Wednesday, July 27, 2005

Rules of Spending

Imagine congratulating yourself on your newly found sense of fiscal savvy only to turn around and find that you have spent over $200 on non-essentials in a week. That's kind of how I felt on Sunday after I posted this.

Little things add up real fast and before you know it a magazine here and a book there can seriously deplete your resources. And if you are anything like me your first impulse on realizing that is to console yourself by going out and buying something nice. Only that completely defies the purpose of having a budget in the first place. So I have been thinking for the last few days about how I can do better. Having financial goals and a budget are good first steps but I think I need to go beyond that and set up some spending rules:

Rule #1 - Know how much you can spend: After you've set up a budget calculate how much you can afford to spend a week on non-essentials. Everyone's needs are different. For me the non-essentials are everything after rent, utilities, phone, car, insurance, food, emergencies like car repairs & medical/dental and the money I send to my parents. After crunching the budget #s this works out to $370/week. That's my spending cap.

Rule #2 - Know how much you will spend: Just because you can spend $100/$200/$300 whatever doesn't mean you have to. There may be special occasions during the year when you know you will spend more. For me one such occasion is my trip to India this October. I don't want anything, particularly frivolous spending, to get in the way of that. And then there are other things I would like to set money aside for like Christmas shopping & home decor stuff for the new apartment. I am also determined to get to my 45k saving goal but I am currently only up 31k through deductions & employer match. I could get another 10k from interest & bonus which still leaves me 4k short of goal and I'd like to make up for that. With all these factored in my spending goal is now $370 - $(1700+1000+1000+1600+4000)/52 = $191/week.

Rule #3 - Plan ahead: It may never be possible to plan every last thing in your life but you can plan for certain things. My cousin's coming to visit and I want to make the stay fun for her. There are other things too. I know some weeks I will get hit with bigger amounts than others. If I plan for it then I can maintain my $191/week average and still do everything I want to do.

Rule #4 - Shop before you go out: By that I don't mean online but literally treat your home as your personal department store. Look in your closet, your cupboards, your dresser. Do this before you go out. Chances are there are things you forgot you bought or haven't used in a while that you may rediscover and you will be less tempted to buy more when you get to the store. After I wrote Sunday's post I did just this. I found several brand new lipsticks and lipglosses that were still in their boxes.

Rule #5 - Use cash in stores: Credit cards are great because you get points but unless you are really disciplined this can also be a drawback. Sometimes I'll buy something that's a few dollars more than I wanted to spend thinking "Oh, but I am getting points." Yes, but how much? I get 1 cent per dollar. Doesn't make sense to spend $10 more just for a 10 cent discount does it? So starting this week I am going with cash. It's a lot harder to peel off 2 twenty dollar bills than to sign a $40 receipt.

Rule #6 - Take advantage of discount bookstores and the library: After I bought Mutual Funds for Dummies I found out my library carries it. I like books. I want to buy them all. But that was dumb. A good rule of thumb (I came across this on someone's blog but can't remember whose) is to buy books that you would reference often. Otherwise, you are better off renting it from the library. Just make sure to return in time so you don't end up paying in fines. Even if you are buying try an online store like Books A Million (thanks jlp) or or check out local used book stores for fabulous bargains.

And finally - reward yourself. This is not so much a rule as an incentive. Whatever I can save from my $191 per week will go into my piggie bank. Every three months I will take it out and do whatever I want with it. I can put it back, buy something, throw it over the balcony, invest it...whatever I feel like doing.


At 7/28/2005 5:07 PM, Blogger Karen said...

Great rules to live by :) Seems so simple when you write it down, doesn't it? Like, "I knew this all along, so why didn't I do this before?" That's what I often say to myself.

At 7/28/2005 10:35 PM, Blogger Zeroth said...

Doesn't make sense to spend $10 more just for a 10 cent discount does it?

No and it doesn't really make sense to spend $1000 for a $10 discount either. I think you've hit upon the essence of the credit card scam. Those points are never really worth it because people invariably spend more with plastic than cash. I've found that cash-only is the way to go for day-to-day things. I take out, say, $200 every week and carry it around with me. Then I can see the dollars disappearing every time I pull out the wallet. It really puts a damper on those frivolous purchases.


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