Personal Finances – A New View

a new personal finance perspectiveI often get frustrated when I see the advice that people get when it comes to personal finances. This is especially true when the people are spending more than they are earning. They are almost always told that they must reduce their expenses and while this is true, there seems to be only one method that is advised. You must cut out things to reduce your spending.

This has become so entrenched that most people probably don’t see anything wrong with the above sentence. If someone is spending too much money then obviously they have to cut out things so that they can get their finances to the point where they are not spending more than they are making. While this may be the case in extreme cases, for the vast majority of people there is no need to do this. The truth is that most people (all the average people out there) don’t need to change their lifestyle at all. They can have the exact same quality of life as they currently have with the same services and items they purchase. All they need to do is rearrange the way they spend their money.

This is my view of the people in the US. The people you see on the TV that are tens of thousands of dollars in debt, spend their money on designer products and are completely out of tune with their finances are a minority. The news likes to highlight these people, but in reality they are far and few between.

Just like the news enjoys highlighting the bad and isn’t a real reflection of what the US is like. When living in Japan and teaching junior and high school students, I was asked on more than one occasion what type of gun I owned and how many people I knew that had been murdered. When I replied that I neither owned a gun nor knew anyone that had been murdered, my students were surprised since that is the image the news gives of the US. I think the same falsehood plays when it comes to the financial health of most people in the US.

Don’t get me wrong. Everything is not fine and dandy and there is a lot of improvement that most people can do when it comes to their finances. The simple truth is that there are a lot of people that are struggling with finances, but they are doing so not because they have indiscrimately amassed huge amounts of debt, but because they are living on the borderline without a safety net if something goes wrong financially. They live paycheck to paycheck with little to no emergency fund. I believe that most people could change this without giving up what they currently have, but by simply rearranging where the money they have is spent.

The reason the “you must cut this” approach discourages me so much is that by promoting this mentality it keeps so many people from looking at their finances and they refuse to acknowledge what’s happening until it is too late and they reach the point where their only alternative is to cut things out. Since the solution promoted by most financial experts is to “cut” no matter what the circumstances, there is an association in the collective minds that saving money means the pain of giving up things.

If you go to a financial advisor and that advisor first words are “you must cut this out” your first thoughts are going to be that this is going to be a painful process. What if they instead said, “Let’s see what we can do to reduce your current expenses without changing anything you’re currently doing?” You would probably be a lot more willing to work with that person and a lot more enthusiastic about trying to save money. The truth is that by rearranging the way you spend your money you can likely save thousands of dollars a year without changing your lifestyle, but nobody seems to be encouraging this approach to personal finances.

Saving money doesn’t have to be painful. In fact, if you approach it as a game, it can be exciting and fun, not to mention extremely empowering. No matter what your current finances look like, I encourage you to first try and rearrange the way you are spending money before moving on to what may or may not need to be cut.

That merely means taking a look at what services and items you buy on a regular basis and think creatively how you can spend less on them without giving them up. You may be surprised how much it is possible to change without actually having to cut out things.

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8 Responses to Personal Finances – A New View

  1. Mike says:

    That is funny (and sad) how the students think of Americans with guns and murders. I guess that if they watch any news or MTV videos, they’d definitely get that idea.

    One suggestion, regarding this article in particular, would be to provide a couple of example of what you mean. Finding ways to reduce spending without cancelling services/etc. sounds counter-logical.

  2. Retireyoung says:

    I don’t know how many times I have the “cafe late” example. “If you just stopped buying lates at Starbucks you could save a million dollars”. I can imaging people who stop going to starbucks for a while, but how many actually put that money aside.

  3. Alberen says:

    Here is what I say- people say they just can’t pay their bills. They are stretched thin… they can’t save.

    What they really mean is that they can’t pay their debt payments. If people didn’t have credit card payments they could INCREASE their current lifestyle, AND save 15% of their income.

    The thing is that they cash flowed the future right into the past.

  4. “The thing is that they cash flowed the future right into the past.”
    very interesting quote!

    I like the idea that you can spend smarter, without losing the ‘fun stuff’ but I do think at some point the fun has got to take a back seat to the bills.

  5. miclason says:

    It’s like I told Alejandra this morning, when she told me she sometimes likes expensive things: the trick is to find what you want at a lower price…

  6. Pingback: » Scorchio, Food and Saving

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  8. BigBuddha says:

    This is an excellent post, I have only just found this site and it really strikes to the core of my thoughts on money management, CASHFLOW is king.

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