Setting up and establishing a business is hard, really hard. The early years are filled with doubts over where the first client is coming from and then the next, and the next. Asking yourself was this the most stupid thing I've done, why didn't I just get another job?

What if this happens?

What if that happens?

Should I do this or that?

If I spend money on this will I get any value?

You are the business owner, adviser, researcher, marketing department, administrator and every other role that is needed to run a business.

It's little wonder why most businesses don't reach their fifth birthday.

There also many positives: working to your schedule; being there for the children, not your boss; having autonomy over the decisions you make; being master of your own destiny.

There was also one big benefit that I didn't fully consider when setting up the business and losing half our household income (and then all of it when my wife was made redundant). You soon find out what it is that is most important to you and what are luxuries you don't really value.

Hedonic Adaptation

As our earnings increase, we tend to adapt our lifestyles accordingly. Pay rises and bonuses as our careers progress mean we can have nicer holidays, eat out more, buy more stuff. Behavioural psychologists call it Hedonic Adaptation.

But how much of that is really valuable to us? Quite probably not much of it.

An enforced spending fast enabled us to focus on and be more grateful for the simple things that are available to us. Don't get me wrong, it wasn't that we didn't miss the little luxuries (Sky Sports, eating out more, summer holidays abroad) but it did mean we no longer took the everyday things for granted.

Consider the high earning couple who work hard so they can afford a nanny to look after their children.

Or the executive at the mercy of their smartphone so that they are never really present with the children.

Or paying for the expensive gym or golf membership that you never use.

I'm not against these particular lifestyles, everyone is entitled to choose how they to spend their money.  But I question if they are truly valued and how much they are a part of an unvirtuous circle. "We have worked so hard we need an expensive holiday to recover. But, we need to keep working harder so we can continue to afford those expensive holidays".

Solid Foundations For Financial Freedom

Cutting back the expenditure has two further benefits beyond working out what you truly value:

1. More money is freed up to put towards creating financial independence. A smaller pot is sufficient to fund a lower-cost lifestyle so less money is needed to be financially independent.

2. Having stripped back our lifestyles to the basics, as the business grows and the it is possible to pay myself more we have the foundation to work out how to prioritise our spending.

This exercise highlights there are some things we have missed and do value and also how much we can dedicate to our long-term priority of financial freedom and ensuring our future selves can do the things they value most of all.

If you want to make sure you are doing sensible things with your money please do get in touch.