What You Need to Know about Living Well and Spending Less

This article originally appeared on The Financially Independent Millennial and was republished with permission.

Regardless of your income, you can become financially independent. For starters, adopting a positive mindset can pave the path to financial independence. Here’s how to live the lifestyle you deserve without breaking the bank.

What’s the secret to spending less and living well? Would you be surprised to learn that it all has to do with your mental health? As a therapist for over 20 years, I have worked in a variety of settings with a diverse array of clients. No matter who I was working with or their presenting issues, I noticed my clients were receiving unexpected bonuses due to their efforts in therapy. As they were making progress in therapy, they were receiving raises, promotions, starting successful businesses, and doing better financially.

Tips for Living Well and Spending Less

In therapy, no matter what issues you’re working on, you’re always simultaneously treating underlying feelings of self-worth, or the value you place on yourself. As my clients’ sense of worth improved, so did their finances—because of increased confidence, empowerment, assertiveness, and self-care. Scientists have observed a similar pattern in research literature; mental health significantly predicts future wealth, yet wealth doesn’t affect future mental health. You can do the same by implementing four strategies to boost your mental health.

Learn to Love Yourself

While financial advisors help people manage their money, as a psychotherapist, I help professionals utilize psychological skills to improve their self-worth and emotional intelligence to achieve work-life balance and financial success.

Renowned author Suze Orman said in her book, Women & Money, “Lasting net worth comes only when you have a healthy and strong sense of self-worth.” However, Orman cautions that it doesn’t work the other way; having high net-worth doesn’t increase the likelihood that you’llhave high self-worth. Having greater self-worth reminds you that you deserve greatness.

Limit Impulsive Buying

When you limit impulsive buying, you have an opportunity to bulk up your pocketbook rather than deplete it. Thanks to the convenience of online shopping, with a click of a button, you can order anything you’d like and have it conveniently arrive on your doorstep the next day. The convenience promotes impulse buying which is tough to reign in. The following are ways to limit your impulse buying:

Develop a Relapse Prevention Plan

Identify the people, places and things that are triggers for impulse buying. For example, the person you’re trying to impress, the mall, or your retail apps on your phone. Make an effort to avoid those triggers and when you’re faced with them and have a plan.

Consider a Financial Cleanse

Commit to a 7 to 21-day financial fast. This increases your spending awareness, and also saves you some cash. During your financial fast, don’t use any credit cards, if possible, and don’t go to any malls or retail stores. Delete retail apps on your devices and don’t purchase any restaurant food or coffee—make everything at home and pay for your groceries in cash.

If you need to get a gift for a friend, consider making them something, regifting an item you haven’t used, or being honest with them about your cleanse. This exercise will help you become more mindful of excess.

Read more: How to Save $5000 This Year

Spend Mindfully

For at least the next week (One-week minimum, lifetime practice recommended), keep a log of your spending. Before you spend money, ask yourself:

Is spending money on this item or service absolutely necessary? If not, can I afford it?
Will this expense bring me closer or further away from my personal, professional, and financial goals?
Does it feel aligned with my values?
Do I feel clear about this purchase in my gut?

At the end of the week, journal about anything you noticed such as spending less money because you were more conscious of it. As you squelch your impulsive buying habits, you begin to build financial resilience.

Build Financial Resilience

Financial resilience refers to your ability to bounce back from adverse financial events, like losing your job, absorbing unexpected expenses, experiencing a decrease in work or business, a recession, pandemic, or losing money in an investment. According to financial expert Dave Ramsey, author of The Total Money Makeover, having good finances is like building a house. You need the right foundation in place (e.g., emergency fund, low or no debt), otherwise any sort of storm (adverse financial event) will knock it down.

Rebounding from a financial setback is directly proportionate to your financial health before the event. According to a 2017 report, 39 percent of Americans have zero money set aside and 57 percent have savings of less than $1,000. Therefore, two-thirds of Americans don’t have financial resilience and could not withstand a major money challenge like what occurred for many during the COVID-19 pandemic. If you have little money saved, have lots of debt, and don’t live by a budget, your recovery time is significantly extended.

Follow these best practices

Budget
Keep debt-to-income ratio low
Live below your means by limiting your discretionary spending so you can save money
Establish an emergency fund
Pay down outstanding debt
Stay the course with your investment strategy (not pulling funds when a recession hits)

Financial planners often recommend having enough savings to cover three to six months of expenses so that you can successfully move through hard times. Again, this can be established by reducing your variable, nonessential expenses. Consider having funds automatically transferred to your savings account or contributed to your investments on a monthly basis.

Consider reading books such as The Latte Factor by David Bach and John David Mann or Financial Peace by Dave Ramsey to see how saving small amounts, like the price of a latte, can create significant financial improvement over time.

Savings should be kept liquid in a savings account, money market, or short-term CD where you have easy access to it if and when you need it. Once you have that in place, you may look at investing more in your future through retirement plans, college funds, or buying a home and paying down the mortgage. You might consider diversifying your investments to increase your financial resilience.

For example, if all your savings are invested in your house, you may not be financially resilient if the housing market crashes. However, if you have invested in your home as well as mutual funds or CDs, you’ll have financial resources available during a housing market downturn.

It’s a good idea to make sure your investments align with your values, so consider socially responsible investing—for example, in companies that are focusing on creating environmental sustainability. Doing so contributes to the resilience of our global community.

Recognize That Personality Traits Drive Our Spending Habits

Deep-rooted personality issues may cause us to spend more. For example, those with Narcissistic Personality Disorder suffer from grandiosity and may feel entitled to spend beyond their means. Others with Borderline Personality Disorder may feel positively empty at times and turn to spend as a means to fill themselves.

How can certain personality traits (such as security and pleasure) impact a person’s want to buy and ability to control these impulses? People who have codependent tendencies and want to take care of others may feel compelled to spend resources to meet the needs of loved ones.

Those with controlling tendencies may want to buy clothes or decorative items for their loved ones because they want them to look or appear a certain way. Individuals who are less confident and secure in themselves are more susceptible to targeting advertisements. Pleasure seekers and those who want instant gratification are more likely to spend their money impulsively.

Those who are more fear-based, skeptical, or miserly may hoard their money and not be prone to spending. They take care of other family member’s problems, often to relieve their own anxiety. They tend to experience guilt and are prone to codependency and detrimental caretaking at their own expense. And, they may work in helping professions as a therapist, nurse, or paramedic.

Overall, helping professionals don’t realize their true earning potential as they tend to view their finances as being outside of their control and accept the notion that they will not make much money.

Final Thoughts

Being financially independent at a young age provides a lot of freedom. You don’t need to stay at a job you hate simply because you need the money. By taking care of your mental health, you’re paving the path toward financial independence. As you begin incorporating some of these tips into your life, you’ll see it’s possible to live well and spend less.