DON'T SPEND MORE THAN YOU EARN

Before getting into this week’s blog entry, I want to thank my friend, Cat, for reading my first blog entry and for providing me with some really good comments. 

So this first rule I talked about last time: “We Don’t Spend More Than We Earn” really translates to living within one’s means. 

 

I was thinking about why it is so difficult for us (“us” being the average American) to live within our means.  I have my hunches, but before I delve into my hunches, I was thinking about the fact that during my parents’ generation, individuals or families had a much, much better handle on their spending habits.  I have vivid memories of my father writing down, in his ledger, the following information:

Check no     Check date     Check amt/location     Deposited     Total

The most amazing thing is that his numbers, his ledger, was spot on with that of his bank statement.  I’m guessing that as I write this, my 84 year old father’s ledger is still spot on with that of his bank account statements.

Aha!

So my first hunch is that the way we spend our money today tremendously influences – no, no, I’m going to go even further than use the word “influences” …The way we spend our money today direct impacts – may even be the cause of – personal financial imbalances. 

I want to take a closer look at this seemingly simplistic yet ever elusive mantra “Don’t Spend More Than You Earn” in more detail.  It sounds so simple and so simplistic.  It is, sort of  -- but very few people adhere to this principle.  I want to delve into this more and find out what some of the obstacles are to achieving this.   

Is it because Andy and I are so discipline with our money and most everyone else out there isn’t?  Maybe that’s part of it.  Is it because of “American greed”?  Maybe that’s a part of it too.  Is it because of the access of so much stuff out there in the marketplace?  And maybe that’s a part of it as well.   

I think it that much, most, if not all of it is our instant access to plastic money, in particular to credit cards.  You don’t have to have the money in your bank at the time of purchase, nor do you have to make a full payment for a month, 3-months, 6-months, a year. In fact, the credit card companies make it much easier for you to make itty-bitty payments over a long period of time (at a tune to 18% interest – thank you very much for allowing us to make you pay at least twice, if not thrice, the value of whatever it is you just swiped).

 

 

 

 

 

 

 

 

 

 

 

 

 

It is kind of hard to talk about not spending more than you earn, or living within your means, without addressing the credit card.  But I’m going to try to, as best I can, address them in somewhat distinct parts. 

 

I want to state something up front.  My goal is not to make anyone feel bad about what they buy or how they buy, nor is it to get on my high and mighty bully pulpit about what I might think about credit card companies and extreme and deceptive marketing.  My goal is to inform, maybe enlighten and hopefully provide ideas and a forum to make positive changes.   

 

And of course in the end it’s up to each and every person to take a look at their spending habits and see if anything glaring jumps out and says to you “I’m the culprit” of your financial woes, or whether there are a lot of little things you see that need tweaking.   

 

And if you might be thinking that little tweaks don’t amount to much of anything, I urge you take a look at this web page by Leo Babauta http://zenhabits.net/my-story/   

 

What does this mean for you?  What it means is if you want to gain control of your spending habits and ensure that you are not spending more than you earn, the first thing you need is information. 

 

What kind of information?  You need to get a handle on your expenditures and your earnings, just like my father did – and still does – with his hand written ledger.

 

Financial Dieting  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

You know how folks who are interesting in losing weight are often told to keep track of everything they’ve been eating during a set amount of time (usually several days) and track their caloric intake and their food categories?  The reason they do this is to develop an awareness of their eating behavior.  Once they’ve developed awareness, they can start making incremental changes toward their goal (in this case losing weight by changing their eating habits). 

 

It’s roughly the same principle with respect to gaining control of your finances.  While I do think that most of us have a general idea of where our money goes each week or each month, I also think it’s extremely easy to lose track of the spending train, especially with that plasticky money we love to use (sorry).  And as much as we might believe we’re eating healthily, we can easily overlook those cookie crumbs or those chocolate bon-bon samples at Trader Joe’s or that high caloric powered coffee drink at our favorite espresso stand.  So the same goes with our spending habits. 

 

If anyone has read this far into the blog – now I’m going to ask you to consider trying a “spending awareness” activity.  Obviously one way to see what you’ve been spending each month is to go to your online (or paper) bank statements.  They tell you exactly what you’ve spent.  But that’s a little like counting your calories and food intake from last week or last month.  Yes, it is informational, but I’m not sure how impactful it is. 

 

The absolute ideal way to go about this “spending awareness” activity is to...

 

Pull out your credit cards (and debit cards) from your wallet and stick them in your underwear drawer for the week.   

 

Yes – you need to have a temporary separation from your plastic money.

 

Next, I’m going to ask that you do something very difficult, extremely difficult.  I’m going to ask you to try to make your day-to-day purchases with the good ‘ol US greenbacks or by using your check book (I’m not talking about rent/mortgage payments, utilities, etc…just daily purchases).  Back to the old fashioned days.  Back to the days of our parents (or grandparents). 

