Some years ago, while feeling panicked about my finances, I came across some fascinating research into the science of scarcity by Sendhil Mullainathan, a behavioural economist.
What he found is that the qualities we might consider part of someone’s character, such as impulsive behaviour, poor performance in school, or poor financial decisions, might arise out of a “scarcity mindset”.
In essence, the perception that you don’t have enough can lead you to make irrational decisions, which in turn induces more scarcity. It becomes a vicious cycle.
I had just come out of a situation where the debt I was personally liable for was overwhelming. I lay awake at night worrying about it.
Debt has always made me uncomfortable, but if financial institutions are good at selling anything, it’s that.
Your rational brain knows you shouldn’t be taking on debt, but your baser instincts take over.
The timing of the article could not have been better. As I read it, apart from a manageable mortgage bond, I was debt-free.
The relief was immense. I had no desire to go back to that anxiety-ridden state, always borrowing from Peter to pay Paul.
But I also wasn’t earning an enormous amount — I’m a freelance writer, after all — so the time had come to make doubly, triply sure I was living within my means, but from a position of “I have enough.”
I remembered a family friend, Aunty Wendy. Her husband was the breadwinner, she didn’t work outside of the home, and they had four very active, very hungry children.
Often when our family of five and their family of six were together, my mother would peer into the pot or the oven and ask Aunty Wendy, “Do you think we’ve made enough?” She always replied, “We’ll make it enough.”
I decided that would become my mantra.
From a financial point of view, it’s the best decision I’ve ever made.
I have improvised. I have done and made things myself. I’ve stretched ingredients. All those small budgetary actions add up to larger savings.
I decided that outside of my bond, I would replace borrowing with saving.
My car was a second-hand cash purchase. It’s 16 years old, and I will drive it till it dies.
I have helped both my daughters to save up and buy their cars for cash. I have dipped into my credit card once or twice for emergencies, and paid it off as fast as I possibly could, usually within two or three months.
As my payments come in for the work I do, I add a set percentage of post-tax money to my little savings pot, and I live off the rest.
And over time, via the magic of compound interest, it has started to reap dividends. (On the subject of compound interest, it’s always better to have it working for you rather than against you.)
It has taken discipline, self-restraint, and the willingness to go without many little luxuries, but it has also been gratifying to buy appliances for cash, for example, knowing that my finances won’t be decimated by the repayments.
Am I fabulously wealthy? No. But I’m solvent, and my finances are in good shape.
My credit score is sky high, so I was able to buy a house in a nicer neighbourhood, which I will start DIY-ing to fix up very soon.
I know that I make far better decisions now that I’ve decided to “make it enough”. The evidence is all around me.
Most importantly, though, I sleep at night. Yes, as a freelancer my income is feast-and-famine, and that’s always tricky to manage.
But I’ve been doing that for a long time and I’m good at managing my cash flow.
Nothing compares with the relief of not having that enormous debt hanging over me. I’ll take peace of mind any day over an extravagant lifestyle.
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