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Ramit Sethi says many people assume if they spend more on something, it’s because they do more of it. Here’s why that’s a type of linear thinking to avoid.
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When you’re managing your money, are you guilty of linear thinking?
Linear thinking isn’t necessarily a bad thing in all situations, since it involves taking a step-by-step process to arrive at what appears to be a logical ending point or logical solution.
But, finance expert Ramit Sethi warns sometimes linear thinking isn’t the best way to approach certain kinds of financial issues. Here’s why, along with some tips on how to break the habit of this kind of linear thinking that’s holding you back.
Does this kind of linear thinking sound familiar?
In a recent tweet, Sethi detailed the type of linear thinking which he thinks can be damaging to the way people manage money.
He gave an example of how people respond when he asks them how they would change their lifestyle if they quadrupled their spending on something they enjoy, like eating out. Sethi explained that a common response is, “I’d have to be careful because I’d be eating out 4x/week! Ha ha!”
Sethi doesn’t think this is a good response, although he does find it entertaining. “It’s funny, but it’s also linear thinking. If you spend more on something, it doesn’t necessarily mean you’ll just do MORE of it,” he explained.
This failure to imagine how you could actually change your lifestyle in ways that allow you to get more value for your money is something Sethi warns about because it ends up preventing many people from living what he calls a “rich life.”
Changing your thinking could improve your financial life
For many people, thinking about how they would spend more money may seem like the least of their financial worries. But, the reality is, trying to break free of linear thinking is a good exercise. That’s because you may actually be able to make better use of your money by spending more in smart ways on some of the things you truly value.
The conventional wisdom about money is that if you want to be successful, you have to save more. And, the logical next step for many people is assuming that this means you have to spend less and keep your costs in check across the board. But, that’s exactly the kind of linear thinking that can get you into trouble.
Sustainably increase your spending
The reality is, there are several ways to approach increasing your savings without depriving yourself, including increasing your income. That can make a far bigger impact on the size of your bank account than cutting spending on the things you love. And, rather than focusing on budget cuts in all spending categories, which can be hard to sustain, finding ways to meaningfully increase your spending in certain ways that will really make you happier is likely to make you more willing — and even excited about — cutting other things to make that happen.
Now, this doesn’t mean you should go crazy with your credit cards and quadruple your dining out spending by hitting up a bunch of five star restaurants right away. But, it does mean taking the time to imagine what spending more on things you love could look like in reality. Once you open your mind to this vision, you can try different approaches to making that happen — even if they may not be the next logical step that comes to mind.
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