Everyone is talking about inflation these days.
The price of gas, groceries, travel, and just about everything else seems to rise each week.
Here's one way to respond: adopt a mindset of scarcity. Feel like you never have enough. Stop spending on the things you love. Live a spartan life so that you can go back to feeling financially secure.
Here's another way to respond: adopt a mindset of delusion. Pretend that inflation doesn't even exist. Spend your savings. Max out your credit cards. Insist that everything is fine, even as your bank account dwindles down to zero.
Here's a better way to respond. Get clear on how your spending fits into the following three categories.
Must Dollars: These are the fixed costs of life that you probably can't change (utilities, groceries, mortgage/rent, cell service, etc.).
Meh Dollars: These are the spending categories that have almost no impact on your level of happiness.
Magic Dollars: These are the purchases and experiences that bring you joy. They're happiness multipliers, amplifying meaning, fulfillment, and purpose.
The conventional financial wisdom ignores these distinctions. When money gets tight, it tells us to cut back across the board.
We want to invite you to explore something radically different.
Keep your must dollars, cut your meh dollars, and double down on your magic dollars.
Here's how.
1. Track your spending
Before you can identify your Must, Meh, and Magic Dollars, you need one essential ingredient: data.
Use some kind of system to categorize your monthly spending. It doesn't need to be fancy. A spreadsheet works. So does an app. The important thing is turning the total leaving your bank account into useful categories such as gas, groceries, restaurants, entertainment, utilities, travel, and clothing.
2. Talk about the ROI of spending with your partner
Pull up your categorized spending for the last month. Then sit down with your partner and discuss each category.
For each category, ask:
"Is this just a fixed cost of our life?" If yes, label it as Must Dollars.
"Does this have any meaningful effect on the quality of our life?" If no, label it as Meh Dollars.
"Is this something that brings us joy?" If yes, label it as Magic Dollars.
You may not agree on every category. One person's Magic Dollar is another person's overpriced pumpkin spice latte. That's part of the exercise.
3. Shift Dollars From Meh to Magic
Now for the fun part. This involves asking two questions.
The first is the hard question:
"What would you need to do to ruthlessly cut your meh dollars?"
If you don't care about having the latest styles, for instance, could you cut your clothing budget by 75%?
If you don't care about eating out, could you cut your restaurant budget by 50%?
Now for the second, more exciting, question:
"Which Magic Dollar categories could you spend two or even five times more on?"
Suppose you love traveling. Could the money saved by cutting Meh spending allow you to double or triple your travel budget?
Suppose you love working out. Could you join a better gym with great classes and amenities—while still reducing your total spending?
Of course, Magic Dollars (unfortunately) don't grow on trees. But you can find them. It's just an exercise of getting clear on how you can free up the dollars you spend on things that don't really matter and spend more on the things that do.
"The big idea is to change the way you think about spending from the idea that inflation means cutting back on everything to seeing it as an invitation to spend less on Meh, more on Magic."
Want to go deeper? Check out Ramit Sethi's book I Will Teach You to Be Rich. It has all sorts of tools for building your finances around this idea.