Spend or save?
How often are you caught in spend or save it dilemma.
When you have made your decision, does it seem right?
Or, in retrospect, do you wish you had made another choice?
This month we take an in-depth look at the ‘spend for save’ decision?
Start by listening to my introductory audio below (click on the bar under the audio to read the full text).
Then spend some time on self reflection and further reading.
Save or spend
Be known for what you allocate, not for what you accumulate
Hello, its Jeremy here and I have a question for you. How often are you caught in that dilemma of whether to spend your money, or save it. I suspect that it happens almost daily. When you have made your decision, does it seem right? And in retrospect, do you wish you had made another choice?
last month, if you recall, I suggested that September was a key turning point in the year and a good time to carry out a review of your life and money. I went further by suggesting that this should be as much a quantitative analysis as a qualitative appreciation of what we have. I introduced you to the concept of appreciative inquiry and suggested we are better appreciating what we have than wishing we had more.
So this month I want to take these ideas a stage further.
In her book the Soul of Money Lynn Twist recounts how her colleague and mentor Joan Holmes, at the time Founder President of the Hunger Project, challenged contributors to The Hunger Project ‘to be known for what you allocate, not for what you accumulate’.
For many of us this is a common conundrum, albeit phrased in less philosophical spend or save terms. However, the Holmes / Twist take on this provides some really meaningful insights into the role of money in our lives and our relationship with money.
Earlier in her book Twist talks about her journey with her husband as their professional careers took hold in the early-70s and ‘the siren song of money started to sing in their ears’. As time went on their integrity came under strain as careers took precedence over family and their actions became increasingly inconsistent with their intentions. They found themselves caught in a scramble in the mid-70s as money flowed in and straight out to feed the hunger for more: more society, better home, faster car, second car, more clothes, more entertaining, constant upgrading. At the same time the kids were with the nanny or babysitter, rather than with their parents.
Then it changed
Then they came across The Hunger Project and came to recognise that their lives to date had been about a hunger for more when what they really hungered for was lives of meaning. This led directly to a change in their relationship with money as they began to ‘align their money decisions with their deeper core values’. Twist concludes the story of her journey by writing that ‘Eventually, we came to know ourselves not for what we had or owned, but for what we gave; not for what we accumulated, but for what we allocated. (…) For each of us money became more and more a way to express the longing and fulfilment of the soul.’
So, here you see the crux of your relationship with money, and indeed the whole way you lead your lives. Is it about the hunt for more, accumulating money and chattels, ‘making a fortune’? Or is it about infusing your money with your intentions and making you your intentions flow through your money, about how much you allocate, ‘making a difference’?
Why does it matter?
The questions are both relevant and topical. Relevant because they are about the fundamental choices you make about the way you lead your lives. Do you lead them like the Twists did in the ‘70s, and as others you probably know today lead them? And it wasn’t just in the ‘70s. Even today, time and again I hear of people exhausting their time, energy and quality of life in jobs they hate for a significant salary to feed their craving for ‘more’.
Or do you look for an alternative way of life, founded on an entirely different relationship with money?
The questions are topical because consumers in Western economies in particular seem to be reacting against the drive for more. Mindful of the dangers of talking about spirituality as a trend, it does appear that we are moving to a world where words such as meaning, sustainability, conservation, sharing, community are more common than, say, 30 or 40 years ago. And its not just talk. You see the words turned into deeds every day.
Its difficult to say why this is. However, its reasonable to assume, first, that individuals have simply reacted against the work, eat, spend and sleep culture. They are affronted by greed, self-promotion and conspicuous displays of wealth. Or it may be that those messages about the damage we are doing to our selves and our environment are at last getting through and people are seeking in ‘spirituality’ an alternative to materialism. The internet, and its ability to spread new messages rapidly and cheaply has almost certainly had an effect.
This is a mass movement and I saw this last month when I ran in my 16th Great North Run (‘the world’s favourite half-marathon). There were 57,000 of us competing in the race from all walks of life. That is a huge number. Its not just a few hundred, or even a few thousand. It actually equates to a full sixth of the 363,000 who work in financial services in the City of London according to The City UK report.
It didn’t need a survey to work out common traits amongst us. We were all fit and had spent a lot of our time over the summer training for this event. Many, of course, were in the 18-35 age bracket. Probably 95% of us had also taken time and energy to run campaigns to raise money for their causes. A staggering £26 million was raised by runners in the 2016 GNR (the latest available figure). What’s important here is that we were a crowd of people out to make difference and to make the world a better place, not just for us but for others. We were a crowd happy to allocate our money and energy, not to accumulate it
The accumulation worldview
So why are we driven to accumulate ‘stuff’ and money?
Lets consider money first. Its not difficult to understand the desire to accumulate and often its pretty reasonable. One answer is fear – fear that we won’t have enough, fear that our money will run out, fear we may loose our jobs and be without an income. Fear that there is not enough and never will be. I recall one client some years ago who insisted on never having less than £100,000 in cash in his current / savings accounts, just in case. In this mindset, ‘even too much is not enough.’
A second answer is prudence – saving for that time in the future when our income from employment will end, saving to ensure we are not a burden on the next generation, saving as a buffer against emergencies. And to be fair, neither I nor anyone else is knocking saving for these reasons. Mother Theresa may have lived her life without holding cash, but we are not all born to that way of life.
