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).
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....
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.
Great idea to only spend what you earn. You could also earn more, no? Why only half an income when there are two of you plus an older teen?
ReplyDeleteYou are right; earning more money is always an option, but living within one's means is always the golden rule. Where we live, professional wage jobs are scarce. My job is 0.5 FTE. My husband was working seasonal and didn't accrue sufficient time for unemployment compensation. He's been on a "wait list" for some time, to get his old job back. Finally, it's looking promising that he'll return to his job, which is also part-time. Our older teen has been looking for work as well.
ReplyDeletehttp://www.indeed.com/m/jobs?l=Bend%2C+OR
ReplyDelete