How To Cut Your Carbon Footprint by 50%: What We Can Learn From Ramit Sethi and Personal Finance – Part 1

technotheory

This is the first part of a long post, but worth it.  Go grab a cup of coffee.

Our choices and actions aren’t always rational, like lifestyle choices.  This is what science, experience and economists show us again and again.  To make smarter choices we need a path that accounts for that, otherwise, we’ll miss opportunities that we might regret later.

Make smarter choices

My personal goal is to show you ways to make better choices.  How do I know you want to make better choices?  Because that’s what you tell me!  Here’s a summary of a conversation I have over and over again with people at seminars, surveys and focus groups:

I am concerned about the environment, really.  But I’m not an environmentalist.  I like a lot of my stuff.  I really don’t want to deprive myself.  But, I feel some guilt.  I don’t think we live as responsibly as we can.  I want to do the right thing.  I want to set a good example for my children.  I recycle!  I read green tips and try to do them.  But, what I’d really like to know is how can I do more?  Is there a strategy?  And can I do the right thing without having to deprive myself of the things I love?

Does this sound familiar to you?  What strikes me about this is two things:

1. The assumption that to live responsibly (or do the right thing) means a drop in the quality of life
2. That people say one thing, but they do another

Where to find solutions

I look for solutions in places others don’t.  What I do, is look around and see where these same patterns are already being solved successfully.

So, where else do we see patterns that account for human nature?  Personal finance.  And there is one individual in particular who I think has an approach that successfully deals with often-less-than-rational behaviors we all have from time to time.

Ramit Sethi is the NY Times Best Selling Author of “I Will Teach You To Be Rich”.  I know, the title sounds like a scam, and that’s something Ramit has had to deal with.  But his results speak for themselves.  Check out his website here.   I personally used his system to save just under $10,000. Note: I am not selling anything with this link, and there are no affiliate relationships between Ramit and I.

What are the problem patterns?

Here are the common issues that people run into when sorting their personal finances:

• There is the feeling of being judged for wanting what we think is “frivolous”. Ramit recounts a conversation with a friend of his that goes, “You probably won’t approve, but I want to go the Carribbean.”  Ramit replies, “Huh?  Why wouldn’t I approve? . . . Apparently he thought of me as a Finger-Wagging Money Judge, as if I silently disapprove of him for spending his money on something ‘frivolous’.  In other words, someone who writes about personal finance is automatically ‘the guy who tells me I can’t do stuff because it costs too much money.’”
• There is the need to keep up with our friends and peers, and this can push us away from being frugal and conscious  spenders
• The misunderstanding of the word “frugal”. Ramit says to understand it as “choosing the things you love to spend extravagantly on – and then cutting costs mercilessly on the things you don’t love”.   He adds, “The problem is that hardly anyone is deciding what’s important and what’s not, dammit! That’s where the idea of conscious spending comes in.”  For example, he goes on to discuss, “My friend spends $21,000 a year on going out – guilt-free.”

What are the solution patterns?

Here are the patterns I found in Ramit’s solutions:

• Know what you care about and value in a prioritized list
• Account for human nature, don’t pretend it doesn’t exist. His system permits for “frivolity” or spending on things you love, so long as you’re smart about it.
• Go for the big wins. Tackling the places where you spend the most frees up money for other things that you value more.
• Conscious spending and the proper understanding of “frugality”. You need to spend consciously to provide for yourself in the long term, as well as to spend freely now.
• Spend for the long term and the rest is guilt-free to spend now

How to plan to spend consciously?  Here are Ramit’s guidelines:

• 60%  Fixed Costs
• 10%  Long term investments
• 10%  Savings goals
• 20%  Guilt-free spending money

This may lead to some questions, such as “What if you want to spend more than 20% of your take home pay on guilt-free purchases?”  In his bestseller, Ramit responds,

Bad answer: decrease contributions to long term investments and savings

Good answer: pick the three biggest expenses and optimize them to get the additional money required for guilt-free purchases

Once people start this, he finds that they become inspired by the changes, and start to modify their behavior even more.  He adds, the “idea of sustainable change is core to personal finance”.  So he suggests making realistic goals and implementing a strategy to reach each goal, collecting success after success.  Good goals are measurable, realistic and meaningful.  “Don’t just save, save for a goal.”

By now, this should sound very familiar to readers of Smarter Context.

My next post will show you what all of this has to do with “going green”, and translates these patterns into solutions that will make dramatic changes to the quality of your life.

Stay tuned . . .