Living Within
Posted by Gail | Filed under Money Management
One of the problems I hear from the people I work with is that they can cut back for a while, living life by the book, scrimping and saving. But, inevitably, they end up blowing their brains out on a shopping spree, vacation, or some other unplanned spending that they just HAD to do to deal with the deprivation they were experiencing. It’s the Yo-Yo Effect. Spend nothing, nothing, nothing, and then… too much.
Part of the problem is the fact that people perceive they can fix their debt problems by cutting back to the bone and having no fun while they get their debt paid off, only to find that when it is paid off, the relief and sense of accomplishment is the signal to go out and run the debt up again. What a waste of energy!
People, it isn’t about going without, it’s about Living Within… your Means, that is. Nobody says you can never buy a cup of coffee again. Or a new pair of shoes. Or a nifty new cell phone. Well, I don’t, anyway. (I know there are some rabid Don’t Spend A Cent maniacs out there, but I’m not one of them.) To live a balanced life you do have to come to terms with how much you make, and how much you have to spend on your Needs, and then your Wants.
If you want to take a fabulous vacation with your fam, then you should. You absotively, poslutely should. Let’s say you want to go to away for two weeks. You’ve budgeted the trip: airfare, lodging, food, transportation, insurance, and whatever else, and you’ve found you’ll need $6,400 to pull it off. How much do you have in your existing budget that you can put towards your trip? If you can afford to save $275 a month, it’ll take you about 24 months to come up with the money to pay for the trip in full.
And for each $275 you manage to save somewhere else, you’ll eliminate one month of waiting.
You could, just for one month, trim back your groceries by $100 and put that in your Vacation Savings Account. You could decide to turn down your thermostat, drive less often, or make your next set of gifts, and slide your savings into your Vacation Savings Account. Now you’re not depriving yourself of anything… you’re saving to make a dream come true and when it does, the vacation will be the reward. And you’re doing it in small increments so you don’t end up feeling that you’ve given up everything.
Saving for a vacation, saving up for a house, paying down debt, it’s all the same thing. It’s about finding the money from your existing cash flow to set aside to achieve a particular goal. Make the steps small enough… like finding $275 … and you won’t be overwhelmed.
Of course, you also have the option of finding a way to Make More Money to put towards your goal. Whether it’s taking a part-time job on weekends or doing something from home so you don’t have to be away from the kids, there are lots of ways to bring in an extra $275 a month. And for every month that you do, that’s one less month you’ll have to wait to see your dream come true.
So what’s your next “spend” going to be on, and how are you coming up with the money to make it a reality?
February 17, 2009 at 10:34 am
Balance is important. After I finished my schooling, I had to begin paying my student loan. It does take the fun out of the paycheck. My budget did balance in being in the black AND allocating money to outings and holidays. I could have payed the student loans faster but I have no regrets with the holidays I took. The holidays themselves were balanced with some grocery trips and some suppers at nice restaurants.
The next spend is likely to happen because IT IS IN THE BUDGET. A trip in 2010. Times are tough with dogs that need veterinary care, but the budget allocates some money for that as well. It might just take me longer to catch up on my RSP contributions, but it is in the works as well.
I always believe in two goals per year: one for obligations and one for well being. The goals are set.
February 17, 2009 at 10:54 am
Hi Gail, just this weekend I made the pledge that for my 50th (in four years) I’m going to New York to purchase a real designer hand bag from the Designer’s Store. I’ve always had a purse fettish and thought okay, this is it, no more knock offs, I want the real deal. As for how will I save, I’m beginning small but have no aversion to seasonal part time work and have been blessed with a Christmas bonus every year (even last year). I won’t take it for granted but falls into the category of putting away any extra money that comes my way. Wish me luck.
February 17, 2009 at 10:57 am
I am so guilty of cutting back my spending to a point where I get ‘withdrawal symptoms’ and then splurge big time. And I usually end up feeling guilty about the big spending. It’s pretty much like going on a diet where I stay away from all the yummy things that are so unhealthy but after weeks of deprivation, I usually cave in and pig out. And yes, it’s unhealthy and bad for the body to be yo-yoing like that. And it’s the same financially. It’s unhealthy to have such spending habits and yes, it has to be a lifestyle change for it to be sustainable. I am trying to change my mindset and start thinking about how spending within my means is the right way. And that is what I am working towards. I love travelling and in the past, I would not think twice about signing for the whole trip on my credit card. But am wiser now and I am working towards saving for a trip. For now, it will be one nearby in April so that it will not be too costly and manageable for my budget.