 

If you are still with me and willing to give this “spending awareness” (AKA Plastic Money Free Week) activity a go – you’ll need to do it for enough time to collect useful data.  I recommend you try for about a week.  Here’s what else you’ll need to do:

 

1.      For every single purchase you make (no matter how small), get a receipt.

2.      After receiving the receipt, take a moment to look at exactly what you purchased and how much was spent.

3.      If it’s not obvious on the receipt, write what type(s) of goods were purchased (and where).

4.      Collect receipts daily and put them in an envelope or container.

5.      At the end of the week (preferably a lazy Sunday and with your favorite morning hot beverage), pull out your receipts.  Make yourself piles for your different categories.  For example, mine might look something like this:

 

 

 

 

 

6.    Yep – do the math.  Add up the amount spent for each category you made, and then add up all the subtotals.  What you should get is an “average” amount spent (per category) in a week. 

 

Simplistic exercise?  Yes, absolutely.  Difficult to do?  You tell me.  I’m going to challenge myself to do this “Plastic Money Free Week” as well, and my husband has agreed to join me in this venture.  I’ll report back in the next blog what surprised me and what challenged me.  I’d love to hear what you discover. 

 

Again, I realize that this is only one part of the spending puzzle.  We haven’t talked about re-occurring expenses incurred each month, such as: rent/mortgage, utilities, insurance (car, life, health…), car payments, taxes, dues, tuition, cell phone, internet, entertainment (dish), blah, blah, blah.  And we haven’t touched upon ways to rein in our expenses to keep pace with, ah – hem, be less than, our income.   

 

The point of the “Plastic Money Free Week” isn’t to suggest that I think we need to return to the days of ‘cash or check’, or of the hand written ledger, like my father, to keep track of our expenditures.  But the key to gaining the upper hand is: to be aware of what we’re spending; to use some kind of system to track what’s going out versus what’s coming in, and to be able to have that information at the ready to make good, sound financial decisions. 

 

Let's hear your thoughts....

 

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Disclaimer time: I’m not a financial planner, nor am I a business guru.  What I am is a very practical person with (as my mother always said) “a good head on her shoulders”.   I have good common sense and am old enough to have accrued plenty of wisdom and practical sense. 

 

 

 

 

 

 

 

 

 

 

“ANYTHING BUT ORDINARY”



Here we are...your average, run-of-the mill American family.  We are a dad, a mom, two kids, one dog and five cats; all living in an average home in Oregon. 

But I think that’s where the “average, run-of-the-mill” part may end.

My husband, Andy, and I have taken turns going on paternity/maternity/child rearing leaves.  Amongst our family and friends, we are not known so much for "what we do as a living" as much as "what we do".  

As a family (minus the one dog and five cats), we have traveled, volunteered in South America, lived abroad in Spain for a year and couchsurfed our way through much of Europe.  We've done all of this (and more), all while living off the equivalent of *less than one **average American salary.  (at the bottom of the blog I've explained the * and **)

In fact, as I write this, we are living off the equivalent of less than one-half of an average American salary. That’s right, one-half of an average American salary is now supporting a family of four, one dog, five cats with all of our living expenses.

How?  Honestly, not easily, but more on that later.

However, we have come to the conclusion that our family, friends, co-workers and acquaintances must believe that somewhere we have a hidden stash of gold (or maybe a hidden stash of something else), or that we are independently wealthy, or that perhaps we lead secret and double lives as secret agents.  How else could we do what we do and live the way we live?
 

In fact, after each of our travels or adventures, our family and friends always say to us: “Oh, I wish we could do that.  I wish we had the money to do what you do."   To which I say “You do...you can...you have – it’s all about choices.”
 

I’ll tell you the secret to our ability to survive on such paltry earnings.
 

No, we don’t have any hidden stashes of anything, we're not independently wealthy (geez, wouldn’t that be nice!) and we're not double agents (at least I'm not...).  I’ll tell you how we live on so little and how we do so much, but here's the thing.  You need to believe us. You need to accept that what I’m telling you is the truth, the whole truth and nothing but the truth.
 

Okay, so no pot of gold; there’s no tricks up the sleeve; there’s no ace in the hole and there’s no magic, hocus pocus. I swear on a ***mountain of cat fur.

Okay, so what’s our magic secret? How can we possibly exist on one-half of a salary??

First off, I will tell you that life on one-half of a salary isn’t exactly our ideal financial situation. We’re not aspiring to live with such austere financial constraints.  Life happens and when it does one adapts accordingly. 
 

Next, our one-half of a salary does not include supplemental income we derive from other things we do or have done.  That's called being resourceful and that too is another topic for discussion.
 

