Mind Games to Control Spending

Between job losses and investment losses, many of us have a need to reduce spending. However, when it comes to maintaining lifestyles, momentum is difficult to overcome. Adjusting the way you think about wealth might help.

Sometimes a big price increase can jolt us out of an expensive habit. People who lose their jobs often keep paying for ultra cable TV service, but what if its price suddenly rose 50% or more? Even people with healthy finances might drop down to a lesser cable package in the face of a big price increase.

This brings me to the mind game. What if we stopped measuring wealth in dollars and instead measured it in units of our favourite index ETF, like XIU for example. XIU holds stock in the biggest businesses in Canada. Each unit represents a slice of various big companies, which includes real estate and many other valuable assets.

In contrast, money is just pieces of paper, bits of metal, and electronic data that have very little inherent value. A unit of XIU has real value that the roughly twelve loonies it currently costs to buy the unit do not have.

So, instead of having $300 in my chequing account, I might think of it as having cash whose value is 25 units of XIU. In this view of the world, the 1000 units of XIU in my retirement account haven’t changed in value. What has happened is that cash has become expensive.

By this measure, most other things have become expensive too. Nine months ago, I could buy two cases of beer for about 3 XIU units, but this is up to 6 units today. Taking this view the price of consumer items has shot up over the last several months. This makes the need to cut back on spending more obvious.

All of this may be just a mind game, but if people need to spend less and can’t do it, maybe a mind game is just what they need.