I’m going to introduce the term “Purposeful Trade” to you.
If you’re not new to the journey of financial freedom, I’m pretty sure you’ve come across articles espousing the virtues of saving by cutting down on ‘unnecessary expenses’.
I’ve come across countless articles and curated lists that teaches you how to start taking control of your finances by cutting down on waste. Sentences like “stop buying that cup of latte from Starbucks, if you cut spending RM20 weekly at Starbucks, you could save RM1040 per year!” will seem familiar.
There’s even a book written about it called The Latte Factor.
In the grand scheme of things, it sounds like a good advice. But the advice is superficial and doesn’t dig into the psychology of spending money.
I don’t think this advice works, here’s why.
Coffee is not just coffee
Money is just money – it is an inert object that doesn’t have feelings, doesn’t care about you and serves no purpose other than being a medium of value exchange.
You trade your time to earn money at work, and you spend that money to continue living. In essence, you trade your life for things that you think is important.
Get this concept straight. Money is not equal to wealth. Having lots of it means you’re wealthy, yes, but the physical paper itself is worthless. It’s the idea, and the guarantee behind that piece of polymer that is valuable.
In much the same way, coffee is not just coffee.
For avid coffee drinkers (like yours truly) who couldn’t survive a day without their shot of caffeine, having a cup of good coffee can truly make a difference. The aroma of roasted beans permeating through the kitchen in the morning is enough to trigger an emotional response in our brains. That perfect cup of coffee signals a new dawn and enables caffeine-addicts to have a good start.
In other words, coffee brings happiness and catalyses productivity (for some people).
Find Meaning Behind Your Spending
Things that we trade our life for actually has some underlying meaning that we don’t really pay attention to.
Why do some people justify paying RM20 for a Starbucks latte? Perhaps it’s not the latte itself that the person is paying for, but the whole experience. From standing in line, interacting with the cashier, sitting down at the plush comfortable chair and just generally enjoying the ambience, perhaps the person feels that this is worth trading RM20 worth of his or her life for.
At the risk of sounding like I’m defending spending RM20 on a Starbucks latte, hear me out on my idea first.
Every dollar you spend on has some meaning to it. Discovering that meaning is the first step to really taking control of your finances and realign your values with your monetary habits.
Spending money is not an inherently evil act in itself (as I type this, I can feel a disturbance in the Force, as if millions of FIRE bloggers cried out in terror and were suddenly silenced).
On the contrary, I propose a way of approaching your spending by attaching meaning to it – I call this Purposeful Trade.
You are essentially trading your life for money. When you spend that money, you are trading your life in exchange for something of value. The value of that substance is different from everyone, and it’s determined by your own perspective of life.
For this reason, some will think spending RM20 to sit in Starbucks as worth it, while others would never be able to justify it. Personally, I indulge myself once in a while, simply because it brings me happiness, and as I value my mental health, I think this particular Purposeful Trade is worth it.
The central idea behind Purposeful Trade is to find what gives your life meaning, and start mindfully spending your money by attaching a purpose to it. Every time you take out money from your wallet, or tap on the credit card terminal, attach a purpose to the trade.
- Does it make you happier? Could there be another way to achieve the same happiness level by spending less?
- Do you absolutely need to buy it to achieve some goals in life?
- Are you buying just because you feel empty and you need some sort of fulfillment?
Sometimes, people spend money on things others could never justify. Like the guy who spends money collecting Lego sets. Or the vintage car aficionado.
There is no right or wrong. What matters is figuring out your values in life and aligning your financial expenditure to fit the criteria of being a Purposeful Trade, then cut back on all the others that don’t fit this definition.
Making Purposeful Trade a Central Part of Your Spending Habits
How to start practicing Purposeful Trade in your life? Here’s a quick step-by-step guide, but you should adapt it to your own circumstances.
1. Track your expenses
Ever since I can remember, being financially free is my goal. But I’ve always failed to understand my own psychology of spending until I started to keep track of all my expenses.
By tracking your expenses, you force yourself to confront your money values and gives you a way to start practising Purposeful Trade.
2. Justify a purpose for every expense
By finding meaning to your spending, you remove the ambiguity and gain a sense of clarity to your own financial habits and your attitude about money. You also remove the guilt of spending money on things that bring you some other intangible benefits like happiness, good mood and a forgiving soul.
If you couldn’t find any reason why you bought that thing or paid for that service, it might be time to cut it out.
3. Spend Less Than You Earn
When you’re able to attach a purpose to every financial outflow, you’re able to see your own patterns and develop an insight into why you’re spending.
The ultimate goal is to be able to spend less than you earn and take control of your finances.
Don’t stop splurging on latte if it has meaning to you
The aim of this essay is to make you rethink the way you spend money.
Without meaning to your spending, you will spiral down the bottomless pit of modern consumerism.
Finding the purpose to your financial outflows will automatically force you to be consistent and true to your goals.
So the next time you feel like splurging on that RM20 latter from Starbucks, ask yourself:
“Is this a Purposeful Trade?”