Tessa, an email subscriber, wrote to me recently with the following thoughts:
I signed to receive your emails last year and I like them very much.
But I need the basics, and you have so much in your blog I cannot find it.
I don’t know how to live within my means.
I don’t know how to make a budget, that’s what I call the basics.
I don’t have a credit card, so I don’t have any debts.
But my salary finishes before the second week every month.
Let me know where the starting lessons are. For beginners.
My immediate response was to start digging into personal finance books at the library, and I found several to be incredibly helpful. Dave Ramsey’s The Total Money Makeover laid out a basic gameplan and forcefully pointed out the error of my ways, and Dominguez and Robin’s Your Money or Your Life really opened my eyes to the role of money in my life. Later books, particularly Jane Bryant Quinn’s Smart and Simple Financial Strategies for Busy People and Ron Gallen’s The Money Trap, contributed more ideas that I wish I had when things were at their worst.
Here are the eight most basic tactics and ideas that I wish I had known at the time of my meltdown.
Whenever you go to buy anything, give yourself ten seconds to ask whether you actually need it or not. I call this the ten second rule, and it’s helped me countless times. Spend those ten seconds trying to convince yourself not to buy the item. In the end, you’ll begin to train yourself to spend less and less by peeling out the stuff that you don’t authentically need.
Wait thirty days (at least) before any major purchase. I define “major” as being any purchase that costs more than, say, $20. Almost always, such purchases deserve more thought, and quite often you’re making that purchase in the heat of the moment. Put the item back on the shelf instead and wait thirty days on it. Likely, you won’t even remember it in thirty days, and if you do, the odds are you will have realized that you didn’t really need it after all.
Keep track of every single dime you spend for two months. Everything. Then, when you’ve got two months’ worth of information, try to categorize that spending by groups that make sense to you. Lots of budgeting books offer categories, but it usually works better to define your own – things like eating out, music, video games, groceries, and so on. When you know how much you spend over two months in each category, you’ll usually quickly see some things that need to change. This is budgeting.
Set some short term goals – a week or a month worth at a time. Make it your goal to cut in half the amount of money you spend eating out. Make it your goal to not shop this month for solely social reasons. Make it your goal to spend $100 less than you earn this month. State it clearly and don’t forget about it! Put a reminder of that goal somewhere where you’ll see it and think about it often.
Start an emergency fund – and make it automatic. I talk about emergency funds all the time. It’s because they’re invaluable, and I’m shocked how often people don’t have them. An emergency fund is a savings account that contains enough cash so that you can immediately and easily handle most emergencies in your life – the more you have, the more protected you are from disaster. Yet, for many people, it’s hard to find the money to set one up. The best solution I’ve found is to get an online savings account, like one through ING Direct (the bank that I use), and set that account to automatically pull a small amount from your primary checking each week – say, $20. Then, if your car breaks down six months later, it’s not panic time. You just go to your emergency savings account, pull out that $500 you have saved up, and the problem is solved. The real key is automating it.
Focus on spending time without spending money. Most weekends, my wife and I try to spend “money free weekends,” where we don’t spend any money at all on Saturday or Sunday. Most people think this sounds boring, but my wife and I have found tons of things to do. In fact, we’ve made three lists of them: 15 things, 15 more things, and 15 fulfilling things. Another surprising tactic: turn off your television and find something else to do.
Take a dive into less expensive hobbies. Golf is an expensive hobby. Reading classic literature off of PaperBackSwap is not. Shopping for clothes is an expensive hobby. Learning how to cook well is not. Look at your hobbies through the filter of how expensive they are for the time that you spend, and then start focusing more on the less expensive hobbies – and perhaps try out a few new ones.
Figure up your true hourly wage – and think about what that means. Many people work themselves into misery by working at a job that seems to pay well, but is laden with so many extra financial and time costs that it ends up being quite poor. Spend some time figuring up your true hourly wage – it might put a low-stress job at the local 7-11 into new perspective, as well as change your ideas about how you’re spending money. I found this exercise to be one of the most profound things I’ve ever done.
If you walk carefully through these eight steps and think deeply about what you’re doing, you will be on a much better financial track. You’ll start being money ahead instead of just barely breaking even, and life will begin to feel more secure. The best part is that anyone can do these things – it just takes a desire to make a change.