Take an Imaginary Do-Over
Imagine everything you owned was lost in an insured catastrophe. Your debts were paid, and you had a lump of cash big enough that you were left — financially — in about the same position you're in now, but you had no possessions except the clothes on your back, a small box of your most precious mementos, and a USB drive with all your photos.
Go through the mental exercise of figuring out how you'd deploy that cash to best satisfy your needs and wants. (See also: The 4 Most Common Unnecessary "Needs")
Start with the little stuff:
For a lot of people, this is the most fun category, because a lot of people bought cheap crappy furniture so they wouldn't have to sit on the floor, and then found themselves stuck with it — because who can afford to replace perfectly good furniture just because it's cheap and crappy?
How much is stuff you wear every week? How much is special-purpose (swimwear, interview clothes)? How much is too big, too small, or just not quite right?
How many are for sports or hobbies you've abandoned? How many are duplicates because your spouse also had one, or because you couldn't find the one you had when you needed it?
Your Dishes, Pots, and Pans
How much of your kitchen and dining utensils only get used for two meals a year?
Then go on to the big stuff:
If all your vehicles were gone, what would you replace them with? If you can get by with one less vehicle, you can save a huge amount of money — it costs over $8,000 a year to operate a car.
If you've just lost all your stuff, you probably don't need as much room. If that means you could fit into a smaller house, an apartment instead of a house, or a smaller apartment, that could save you a huge amount of money. More importantly, it could go on saving you money for years to come — lower taxes, less maintenance expenses, lower insurance premiums, smaller monthly payments, etc.
I wrote a lot of posts back in 2007 and 2008 trying to convince people that houses were a poor investment. (For example, Renting Is Cheaper, Your Equity Was Always Imaginary, and What Your House Is Really Worth.)
That's not such a hard sell now as it was then. A lot more people are ready to think of their residence as a place to live, rather than imagining that it's an investment.
Some people enjoy going through this mental exercise. Imagining that you could wipe away all the errors you've made in accumulating stuff that you don't need is fun. But it's still a fantasy. The reality is tougher. Most of your stuff couldn't be sold for anything like its replacement cost. (And nobody's life is so bad that it'd be improved by going to jail for insurance fraud.)
But I think the mental exercise of imagining what you'd do is still worthwhile, because it's a way to understand what you really want.
If you understand what you really want, you can make progress toward it, even if you can't take the big leap of replacing all your stuff with cash. If you know you'd like to move to a smaller place, you can prepare by getting rid of clothes you no longer wear and hobby gear you no longer use. Over time, you can downsize your footprint enough that you'd fit in that smaller house. In the meantime, you get to enjoy a more relaxed, less cluttered house.
The reality of losing everything you own would suck. It would be very different from the fantasy of freedom it provides.
But you have something even better than the fantasy of freedom. You have actual freedom. Granted, if you have a lot of money invested in stuff that you couldn't possibly sell for what you paid for it — or worse, if you've got a car that's worth much less than what you owe on it, or if you're way underwater on a mortgage — there would be a cost to actualizing that freedom. But much of that cost could be recouped in fairly short order, if your imaginary do-over life were cheaper than the life you're living now.
Once you start imagining that life, you can start taking steps to prepare for it, and pretty soon after that, you can start taking steps to move toward it. Fantasies can come true in the best way.
As one of the early steps, I suggest that you create that thumb drive of your photos, because fantasies can also come true in the worst ways.
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