The 12 Steps – Steps 1 & 2

I’m writing this post from a Shanghai hotel room… It’s an OK room I guess, but there’s absolutely no doubt that I would rather be at home with the Dubai Money Wife and Kids. This tells me that I still haven’t achieved my goal of financial independence. A point in the future when I really will only do what I want… For now though I’m in the ‘make as much money as possible as quickly as possible’ stage, and that puts me in a Shanghai hotel room. In order to build a future that only includes hotel rooms that you want to be in… you can follow my 12 steps to Financial Serenity. Part One begins… NOW.

  1. Accept that more stuff does not equal greater happiness.

At this point you’re probably either thinking “Easy! Everybody knows that.” or “What utter hippy nonsense – Dubai Money Guy has lost it.”. Well, the first step to financial serenity is all about making a lasting commitment to this concept. Surrounding yourself with more possessions is not actually going to permanently increase your happiness level. I know this from personal experience, because I lived the majority of my life buying just about every item that was ever marketed to me. Then I stopped (or cut down drastically) and a funny thing happened. I got happier. Amazing right? Even more surprising, this rule even applies to money. After our basic needs are covered plus a little extra security money our happiness stops going up inline with our income. But don’t take my word for it… listen to the experts. A Princeton research team found that happiness increases in line with income up to the point of $75,000 per year but then it plateaus.

The process of Hedonic Adaptation also means that we quickly adapt to our surroundings. So even if we experience a major boost to our lifestyle or material wealth, we quickly adjust to it and take it for granted. Here is a classic Mr Money Mustache blog on the subject of Hedonic Adaptation:

Once you believe this statement to be true or have started to entertain the notion, you will notice your behaviour begin to change. Slowly at first… You may begin to feel a pang of guilt when making an unnecessary purchase or you may put an expensive item back on the supermarket shelf. But over time, frugal decisions will start to become the norm. Frugality is like a muscle… when exercised it grows stronger. Pretty soon you will be laughing at marketing messages because you see them for the utterly ridiculous and transparent nonsense that they are.

2. Have ‘the talk’ – get your partner on the same page.

If you are single… you are probably safe to skip this step for now. You can always come back to it later if you acquire a significant other who doesn’t share your commitment to financial serenity. Likewise, if you are reading this because your partner is constantly on at you about your over-the-top spending and is an excellent saver themselves… maybe skip this step for now. But, if like many of us on this journey, you have an active partner in overspending and waste, this really is a very important step. You and your partner probably have some shared dreams right? It’s not unusual for our minds to wander into the future when we will have more time as a couple and the freedom to holiday / travel / knit or whatever. But how close are you to those dreams right now? Are you moving closer to that day? Are you treading water and failing to save enough for your future? Are you drowning in debt and getting further away from your dreams all the time? Shared dreams are very powerful because with some practical action, you can turn them into shared goals. And shared goals are a great motivator. Take stock of your financial situation as you see it right now and talk to your partner. Remind them of your shared goal and then describe to them gently but accurately, how far away you are and what you need to do to get there. Try this:

“Hello significant other, you look lovely today. Remember how we always used to talk about (insert shared dream) one day? Well, here’s the thing… at the rate we’re saving and spending right now we’ll be 120 before we can do that. Will you work with me to get us to our dream? I’ve run the numbers and I believe we can reach our dream much sooner by just following 12 simple steps. In fact – it’s actually 10 simple steps because we’ve just done steps one and two together.”

“Yes darling – you are very clever and awesome – I will come on this journey with you.” 

That’s almost definitely how it’s going to go… but assuming for one moment that it isn’t that easy, and you meet with some resistance. Just calmly explain that you want to start tracking your expenses and net worth and that you need help to do that. If you have shared finances and they are spending a certain amount of that per month. Ask them to agree an amount that they think will cover their monthly outgoings. Even if this number is higher than you would like, it will provide a benchmark that you can try to stick to and then approve upon each month. If your first month tracking shows that you are spending more than you earn, your position is strengthened just by that discovery. Remember that they need to be an active and willing participant in the long run for this to really work. Forcing draconian budgets on unsuspecting partners is probably not the way to get their support.

Steps one and two are designed to create a strong and unified foundation for the practical changes you will make to your lifestyle over the next months and years.

Next time: Steps 3 & 4: Create Accountability and Stop Spending