This month, we’re guiding you through the New Year’s resolution of getting better control of your budget by reducing the amount of your spend that is driven by unhealthy addictive consumerism. It sounds simple enough, right? But chances are reasonably high that this is the first time that you’re hearing about our nation’s “addictive consumerism” and you may not realize how much you may or may not be unnecessarily spending on “stuff” that you don’t need – and may not even truly want. After all, not every item that you buy is the outcome of society’s addiction to “more, more, more.” So how do you take a look at your monthly spend and figure out how much is being drained by addictive consumerism? Today we’ll walk you through the process.
Step One: Three to Six Months of Itemized Data. Yes, You Can’t Skip This Part!
Any time that you’re working on budgeting or dealing with a budget, you’ll have to look at historical data. Microsoft Excel, Google Sheets or even a paper ledger will be necessary here (yes, you can still buy paper ledgers at most office supply stores). You’ll need both your bank statements and any and all credit card statements for the three to six months prior. To note, we feel that six months of data is the appropriate starting point, but if this process is particularly tedious for you you can stop at three. Even better than six months is an entire year since consumer patterns change seasonally. However, we think for the purposes of getting started six months will be sufficient.
Of course the next step is to break things down by month and create a line item for every spend you had. It’s extra important in this process that rather than just giving a line item for a credit card payment that you made, you actually create a line item for every detail that you purchased on a credit card in a given month. Yes, this may mean that you’re showing up with a deficit at the end of the month. That fact in and of itself would be telling, but it’s not why you need to do this. If you simply enter the line item for the credit card payment, you won’t see the actual events of buying “stuff.” What we’re after is seeing how much “stuff” you spend on, not how much you pay to a credit card each month.
Now, Get Your Color Coding On!
Whether it’s with an electronic highlight feature or an actual highlighter, it’s time to start color coding all of the “stuff” you bought. Remember, consumerism comes in many faces. It may involve travel purchases or even crafting supplies. Essentially, it’s “stuff” that you purchased. At this point in the process, we don’t want to talk about whether the stuff was necessary, impulse or unnecessary. We just want to get a picture of how much “stuff” you buy each month and how much you spend on it. It’s much more in your interest at this point in the process to be strict with yourself and include in the list every single “stuff” purchase that you made than it is to be liberal with the definition. After all, we want the most realistic number we can get.
Next, Partition Out Your Stuff List and Take a Look at the Number
This will be easier if you’re using an electronic ledger like Microsoft Excel or Google Sheets, but it’s still possible and just as necessary on a paper ledger. Next you’ll need to examine all of the line items for the “stuff” that you bought and see how much money that accounted for per month. In addition to the raw number, you’ll want to calculate how much of a percentage of your total monthly spend and total monthly take-home income was spent on “stuff.” In a perfect world, that number is relatively low. But remember that this is a journey and that you need to find your own level of the satisfaction of enough. The most important question that you have to ask yourself isn’t “Is my number low enough?” The question is “Is my number a number that I’m comfortable with both philosophically and in relation to my savings and spending goals?” Take some time. Have a cup of coffee. Think about the answer.
Now, Color-Code Again!
Now it’s time for a level of honesty that may feel uncomfortable to you while you’re doing it but is absolutely necessary. You’ll need to go back through the “stuff” purchases and re-color code them. There are a couple of different ways that you can break this down, but we recommend coding them as necessary and needed, saved for and planned, impulse purchase, luxury purchase and wasted purchase. You may have other ideas about how to break this down, but the essential goal is to figure out what “stuff” you bought because you needed it or because you both wanted and could afford it and what you purchased just for the feeling of buying “stuff” or as a result of consumer motivators like peer pressure, advertising and sale prices. From there, take a look at what your number would be if you had eliminated purchases from the latter categories entirely. We’re willing to guestimate you’re much happier with that number.
Set a Goal and Start Your Journey
Now that you have visual and real numbers related to your monthly “stuff spend,” set a goal. The goal can be an overall amount that you want to reduce it by, the goal of simply keeping it static or a goal of slowly reducing the number each month.
Now for the more difficult news! The process you’ve just gone through is actually likely to be one of the easier parts of the process. Addictive consumerism is engrained in most of us from the time that we are small children. Breaking the mental and emotional habits of addictive consumerism can be challenging, and the road may be long. We think starting from a point of awareness of budget and money is a perfect starting place because it is tangible. You can reduce your reliance on “stuff” boosts by being motivated by the very real financial goals that you have set. And, of course, we like to think that we’ve provided you with plenty of resources for exactly how to navigate the journey of beating addictive consumerism on this website!
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Photo Credit: 401(K) 2012 via Flickr