There's really no one right way to manage our money, given the differences in experiences and circumstances in regards to it.
I think it also depends on which part of the financial journey we find ourselves in. In the early stages, the perception is usually that money is scarce and hard to earn, and that we need to save as much as possible and avoid debt.
Where as, in the later stages, the perception can shift to seeing money as abundant and easy to earn, which could mean spending much more than before and perhaps, enjoy life in the process.
These perceptions always influence how we manage our money, deciding how or what we earn, spend and save.
The two interesting views that I want to write about are fixing spending habits versus affording them. That is, should we learn to fix our spending habits or work on affording them?
Fixing Spending Habits
Of course, 'spending habits' is a vague term. There are good spending habits and bad spending habits, just like good debt and bad debt.
With spending, I believe it comes down to the return on spending, what return are we getting from the spending? Is it beneficial to us or not, short term or long term?
Thanks to emotional triggers, we're more prone to bad spending habits than good ones. Which has birthed the common financial advice that earning more money will not solve the problem of overspending or living beyond one’s means.
Bad spending habits are often the result of poor financial decisions and a lack of basic financial discipline.
The root cause is hardly found in the amount of money we have, but more so in how we use it. So it makes sense that the real solution is not to earn more money, as this could make things worse.
But to learn how to take hold of our finances and manage them properly. Perhaps, through budgeting and saving(to later invest), as both are essential skills that can help in better managing our finances.
This in no way implies that earning more income isn't important. However, instead of relying on more income, it's much better to focus on fixing bad spending habits and developing good money habits that will benefit us in the long run.
Why Not Work Towards Affording Them?
The second view on money management is the idea that we don’t want to fix our spending habits, but rather want to afford them.
I'll say this is a humorous contrast to the first perspective, and it reflects a totally different attitude towards money and spending.
Here, there is no interest in developing financial discipline, but rather in having enough money to support one's lifestyle choices. As in having the ability to buy or spend whatever you want, whenever you want, without worrying about the consequences.
To some, the above mentioned ability is an illusion but when carried by cherished values such as freedom and self-expression then anything may seem possible.
Affording one’s spending habits means having enough income to cover our expenses and still have some money left over.
In theory, this can be achieved by increasing one’s income, reducing fixed costs, or finding alternative sources of income. Practical ways may include starting a side hustle, selling one’s stuff or investing one's money.
The problem comes when we start to experience the unique risks and challenges associated with affording our spending habits, especially the bad ones.
For instance, facing income instability or ethical dilemmas. An example will be experiencing lifestyle inflation, which is the tendency to increase our spending as our income increases.
If/When our income sharply drops, a huge gap is created between our income and expenses. Filling that gap may lead to getting into debt to keep the bubble from bursting.
In Closing
Both perspectives have their advantages and disadvantages, and neither one is inherently better or worse than the other.
On a general view, I see the never ending battle of optimizing between income and expenses.
The 'fix spending habits' mentality is focused on controlling one's expenses as much as one can.
And 'working towards affording them' mentality is mostly focused on increasing income to the extent that expenses can be seen as chicken change.
From a foundational viewpoint, fixing bad spending habits is really important, as it could be akin to a boat with an anchor. The boat won't go very far unless you uproot the anchor i.e fix the bad spending habits.
Thanks for reading!! Share your thoughts below on the comments.