I can now pay for a Tesla with Bitcoin. And the Mayor of Miami wants to pay City employees in Bitcoin and allow tax payments in the same cryptocurrency. Honestly, until I can go into Bloomingdale's and buy a shirt with Bitcoin, it doesn't much matter to me.
And neither should it to you, if you’re in the process of getting your financial house in order. In my world of financial planning and investment management, the basics are still the pathway to financial freedom and prosperity: spend less than what you earn and invest the rest.
The rub is that many people don’t know what they spend because no one uses cash anymore. It used to be that if a man wanted to impress a lady, he’d flash a bankroll when paying the restaurant check. Now, she’d probably flee the table at such Neanderthal behavior: it is the gold or platinum cards that impress. And this is where bad behavioral spending issues begin to happen – if I drop a few hundred in an afternoon using plastic, I don’t see it and I don’t feel it. If I drop a few hundred of actual greenbacks, then my wallet is lighter - I can see that those dollars are no longer there and available for me to spend.
That’s why everything eventually comes back to the spending plan, or the pro forma, or the cash flow statement – whatever you want to call it – it’s a budget. And without the budget, it’ll be nearly impossible to accumulate any significant investments, unless you make megabucks each year. Why? There’s always such fun stuff to spend it on!
Honestly, the attitudinal changes I’ve seen just in the 20-odd years I’ve been in this business are really quite fundamental. Apart from not using cash, it is common for people to rent what they want, rather than purchase. And not just cars – music and books too. If I buy a book, I move money from one asset account to another – cash to books. The book is an asset that I can hold, enjoy, lend, and give away. If I read the book online, what I have purchased is an intangible – the experience, and the knowledge gained. The subscriptions line on our budget worksheets no longer holds payments for professional publications or newspapers – it is Netlfix, Prime, Spotify, etc. Increasingly we’re renting what we want, rather than owning it and having an asset on the balance sheet.
This renting vs. owning mentality and using plastic rather than paper money can easily lead someone into financial trouble. So what do we recommend people do to bring spending into line and begin saving? Challenge each expense. Ruthlessly. Ask yourself a series of questions:
If I’m spending on food to nourish the body, then it is a need. But if it is a restaurant meal, it becomes a want, because there are less expensive alternatives, namely Publix, and cooking freshly at home.
What about your professional image? You have to look the part and wear the uniform. But you still have to ask yourself: Do I need this particular designer label? Or will an alternative unbranded but still quality item fit in my wardrobe? Maybe the fact is that this is a place where I actually need to spend money to earn my living. Fine – as long as can stretch your income to fund other financial goals, such as funding your emergency fund and long-term retirement savings.
Clients don’t answer to me, after all – they answer to themselves. All I can do is take them through a deep thought process, and then ask: Are you pleased with the choices you’ve made? If not, let me help you establish a plan – some spending guardrails – for you to implement going forward. After all, there is tremendous freedom with a form. And at the end of the month, if the income isn’t enough to cover the expenses, there are only two choices: increase income, or decrease expenses. That simple. So make the hard choices.