How not to spend more than you make!

Before we start, you should really download and listen to this MP3 from This American Life “Scenes from an American Mall”.

It isn’t the best they’ve done, but it’s interesting nonetheless.

It’s only available to download for free on the site from Sunday December 12th 2010 to Saturday December 18th 2010. After that, it’s $0.99 per download of any archived MP3s.

QUESTION: HOW NOT TO SPEND MONEY

allisonmcneely asked from my September 2010 Budget Roundup:

I would LOVE it if you could do a post on how to *not* spend money.

I am currently in my first, “real” full time job in which I make a decent living and only have to support myself.

While I am saving 18% of my income every month, I find that I frequently go over budget in areas like groceries and entertainment.

I just find new ways to spend my money, no matter how much I make. I’m very aware of it and I am trying to get it under control, but it’s definitely challenging.

ANSWER: IT TAKES TIME TO ADJUST & BE REALISTIC

Long story short, this is not easy.

(And sorry for the very late reply!!)

Anyone who has debt and/or likes to spend, knows that saving money is really difficult, even painful.

I’d like to mention that if you are saving 18% of your income? That’s AWESOME.

The rule of thumb on the road to riches is usually 10%, and you’re saving 8% above that, which is absolutely fantastic.

However, if you are frequently going over budget in areas like groceries and entertainment, I am going to assume you didn’t budget for it, and you had to take the difference out of your savings which says the following:

1) You are saving too much money (Wait, is that even possible? Yes. Yes it is.)

2) You are actually saving 18% of your income without the overages in your budget. So really, you’re saving 10%?

In that case, then maybe you need to raise your grocery and entertainment expenditures.

HOW MUCH TO SPEND?

Here’s a pie chart of the rule of thumb of spending percentages of what you should spend based on your net income:

Note: This is just a guideline.

You can decide to spend 50% of your income on your Housing if you wanted, if you don’t need Transportation at all. Or if you don’t have debt repayment at 15%, throw that into Life or your Savings.

This is very generic and not at all meant to force you to do anything by those numbers.

GENERAL SAVINGS ARE 10%

As you can see in that chart above, your savings can only be 10% if you wanted (still a very admirable amount of savings) and your life expenses can be up to 25% of your net income!

You really don’t need to save that much if you cannot seem to make it work.

That being said, you seem determined to save 18% of your income and to try and learn how to control your urges to find new things to buy and to go over in your grocery and entertainment budgets, so here are my tips!

PERSONALLY, I JUST BECAME A MINIMALIST

Other than the tips that are coming up below, I just became a minimalist.

I know this is not everyone’s cup of tea so I can’t suggest it as a rule for your life, but why it works is because..

I removed the money factor from my spending.

Now I evaluate items based on want/need & portability.

I’ve found that once I stopped worrying about the cost of the item, how much I was spending and how much I was not saving, it stopped being a factor.

I curbed my desire to spend simply by not wanting the actual item itself.

That is not to say I only have 5 tops for work and 3 pairs of pants (goodness no), but now when I go to the store (in 2011 I mean), I look at what they’re selling and I think about what I already own, what I have and use on a regular basis, and I put it back. Most of the time :P

I do the same thing in grocery stores. I think: Do I really want to spend that $40 on a couple of super large tiger shrimp?

More often than not, I put those kinds of extravagant luxuries back, because there will come a time on a birthday, anniversary or celebration of some sort, where it WILL be worth it to buy the super large tiger shrimp, but having it everyday as a permanent, habitual treat stops being luxurious.

But if you can’t go that route, do not fear! I do have 6 other tips (before Minimalism) that helped straighten me out.

BEFORE WE START

I know Allison is tracking her expenses and has a budget. How can she not? She knows what she’s saving.

As for my story, when I first started budgeting and tracking my expenses, I couldn’t believe how much money I was wasting.

I wasn’t in credit card debt, I was paying off my student loans, but I was SQUANDERING MY MONEY.

I spent $300 – $600/month on CLOTHES (bonkers!), and that was the real eye opener. When I saw my spending at the end of the year, let alone each month, I realized I needed to make a change.

The problem a lot of people run into is not seeing the big picture. How much do you spend on non-essentials per MONTH? Per YEAR?

It can be easy to say: I deserve a new watch. A new laptop. A vacation. A new car.

But when you start looking at the final numbers of what that new car will cost you ($400/month = $4800/year), you start to realize what you’re giving up just to drive in it.