And after all of that hype, I’m probably going to disappoint you by stating that there really isn’t any magic, and the reality is - that it isn’t much of a secret either.
 

There are two very simple (but perhaps not so simple) rules that we abide by faithfully, fervently, religiously. That’s it – nothing more. Nothing fancy, nothing sexy and nothing that you can’t do.

Before I continue, here's my first disclaimer.  I’ve decided to write this blog “Living on a Golden Shoestring” because I know so many people who earn substantial sums of money and as I stated earlier, have said to us “I wish I could do what you do. I wish I could travel and live abroad for a year like you did.”

They also say things like:“I can’t…I don’t make enough money”…or...”I spend too much money”…or...”I have too much debt”.  

I sometimes scratch my head and wonder to myself "So what is it that we do so differently than others?  How can we manage to earn relatively little money, yet live such enriching lives?" 

I think I know some of the reasons and I've been thinking that perhaps there's an opportunity to share the things we do (or the things we don't do).  I've also been thinking that perhaps by sharing, there's an opportunity to help others who are struggling.
 

I'm interested in creating a space to not only discuss what we do or don't do, and how we do what we do or how we do what we don't do, but also to create a community dialogue around issues of obstacles (real or perceived) dreams, desires and financial burdens.  Furthermore, I want to find ways for each of us to help one another with our common dreams and struggles.  I love to write and I especially love to write about things I’m passionate about. 
 

Okay -- Let’s go back to this thing of choices and I’ll explain a bit more about how we manage to do what we do.
 

Rule #1 is this: WE DON’T SPEND MORE THAN WE EARN.
 

That’s it. This should seem super duper simple, but somehow it isn’t. Our lust of stuff, our wanton need to be surrounded by material possessions often makes this first tenet untenable. Does it mean we don’t have stuff?  Oh, we have stuff and plenty of it. We have laptop computers and iPods and cell phones and clothing and books and cat fur – but we don’t have excess (except the cat fur) and the way we buy things – well, that’s a topic for another blog entry. Simple as pie, easy as 1-2-3. We just don’t spend more money than we earn.  I do want to spend much more time with this topic in other blog entries.  My goal for this initial blog is to just lay out the basics.
 

Next comes our Rule #2.  Rule #2 is directly related to Rule #1 (see that bolded underlined text up there)
 

Rule #2 is this: WE DON’T LIVE WITH ANY DEBT.
 

Okay, I lied just a little bit about this rule. We do have mortgage debt, you know the “good kind of debt”. We can argue about good debt versus bad debt, carrying a mortgage versus renting, but the bottom line is that have no credit card debt.
 

How?
 

You want to know how?  Simple – we pay off our credit card balance every month. We can have another discussion about the benefits or detriments of using a credit card. We use our credit card for our daily purchases (fuel, food, etc.) and primarily as a means to earn points. The points can then be used toward frequent flyer miles, to purchase stuff, or for the redemption of a gift card (which can then be used as cash).
 

Every month, when we look at our credit card bill and it shows the minimum amount we can pay or the balance, guess what we do…we pay the balance. Does it take discipline? Yes. Is it a lot of money to pay? Yes. Is it the right thing to do? Yes.
 

There you have it. Simple as that:
 

• WE DON’T SPEND MORE THAN YOU EARN

• WE DON’T LIVE WITH ANY DEBT (slight disclaimer noted for mortgage debt)

I know it’s not as simple as that for the vast majority of people. Once you develop certain buying habits and have accrued a mountain of debt, it’s very, very difficult to get out from under it all. So, what I want to do is to develop blog entries about ways to slowly change habits to eventually get to this point (what we’ll call liberally call “debt-free, unencumbered living”).
 

In the meantime, what’s on your mind?  What are your thoughts on these topics?  Other thoughts?

My goal is to try to post one blog entry per week.  I want to delve into each of these topics in much more detail, as well as talk more about other things. 

You can either subscribe to the blog or leave comments at the bottom.  Let's have a hearty and healthy dialogue, but please, please, please -- let's keep it civil and spam-a-lot free.
 

It's time for another disclaimer:
 

I’m not a financial planner, nor am I a business guru. What I am is a very practical person with (as my mother always said) “a good head on her shoulders”.  I have good common sense and am old enough to trust my inner core and follow my instincts.

Yet one more disclaimer (otherwise known as *, ** and ***):

*Our salaries have varied from a low of less than one-half of one salary to a high of slightly over one average US salary, throughout our many years of parenthood.  In times of plenty and when circumstances have provided monetary gain, we live by the "rainy day fund" philosophy.  More on that in another entry.
 

**The median (average) household income in the United States is about $50,000.

***We have at least one mountain of cat fur in any given week.  Any ideas on what to do with cat fur?