes into buying assets? Most people have never bought an asset!
I got to 2013 without ever having owned an asset! 35 years old and I had never owned an asset!
For the last few years around about 90% of our income has gone into buying assets. We lived in a small flat (small liability) we drove a small car (small liability) and we take everything else and put it into assets to generate income for our future.
Most people do the exact opposite and every time they get extra money they buy a bigger liability! They buy a bigger car, they buy a bigger house, they buy more stuff! All their money goes on liabilities and then they complain they are trapped in their jobs and don't have any money!
Buy small liabilities and invest everything else in assets
Buy your FREEDOM first
What is the point of this post?
I want to challenge your thinking and help you to see a different path to freedom/success (whatever that means for you). If you do what everyone else does you will get the same results as everyone else. If you want different results then you need to do something different!
Most people end up broke with no savings and rely on the state pension in the UK which is hardly anything! Most people blow all their money on shit they don't need and complain about being trapped in their job and having no money. If you want different results do something different!
If you want exceptional results then you need to do something exceptional
Instead of doing what everyone else does and blowing all your money every month on stuff you don't need or bigger houses and cars; take some of that money and invest it in your Freedom!
Buy Freedom first.
in 2019 Katie and I reached a point where we owned enough assets to produce more income each year than we needed to live. So we never have to work again if we don't want to. We can live off our investments and the work of past Katie and past Alan.
We used our money to buy assets and our freedom. I retired 25 years earlier than the average person in the UK. I have bought my freedom from paid employment and I can do anything I want to with my days. We bought freedom first; not more stuff.
Katie and I kept the starter flat we both bought (despite family pressure to upsize) and invested all our extra money into assets. We drove a tiny Skoda Citigo 1L which cost us £5000 with 8k miles on the clock.
We kept our small flat and small car. We didn't spend our money on more stuff, bigger things, fancier food.
What have I bought instead? Freedom for the next 40+ years. I am 41 years old and I don't have to work again if I don't want to! So what I have really bought is my freedom for the next 40+ years!
Now that is an exciting proposition.
I bought Freedom before I bought a bigger car. I bought Freedom before I bought a bigger house even though society was trying to pressurise me into buying these bigger things. I stood up to society and said I am going to buy Freedom instead.
Most people didn't understand what I was doing and that is ok! Most people still don't understand what I am doing and this is one of the reasons I started this blog!
If you want exceptional results do exceptional things, even if the result of the world thinks you are a nutter! - Alan Donegan
Practical steps to buying your freedom
I am going to be writing more about the practical steps to buying your freedom and how you implement this concept in your life. We are covering investing and more as part of the TCF course and as each week progresses I will be adding more articles about the course here.
The practical step in our life was opening a Vanguard ISA or SIPP and buying a broad based Vanguard index fund. This is what we spend nearly all of our money on.
Not that sexy but SO POWERFUL.
Katie for years has wished that she could win some money on the radio so she could answer the spend question differently.
Look out for the next article on the practical steps to getting going.
What do you think?
I genuinely want to know what you think of this article and the concepts in it. I am writing this because I want to help you to live the life you want to lead and I would love to know your thoughts, comments and questions so I can make my writing better and improve my articles for you.
Please leave a comment below.
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Alan Donegan: PopUp Business School Co-Founder, Entrepreneur, Financially Independent Pizza Lover, Marvel Movie fan and soon to be Script Writer
I built this website to share the life lessons I learn along the way, the cool stories, the adventures, the amazing people and everything I learn from all the stupid mistakes I make! If you want to keep up to date then stick your email in below. I promise to never share your email address or spam you! Alan