For the longest time, I've held particular beliefs about saving and spending. And to a large extent, these beliefs have tended to serve me well. However, I'm a firm believer that as I grow and age, I can't blindly stick to my convictions, and sometimes it takes a re-evaluation of my outlook to determine whether it is indeed the right outlook for my particular situation. As of late, things just haven't felt right with me, and my financial believes; therefore, I've taken some time to evaluate and begin to change my financial outlook.
A Focus on Saving
For years, looking for ways to cut costs and save money on our regular expenditures was my focus. However, over time and as we learn more about living and live, our family has gotten a pretty good handle on our costs. Finding ways to cut food costs through reducing food waste, eating leftovers, and shopping at discount food chains helps us keep our monthly food costs under $300 a month for a family of four. Our utility costs average around $200 a month including phone, cable and Internet. And due to high end resale shops, our clothing costs are almost negligible.
While such savings are all well and good, they leave little room for cutting further. Therefore, while maintaining our lower costs is a critical element of our personal finances moving forward, I think it's time to move away from a focus on saving to one that is centered more upon earning.
A Focus on Earning
People can live on small amounts of money, but this doesn't mean it's productive. We've seen just how little our family can live on, but in the process, as our expenses remain low, there is an interesting decrease occurring in our levels of income as well. It's almost as if a level of complacency is creeping in due to a lesser income need. Years of lower spending have conditioned us to the fact that we can get by on less money, which has in turn decreased our need to earn more income.
While this has allowed us time to enjoy life more, it has also hurt us when it comes to future financial planning. Contributions to retirement accounts have gone away. The margin between income and expenses has narrowed as things like health care costs increase, kids are born, and inflation takes its toll, and our asset total as begun to stagnate. This means a greater attention on earning money rather than cutting costs needs to be put in place.
Eliminating Debt to Take on More Risk
In order to make more money, sometimes it requires a little more risk in life. Up until this point, we've been quite risk averse. We've chosen to focus on paying off debt and cutting costs (relatively safe money decisions) rather than investing our money in riskier areas. In the process, we've done the following:
- Paid off student loans in under three years
- Paid cash for vehicles
- Bought our second (downsized) home outright with equity from our first home
- Avoided credit card debt
Without many of the costs of average life (and associated debt), we can attempt a few things we might not otherwise. Rather than putting more of our money toward debt, we can begin to put it toward investments and things that could hopefully earn us more money. For example, rather than putting a tax refund of $1,500 toward interest on debt, which would cost us money, we might instead be able to stick it in a retirement account, which at 6 percent interest, could earn us an extra $7,000 by the time we retire. This, in a nutshell, is how I hope to begin changing my overall financial outlook.
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The author is not a licensed financial professional. The information provided in this article is for informational purposes only and does not constitute legal or financial advice. Any action taken by the reader due to the information provided in this article is solely at the reader's discretion.