How To Know If You Need, Or Want, To Spend Money On Something (Part 2)
Step 4: Refine Your Expenses
After 90 days, you should go over your spending and eliminate anything that’s a recurring expense for something you no longer use.
There are all sorts of recurring expenses we forget about, and that’s by design.
Companies want you to sign up for recurring billing because they’re banking on you forgetting about them.
It’s passive income. For them.
So here’s your opportunity to put that money back into your pocket, where it belongs.
Step 5: Create a Plan
Look at every expense that’s left and ask yourself, “Do I need this, or do I want this?”
Need = You can’t live without it.
Want = You CAN live without it.
If you don’t need it, with two exceptions, get rid of it.
Step 6: The Two Exceptions
I’m a big fan of Ramit Sethi of “I Will Teach You To Be Rich” fame. He did this interview with Tim Ferriss a while back where he talks about the concept of “money dials.”
There are two things Ramit will spend whatever he wants on.
For everything else? Ramit buys used.
What should those two things be for you?
That’s for you to decide.
But I’ll tell you mine as an example:
- Travel: When I travel to and from EWR and LAX, I fly first class on Alaska Airlines. That is something I will spend money on because traveling sucks, and I do that flight a lot.
- Books: I compulsively buy books. Always have. Always will. If I see a book I want, I buy it. No questions asked.
I buy used, refurbished, or as inexpensively as possible for everything else.
No plan is foolproof.
Mainly because we’re all fools.
But the six steps I laid out should be enough to give you a framework to work with.
The rest is up to you.