Back in the day, it was called keeping up with the Joneses.
(Those darn Joneses. First they got a color TV. Then they got a new Studebaker! Now Jimmy’s getting braces and they’re talking about sending Mary to college!!!)
Nowadays, it’s more like keeping up with the Kardashians. (Oh, the new iPhone 6Q is out? Better trash my perfectly good 6P and fork out $800 bucks for the new one. Wait, Kim’s getting a $200 hair straightening treatment every week? Book my appointment. Kylie’s got lip insurance? Maybe I need that!!!)
Why is it that some people are constantly going broke, but have to have the latest and greatest thing, while other people are like the millionaire next door, living well below their means?
In my experience, it’s because these two different types of people have different money set points.
We arrange our life to match our unconscious expectations of the amount of money you “should” have—this is your money set point. It’s based solely in your head, in your wealth mindset.
You have an upper limit that prevents you from busting through your comfort zone, and a lower limit that prevents you from financially crashing. That sweet spot in the middle is your money set point.
The upper limit is the reason why some people can’t sustain making or having a lot of money—think about lottery winners or professional athletes; 80 percent of them lose all of the money they made within a couple of years! That’s because they literally don’t believe they’re worth having that much money, so they blow through it fast and furious.
On the other hand, there are people who have a lower limit problem. They think things like a brand new phone every six months, a new car every couple of years, and premium cable are as important to life as breathing. Every time they start bringing in a little more money, the basics they “can’t live without” get a little more expensive.
If you have a lower limit problem…
Some people’s expenses always seem to go up when they are making more money—unexpected expenses and self-imposed standard of living increases–and go down when they are making less money. So no matter how much they make, they always seem to end up with the same result.
Life coach Martha Beck used to provide pro bono counseling to recovering addicts, and she commented that she was always amazed at how these people would always find a way of paying for the drugs, regardless of their circumstances—and one person she spoke to had a $180,000/year habit! THAT is a serious lower limit problem. (And, you know, a pretty serious drug problem, too.)
This is called your net cash flow. When you’re in that situation, you want to find away to make more money and keep more money, right? And with most things, clarity is the first step. Clarity around exactly what money is coming into your household every month, and clarity on the best use of every dollar leaving it.
If you think you might have a lower limit problem, ask yourself: If you couldn’t do the work you’re currently doing, what amount of money do you know you could go out and generate in another way?
I knew a client once who made really good money, but said, “If everything went to hell, I know I could go out and get a job waitressing and make enough to cover the basics.” Her basics were about $40,000 annually, so that was her lower limit.
Another way to understand your lower limit is to understand what you consider to be essential expenses in your life—people usually find a way of paying for those regardless of their circumstances. What are your non-negotiables? For example, when I was bootstrapping my first business, I cut out a lot of restaurant expenses but still insisted on eating healthy food and keeping my gym membership. I can’t imagine a scenario where I couldn’t afford those things.
When you sit down and really get some clarity around your net cash flow — the money coming in and the money going out — you’re going to have to determine which things are luxuries, and which are non-negotiables.
Remember, there’s no one right answer here. Conscious spending is about figuring out what’s right for you. For one person, their cable subscription may feel like a luxury they can do without. For a die-hard sports fan, the premium sports package might be a non-negotiable.
And yes – to really take care of this issue for good, some people are going to need to delve deep into the mental, historical and behavioral issues they have with money. You have to ferret out all of the ideas and thoughts that contribute to your dynamic before you can change it.
How to raise your money set point
If you have an upper-limit problem…
An upper-limit problem is almost always wrapped up in our self-worth. In his book, “The Big Leap,” Gay Hendricks talks about the upper-limit problem as having “a limited tolerance for feeling good.” He says:
Each of us has an inner thermostat setting that determines how much love, success, and creativity we allow ourselves to enjoy. When we exceed our inner thermostat setting, we will often do something to sabotage ourselves, causing us to drop back into that old, familiar zone where we feel secure.
And it crosses all kinds of boundaries — from happiness and love to money and self-worth.
We get a raise, we get a promotion, we land that big client… And we start to feel bad, feel guilty. We get sick, pick a fight with our partner, run out and spend it all on who knows what.
THAT is an upper limit problem.
To help identify your upper limit, think about an amount of money that you feel absolutely comfortable generating as income on a monthly basis. You should have zero physical reaction to this number.
Now, double that number . . . how did that feel? Did you start to react? If that number was still in your comfort zone, try increasing it by $5,000 . . . how about now? Play around until you find a number that makes you nervous; that’s your upper limit.
If you’re an entrepreneur, another way to understand your current upper threshold is to think about your monthly income and how you generate that amount. You know exactly what needs to happen to create that income, right? So raising that income number and identify how that new amount would get generated. At some point, you might be at a loss as to how on earth you’re going to generate $XX,XXX every month. That’s your upper threshold, your money set point.
To continue playing with your upper limits, I recommend averaging the physical reaction number and the income-imagination number. It’s easy (and I think fun) to calculate how you’re going to make scads of money, but your tummy will tell you how much of that feels like your reality at the present moment.
An interesting side note here is that when I busted through an upper limit, it happened in a way that I hadn’t even considered—suddenly I had made more than $5,000 in a month beyond what I expected to make and totally surprised myself, because I thought I had limited my capacity. Turns out, that was just a story I was telling myself to stay comfortable!
The easiest way to raise your money set point is to consciously plan how you’re going to allocate it. Every year, I make a list of everything I want to spend money on, in addition to my normal monthly expenses and savings (of course, this list gets changed, updated and reviewed several times per year as I think of new things and cross off old ones). For me, this list creates the why behind increasing the upper limit. If I can reasonably predict how I would allocate the money, then I have no internal conflict about generating it.
If you think you might have upper limit issues, you might want to make a list like that and post it someplace conspicuous, to remind yourself why it’s so important for you to raise your limit. The more you tend to “settle” for what you get money-wise, the more frequently you should look at the list.
And if you really think you have upper limit issues, you might want to get some support in generating the list, to help you see the possibility and reinforce the idea of expecting more.
Your money sweet spot.
Your money mindset sweet spot is when you have an upper limit and a lower limit that are working for you, not against you.
My client who could live on $40k a year, even though she was making a lot more? She had a lower limit that was working to her advantage. Giving yourself a stretch goal for your earnings that feels just a little uncomfortably out of reach? That’s an upper limit that’s working in your favor.
Remember: Just because you have a money set point doesn’t mean it’s set in stone. You can work to adjust it, and if you need help, that’s something we can work on together.
So tell me this: Do you believe you have an upper limit problem or a lower limit problem? Or are you already sitting in the sweet spot? Let me know your thoughts on my Facebook page.
No spam. No games. Just timely, insanely useful content to help you grow your money.