A third reason lies on our own worth and the assumption that more is better. Sadly we often value our self worth in terms of our net worth, a drive for more and more so we feel better and better. That cannot be healthy when you think about it, because it forces you to undervalue your true worth made up of your character, skills, connections, energy, vision etc. It pushes you further into that vicious circle of eat, sleep, work, repeat. It prevents you from using your resources to make a difference because you are concentrating on making a fortune.
And often that money is channelled into ‘stuff’, often for the same reason, because it enhances our perceived self-worth.
Whilst accumulating capital is important for long term security and to avoid becoming a burden, it also means capital is not working as it should. Its like that old jacket thats been in the back of the cupboards for years, doing nothing. Far better that it should have been sold second-hand or donated to a clothes bank so that it can be used. The same applies to money, which is one reason why in the UK trust law prescribes the maximum period money can be held in trust before it must be distributed.
So here we can see how our relationship with money and with ourselves shapes our decisions on how we earn, save and spend money, and how this relationship can take us down the route of prudence or of unintentional self-harm.
The allocation worldview
Here the mindset is entirely different. Its one of knowing that we have enough and are enough. This does not mean to say we are without ambition or drive. Rather. it allows us to life with integrity and to use our skills and money not to accumulate more but to express our values, aspirations and ambitions.
In this mindset, we value what we already have, conserve it, steward it and use it as the vehicle for our best intentions.
Rather than accumulate money, we let it flow towards us and away from us in ways that preserve and enhance our integrity and enable us to make a difference. Indeed money used in this fashion has much more power than money we accumulate precisely because it becomes the vehicle for our intentions, aspirations and values. In so doing we make a difference in the world, and that is the source of meaning in our lives.
One of Christianity’s core precepts is that it is better to give than to receive and I do believe (emotionally rather than from any hard evidence) that when we give, it comes back to us, albeit in a different form and unexpectedly.
I have had my own experience of this. Back in the early 2000s I was offered share options in a then small company with whom I had chosen to partner. Over the following years I developed a successful business, partly on the back of that partnership. However, its success was as much in the happiness and comfort I gave to clients as in the financial rewards. On reflection, I probably gave away more of my time for free or at a below market rates than I should have. Whilst I lived comfortably off the business, I did not make a fortune. However, I provided an exceptional service to my clients with honesty and integrity.
Then, early in 2018, after I had wound up my company and some 20 years after I purchased those share options for less than an average meal in a restaurant, and which I had more or less forgotten about, the company floated and I found myself the recipient of cash and shares worth a significant six-figure sum.
In my own way I saw this as the world giving something back to me for the significant time and effort I had spent on designing and providing a service for my clients which provided for them value far in excess of the fees they paid me.
The accumulation – allocation spectrum
We see the difference in attitudes between the so called Baby Boomers (those aged between 55 and 75) and the ‘Millennials’ (those aged between 20 and 40). Foe Baby Boomers, the emphasis of their financial life has always been on possessions, capital accumulation, having more and being seen to have more. Money for the Boomers is a significant measure of self-worth and a symptom of the fear that the money will run out.
For Millennials, on the other hand, the mantra of the day is ‘use, don’t own’, so renting is preferred to owning (which is seen as a burden and a shackle). Don’t buy a car, use Uber. Don’t by albums or DVDs, rent them from Spotify and Apple or Netflix. Don’t buy apps, subscribe to Setapp. Don’t buy a holiday home, use Airbnb. In may ways the Millennials are more in the mindset of allocating rather than accumulating and spend and earn their money with intent to make a difference and conscious of the impact it will have.
And what if you are not financially well-off? you may have little choice as to whether you allocate or accumulate. Money that comes in will probably go straight out again. But that does not mean you cannot spend with intent, to make a difference. Every spending decision you make will have an impact somewhere. Money spent in one way may support child slave labour in a distant part of the world whilst money spent in another way may minimise the impact you have on the environment and planet.
Finding the balance
Its not back or white, either or, heads or tails. It is, as always, a question of balance which leads on to the question of deciding where on the spectrum between allocating and accumulating you want to be and achieving that balance.
You will not be surprised by my suggestion which is to indulge yourself in a bit of life and financial planning.
Clarifying your values is a good start point. Once you have done this it will make those spending (and earning) decisions easier to make.
Working out your long term cashflow is a part of this process and is particularly important for getting this balance.
To do this you need to work out your aspirations and related spending plans. These spending plans form your spending boundaries, within which you have the freedom to live your life as you want.
And financial literacy is important. You cannot make these important decisions without some degree of financial literacy.
So those everyday spend or save questions have some real depth to them. I recommend giving them a lot of thought, preferably more than the simple financial balancing act that normally informs your decision. if you carried out the appreciative review I recommended last month you will have a much better idea of the true value and nature of your money. With that insight, it makes sense to consider deeply whether those assets should be accumulated and frozen or allocated and allowed to flow and carry your intentions with them.
That is for this month. I hope you found it worthwhile. Next month we will be looking at neuroscience and how what scientists are discovering about the brain can help you to master your life and your money.