Make a few adjustments, and create a new financial normal.

One thing I’ve noticed over time is that humans are very adaptable creatures.  We conform to our surroundings and can make almost any environment feel routine to us after a while.  Animals do this, as cold weather creatures develop features that can increase survival in even the most harsh of environments.

Call it evolution, adaptation or just the way God made us.  The fact is that we can adapt to most situations and environments given enough time and motivation.  Knowing this, we should theoretically be able to improve our financial situation by changing our environment.

We can get by on less

I was accepted into optometry school fairly late into the process, so I had to scramble to find an apartment near the school.  I asked a couple of people I knew if they needed roommates.  No one did.  I started looking for one bedroom apartments in the area but they were way out of my student salary (aka no money).  I was at a loss.

But then I had an idea.  I called back one of my classmates and asked if I could stay in their living room.  He wasn’t planning on bringing any furniture in the living room and neither was his roommate, so he said that would work.  I just got an air mattress and set up shop.  So I had a place to eat and sleep and paid very little rent since we split it 3 ways (I got to pay even less since I didn’t have my own room).

It was tough the first few days.  One bathroom for three guys.  Not much privacy being in the wide open living room.  Not an ideal living situation.

But I made some adjustments to make things easier.  I spent most of my time studying in the library.  Since studying is what I did almost all the time anyway, I just brought some food from home and ate during study breaks.  It became very doable and I made a couple of good friends in the process.  All for hundreds of dollars less per month than if I got my own apartment.

What this experience showed me is that you can get by on less, even if you don’t think you can.  Sometimes we are forced to get by on less because of a job loss or illness.  Those aren’t fun times.  The time to experiment is while you’re healthy and making money.

Cut your cable and see how things go.  Look at some smaller fuel efficient cars when it’s time for a new one.  Try to eat out a little less every week.  Doing things like this will create a new baseline of spending and you may not even notice the difference after a while.

And if you do start feeling the pinch, then you know that particular thing is something you value and can’t live without.  Simply go back to it and try to cut something else.  Not much to lose there.  This process will save you some money for sure but will also simplify your life just a little more.

Create a New Normal

Cutting expenses is all well and good, but how can we use our adaptability to actually save money and supercharge our finances?

The most recent numbers put the US personal savings rate at 5.2%.  The savings rate for the Millennial generation is actually negative!  These are abysmal numbers and unless the average American is making millions of dollars a year, a 5% savings rate is just not going to cut it!  Your working career could end prematurely because of health issues or job loss, so making sure you have enough savings (and insurance) is key.

So what’s the answer?  Move to a cheaper area?  Cut your cable?  Stop drinking lattes?  All of these are viable solutions to keep more of your money, but probably are not the answer for most people.  The answer?

Create a new normal.

If you’ve only been saving 3% of your salary into your 401(k), log into your account and increase it to 6% and try to live on your new slightly less monthly earnings.  You will make less money than before obviously, but through our awesome ability of adaptation, you will most likely get used to it after a few weeks.

You just doubled your savings rate.

After a while, consider increasing your 401(k) deferral again, especially if you get a raise.  You might find increasing it too much is making things a little tight.

That’s okay.  You can back it down a little bit and increase it later when you’re ready.  More than likely you will end up at a much higher savings rate than you started with.

You can apply this to any almost any financial goal.  Want to pay off your student loans quicker?  Increase your payment to principal by $200 every month and see if you can handle it.  Want a larger emergency fund?  Try to set an automatic contribution to take $100 out of your checking account.

After getting used to your new financial reality, you can try to see if you can save some more.  Make it into a game.  And just like a game, you can push reset if things don’t seem to be going so well.

Most of us underestimate our ability to adapt to new and possibly harsh situations.  Try to create a new financial normal for yourself by cutting a service you don’t need or increasing your savings rate.  You’ll be surprised at how easily you can adapt.

Surprised it’s not made in China.

Humans are incredibly adaptable creatures, especially when it comes to money.  If we only have a little bit, we can make do and find ways to survive.  The median household income in the United States is about $51,000.  For those in the upper class, it is almost unimaginable to be able to live on that type of income.  But it is being done by thousands of families all over the country, even if they may be living on the edge financially (paycheck to paycheck).

On the other end of the spectrum, you have athletes and celebrities who make millions upon millions of dollars and still manage to lose it all when the money stops rolling in.  While most people won’t weep at someone who blew millions of dollars, they can have the same condition as a family living on median household income: putting themselves on the financial edge by living a paycheck to paycheck lifestyle.

 Self Inflicted Wounds

So what does death by a thousand swipes have to do with anything?  Death by a thousand cuts refers to a particularly gruesome form of capital punishment practiced in ancient China.  The convicted criminal would be tied to a wooden stake and would have numerous small cuts inflicted upon them until they died.  It was a form of torture/execution that was eventually banned.

Death by a thousand swipes then is when someone slowly and methodically destroys their finances by making many little purchases that add up to their financial demise.  Making one or two purchases doesn’t result in anything serious, but they build up and can eventually kill your financial life.

(Tangent:  With all this new financial technology coming out, what if there was an app that would shock a person every time they swiped their credit card?  I think a cut for each swipe may be a little too much.  But that would definitely keep people from overspending!)

While not as sadistic as the literal from of torture, death by a thousand swipes is equally deadly on your finances.  And it can afflict everybody from the average family of four to the million dollar athlete (Vin Baker for instance).  It can be something as simple as eating out way too much or having one too many Ferraris in the driveway.

The Cure

Financial death by a thousand swipes has a pretty easy fix.  It’s a 2 step process that sounds easy but takes discipline and some life hacking to pull off.

First step is to let the cuts you already have heal up.  This means that you acknowledge that you made some possibly dumb purchases, but you’re not going to make them anymore.  And you might have to trick yourself into doing this.  If your major vice is grabbing coffee twice a day from the local coffee shop on your way to work, take a different route to work.  Overspending is literally an addiction, and after a few days of withdrawal, you should be able to control it.  Whatever it takes to keep you from making those unnecessary purchases and dying a slow and painful financial death.

After you wean yourself off of the mindless spending, the second step is easy.  And that is to pay yourself first and always.  Notice I didn’t say start a budget.  I have nothing against starting a budget, but if you automatically skim 10% of your take home pay off the top and put it in a savings or money market account, budgeting doesn’t become a big deal.  And since you hopefully ended your spending addiction in step 1, there is little chance you will spend more than you need to.

With these two steps, conquering the sources of your unnecessary spending and paying yourself off the top, you can dig yourself out of the paycheck to paycheck lifestyle in no time.  This will open up opportunities to do things that can super charge your journey to financial independence such as paying off debt quickly or increasing your investment contributions.