It is so easy to feel like you deserve a vacation every 4 months for a little shopping trip to NYC. But our brains aren’t rational when it comes to lust. We want what we want, now and we don’t want to wait for it.

In the end, you might buy that car or go on that trip anyway, and that’s cool as long as you cut back in other areas like eating out or shopping.

6 TIPS ON HOW TO NOT SPEND MORE THAN WHAT YOU MAKE

  1. Don’t even get tempted
  2. Do not go out without a purpose or if you are hungry
  3. Remind yourself of your goals/budget
  4. Be realistic
  5. Change your mindset
  6. Keep luxuries as they are — luxurious and rare

TIP #1: DON’T EVEN GET TEMPTED

I avoid going to shop just for fun.

This has singlehandedly been my most effective way to get me not to spend any money at all. I don’t see it? I don’t buy it.

I do watch a lot of TV nowadays (damn hotel room), but whatever I see on TV doesn’t interest me for some reason.

I think it’s partly due to the fact that I also hate to online shop. I like to online browse, but to actually buy something, I need to be in person, touching the item and justifying to myself I need another dress.

Online shopping or seeing it on TV doesn’t do it for me.

TIP #2: DO NOT GO OUT WITHOUT A PURPOSE

When I was sad, I shopped.

When I was happy, I shopped.

When I was hungry, I bought more.

Eat before you go grocery shopping, and if you need to hit a mall, make sure you have a list in hand.

TIP #3: REMIND YOURSELF OF YOUR GOALS/BUDGET

I find that a budget is wholly useless without goals.

So what is your goal? Why do you want to save that 18%?

Are you saving 10% for retirement and 8% for a 2-week vacation to Spain?

Whatever it is, put a picture on a sticky note, or some sort of reminder, and every time you whip out cash or a card, your goal is right there, staring at you from your wallet.

My goal for instance, is to be financially secure so I never have to worry about anything especially in my line of work. That healthy fear keeps me from going out and impulse shopping.

I also spend a lot of time making sure I am not spending by looking at my budget. This is the reason why I never leave receipts to the end of the week, let alone the end of the day.

Whenever I spend on something, I keep the receipt, pay it off immediately and put it right into my budget so my numbers are all up to date.

Then I remind myself of what I have available to spend for the month.

Wash, Rinse. Repeat.

TIP #4: BE REALISTIC

Why is your grocery or entertainment categories X amount per month?

(Please don’t take these as vicious “arrgggghh be more frugal!!” stabs to your character or lifestyle. I am just listing out what the reasons could be but I am not saying they all apply to you, if at all!)

Perhaps you are just spending extra in the grocery department because of the following reasons:

  • you don’t meal plan ahead of time, so you buy one-off items or spices without a cohesive plan to use it all
  • you are including toiletries, flowers, or anything non-foody in your “groceries” budget
  • you aren’t shopping in the cheapest places you can find (ethnic grocery stores, budget stores)
  • you aren’t using coupons when you can (note: I rarely use coupons, they never apply to what I buy)
  • you don’t like to cook so you buy pre-made foods — more money spent per gram/ounce
  • you don’t like to eat the same thing twice, so you shop 3-4 times a week
  • you like to buy very expensive food — organic, specialty <— ME!!! :)
  • you don’t have an idea of your regular staples in your pantry — rice, pasta — so you don’t stock up on sales
  • you like to buy a lot of snacks on a regular basis — soda pop, ice cream, chips, candy, cookies, mochi
  • you want to

The above list is not comprehensive, but it’s all little areas that add up in a grocery budget.

Being realistic of what you like to eat and spend your money on, is the first step to making sure what you’ve set out for yourself is correct.

If you want to buy chips every week, no problem, but that better be worked into your food budget.

The general rule of thumb is about $150 – $250/month per person for groceries.

I once spent up to $400/month for just myself, because of a combination of the above factors.

As for entertainment, maybe you need to simply cut back on the amount of times you go out with your friends (have 2 stay-at-home weekends per month) or set a budget in cash before you go.

Bring out $50, and once it’s gone, it’s gone.

TIP #5: CHANGE YOUR MINDSET

You mentioned wanting a lot of things.

