One of the finance blogs I pay attention to is IWillTeachYouToBeRich.com by Ramit S. While he uses different language than I do, we have similar takes. I think I required many more punches to the face to learn these lessons than he did though. I’ll throw my 2 cents into the arena of what does and doesn’t work.
Does NOT work: Budgets
My husband is convinced we have a budget. We don’t. We have an “average expenditures tracking sheet”, and if anything goes over average then it get noted such as ‘new tires’. I tried for YEARS to make a budget work, and in my experience they just don’t. They are more a recipe for beating myself up than anything else. Why? Being told “no” all the time brings out the inner two-year-old of rebelliousness. So, no. I do not use budgets as a means of keeping myself in check. Tried that, failed. I still however keep track of every penny in and out – but not for budgeting purposes, for awareness purposes. I know from experience that the moment I start to let spending become something I’m not consciously aware of, that’s when I start to get into trouble.
DOES work: Automatic payments
While budgets have never worked for me, I’ve always worked with automated systems. Direct deposit and on-line banking makes this a piece of cake! What I do is take every bill (variable bills like electricity get averaged from the last year) and add them together. This gives me the monthly “Keep The Lights On” figure. I divide this in half because I get paid 2ce a month. That amount then gets automatically deducted from my “available funds” so I now never even see the total in the account – just the non-allocated spendable total.
Since everything is automated, all bills get paid on time and in full every month. This system for me has always worked, and worked very well … until my income fell below the KTLO figure.
I now include my investing and savings figures into the KTLO figure and again everything is automated. I learned that if I didn’t prioritize my savings goals, there wouldn’t BE a savings. It’s kind of like understanding that you’ll never FIND the time, you MAKE the time to do what is important. Ditto here, you’ll never have extra money, so take it out up front and deal with what you have left. I was always surprised at how readily I could adjust.
Does NOT work: skipping the lattes
My mom is coupon QUEEN. She never bought something that wasn’t on sale WITH a coupon. We never went out as a family to a restaurant and paid full price. When I was struggling to bring things back into control, I tried aggressive couponing and cutting every corner. Then I realized that I was fighting for pennies while ignoring the fact that I could easily fix things if I got a better job. I suffered from low self-esteem and didn’t really think I was worth getting paid more, so I kept fighting for pennies when in reality the KTLO figure was literally higher than my income – with 3 jobs. And I was hardly living high on the hog!
So fighting to save a few bucks here or a few bucks there is a nice idea and yes, it does add up … eventually. Unfortunately for me, cutting so many corners triggers rebellious fits of overspending, which just nullifies all savings. What I now look for are the big ticket monthly expenses and ask if they can be cut. Can I lower my insurance cost by raising the deductible? Ching! That’s a $50 monthly savings – how many lattes would that be? I dropped cable and replaced it with a Netflix/Hulu combo – saving me $126 per month. Daaaamn. I’d have to cut a LOT of corners to dig up that much money every month.
What I’m saying is don’t quibble over the pennies. Look for the dollars. That adage “A penny wise and a pound poor” EXACTLY describes this approach. Instead, be a pound (British Pound) wise and don’t fash yourself over the pennies.
DOES work: Getting a better job
After my bankruptcy, I decided to bite the bullet and apply for positions I never in a million years thought I would get. Surprise! I ended up earning many times over the poverty level wage I had previously been laboring under. Suddenly I HAD money. OMG. What do I do now??! I could replace my multiple crap jobs for the one and now I take in embroidery and garment decoration jobs on the side for extra money.
Ramit uses the phrase “going for the big wins”. Upping the income is the biggest win. It’s the one many people – including myself – balk the most at for a host of reasons. Unless the reason is “I love what I do and the benefits from being where I am”, then most likely the real reason is simple fear.
Ultimately, my recipe for getting myself straightened out was constant awareness through expense tracking, getting a significantly better job, and cutting down all necessary expenses as far as I could get them while simultaneously cutting down all unnecessary expenses that didn’t support me emotionally. And no, I don’t skip the proverbial lattes.