Taking Control of Your Finances

If there is one single thing that will most assuredly guarantee success with your money, it is keeping track of what you spend to make sure you don’t exceed your “manageable threshold.”

Many Americans far exceeded their manageable thresholds over the last few years and now they are experiencing financial crisis. They had no idea that spending beyond their means would eventually result in disaster. If they had determined their threshold and then had the intestinal fortitude to stick to it with all their might, they would have been insulated from the current economic crisis. Ponder perhaps that there would be no crisis if Americans (and American businesses) had controlled their use of credit.

How do you determine your threshold? It’s not rocket science! Simply take what you earn after taxes, deduct your necessary expenditures (mortgage, utilities, giving, saving, food, etc.) and that number is what is left. If there is nothing left, then you are at your threshold! If you are not giving or saving, then you have surpassed your threshold. To stay centered, you must give and save.

Society bombards us with ads to buy this and that and make us feel inferior if we don’t. We have to insulate ourselves from that because there will always be something to buy, always be someone to judge us if we don’t buy, but never enough money to buy it all—no matter how wealthy.

Economic theory teaches that the level of satisfaction derived from purchasing begins to decline after awhile.(1) What’s the old R&B song? “The Thrill is Gone.” There are also economic studies now that reveal that levels of happiness or contentment in some third world countries are higher than in the USA!(2) Why is that? Because in America we have reached the spending saturation point! Spending no longer brings us the thrill it once did. We make our purchases without a lot of contemplation, put the purchase on a credit card using eventual dollars we can’t afford to spend, and derive no lasting joy from the purchase. Even our daily latte’ has become a routine transaction. We have become spending zombies!

Making more money doesn’t necessarily make us happier either and, in fact, perhaps the price paid to bring in those extra dollars far outweighs the benefits.

All that to say that we need to take the time to carefully evaluate our income and expenses and make some tough choices. We need to stop spending money on things that bring us no lasting joy.

Let’s get motivated now to change the way we think about money!

Next issue: Starting the process.

(1) Law of diminishing marginal utility
(2) http://www.mentalfloss.com/blogs/archives/24392; http://en.wikipedia.org/wiki/Happy_Planet_Index