Me too! :)

The difference between the Me now, and the Me before, is I ask myself the following:

  • Does it help my life in any way?
  • Do I really need it?
  • Do I really want it?
  • Is it just a treat or an impulse buy?
  • Do I already have something similar in multiples?
  • Can I afford it right now, cash, without de-railing myself?
  • Is it a good price for the quality?
  • Can I get it for cheaper?
  • Can I get a substitute that will do just as well?
  • Do I have any big purchases coming up?
  • Is it portable and able to easily move with me?

After the first 4 or 5 questions, I don’t even make it to the end with portability.

My desire for the item is quenched and then I run online to check my bank balances, open up my budgeting spreadsheet to check my budget, my goals and my progress, and I sit back, happy as a clam.

TIP #6: KEEP LUXURIES AS THEY ARE

This is definitely a lifestyle inflation lesson.

The way to start coping with this is to let regular purchases — your hair cut, your nights out — become luxuries, so that you don’t feel deprived.

I feel really good when I can go and get my hair cut, because I don’t do it every 3 months, more like every 6 months once I can find time or remember to book an appointment.

When I go, I get my head massaged, hair washed and I come out feeling great. It’s a treat, even if it’s a regular, on-going purchase.

As for actual luxuries, if I were to buy expensive foods each week or go out to party every single week, they’d stop being treats or little luxuries I enjoy, but permanent items in my budget.

So my budget goes up another $50/month, and then it feels ‘normal’.

Then to feel more luxurious, I up the ante by buying another more expensive treat (truffle chocolates or something), and that pushes my budget up another $50/month.. and so on.

It’s a cycle that can be hard to break once you’re living the luxurious lifestyle.

IN SUMMARY: YOU HAVE TO WORK AT IT A LOT

The bottom line is that you cannot expect to just wake up one day and want to stop spending less.

It just doesn’t happen over night, at least it didn’t to me.

It’s still a work in progress for me not to go crazy, especially when I am on vacation (Ahhhh!! All these foreign candies!)

You have to exercise your do-not-spend-more muscle, and over time it will get stronger and stronger to the point where it becomes a habit.

After 3 years, I finally feel comfortable in my discipline to keep my spending down, and I watch my impulsiveness.

You won’t even think twice about wanting to go out to spend $100 any more. You just won’t do it, or you’ll let yourself spend $50 but no more.

If you want more motivation, read this Money Sense article about The Delgado Family originally shared by hithat’smybike (awesome blog).

For a little teaser on the article:

The Delgados are just starting out, but they’re already in the hole by almost $400,000.

They have hardly any equity in their new home, they’re leasing an expensive Lexus car, and they have $34,000 owing on high-interest-rate credit cards and a line of credit.

The couple needs to reduce their monthly expenses.

“The Delgados certainly don’t overspend but for the next 18 months, they need to do everything they can to cut costs and put the excess cash towards the debt,” says Prime.

They can start by trimming their $1,800 restaurant bill, the $2,760 they pay for clothes and haircuts, as well as the $4,000 they spend on vacations.

Cutting those bills in half will save them a hefty $4,000 a year.

Then, when their car lease comes up, they should consider leasing a cheaper vehicle. “Those savings, too, should go towards their debt.”

This stuff adds up:

  • Eating Out: $1800 = $150/month on eating out or $5/day
  • Clothes & Haircuts: $2760 = $230/month or $7.66/day
  • Vacations: $4000 = $333/month or $11.11/day

They’re small amounts each day, but they add up to big numbers at the end.

FOR LAUGHS: DON’T BUY STUFF YOU CANNOT AFFORD (SNL)

This is just a clip I snagged from YouTube.

Spokesman: Well, you’re not the only ones. Did you know that millions of Americans live with debt they cannot control? That’s why I developed this unique new program for managing your debt. It’s called [presents book] “Don’t Buy Stuff You Cannot Afford.”

Wife: Let me see that… [grabs book, reads] “If you don’t have any money, you should not buy anything.” Hmm, sounds interesting

Husband: Sounds confusing.

Wife: I don’t know honey, this makes a lot of sense. There’s a whole section here on how to buy expensive things using money you save.

Husband: Give me that… [grabs book, looks at it] And where would you get this saved money?

Via Frugal Fellas who have the whole transcript written out for those of you (and me :( ) who can’t access Hulu to see the whole skit.

About the Author

Just a girl trying to find a balance between being a Shopaholic and a Saver. I cleared $60,000 in 18 months earning $65,000 gross/year. Now I am self-employed, and you can read more about my story here, or visit my other blog: The Everyday Minimalist.