February 17, 2009 at 11:00 am
My next big spend is on a vacation to Cuba next month. I have an ING Savings account titled “Vacation Fund.” The money is automatically deposited with every pay. I keep this fund in operation all the time and adjust the withdrawal amounts depending on the type of vacation.
February 17, 2009 at 11:21 am
Thanks Gail, I think I needed to hear that from you! My husband tells me I’m obsessed, but I don’t put too much into it because he’s anti-obsessed! I do need a break though. I am waiting to hear back on refinancing the mortgage which will pay off van/one cc/possibly $5000 more where I want. That will free up that much money I won’t know what to do with myself! -Well, I know exactly what I’ll do…start saving again, pay off the next most expensive debt, then save some more for a vacation!!! I am counting the minutes til I hear back from her…so excited! It’s been a rough couple years, and even a couple nights away up north would be like a week down south!!!
February 17, 2009 at 11:36 am
It’s so true. In fact I have blogged about this subject myself, recommending that you build treats and mini-splurges right into your budget. Pick a few small things that are really important to you or that simply cheer you up, like a bubble bath. Little perks help you from feeling deprived so you don’t go on a big shopping bender.
February 17, 2009 at 1:54 pm
We save bi-weekly for a vacation, so that roughly every 2 years we can take a great vacation, totally paid for! My husband recently was feeling a wee bit deprived so we saved up a “fun fund” of $1000 that we can use however we want to/whenever we want to, as long as we both agree. Both of us also get an allowance of $100 every 2 weeks to spend on whatever we want, no questions asked.
February 17, 2009 at 3:04 pm
So very true! This is a challenge for me. It’s all about changing my perspective to recognize that I am not necessarily ‘going without’ but I am living within!
Thank you for the reminder!
February 17, 2009 at 3:53 pm
I am also sometimes guilty of going without for too long and then going on a mini shopping spree. I am trying to combat this. I’ve made a page in the back of my budget binder where I keep track of when this happens, how much I spend and what I spent it on so that the next time I change my budget/jar amounts around I can take this information into account.
February 17, 2009 at 4:14 pm
This is exactly why I build my monthly facials and less frequent pedicures into the budget and automatically transfer money each month into the vacation fund. Yes, I need to plan for my retirement and stay out of debt but I also need to enjoy the life I am living now.
February 17, 2009 at 4:33 pm
I know exactly what our next spend is going to be….. our old truck is not doing too well (It’s 15 years old and a bit rusty and begged out engine and getting too small in the back for the boys) Off to find a bigger, newer truck before the other one dies…. we have less than a year at my best calculation. Not so bad really since we bought it for cash many years ago and have only standard maintenance and tires put into it since.
This upcoming expense is not a shocker! When you want to avoid car payments, you have an older vehicle… it’s worth it to us! AND some of the money we save every month (by having no payments and less costs in insurance) we have put away… we already have enough set aside for potentially the nicest vehicle we have every had. Again it looks like we will be doing it without payments.
Hooray for PLANNED SAVING!
We do not deprive ourselves, we drink the finest coffee and espresso (we make it at home), we have fun hobbies (that don’t involve club fees), we find ways to spend time together and the kids and friends, we eat good food prepared at home and we really genuinely like it.
Hooray for LIVING WITHIN!
February 17, 2009 at 5:26 pm
I am going to Nepal in November to trek to Everest Base Camp. Because I was able to use frequent flyer points for the flights I am able to get the whole holiday for less than $1000- AUD, not including gratuities along the way.
Because I have booked so early I can pay off the travel agent monthly when I get paid and I won’t have to fork out huge amounts of money at the end of the year.
I am soooo excited! Plus, the trip being so far away gives me ages of time to train as I am not that fit. Already done one 8km bush walk and walking at least 40 minutes per day.
S
February 17, 2009 at 5:55 pm
I think it’s a good idea that everyone has an “Entertainment Jar”. I used to think if you were seriously trying to get out of debt as fast as possible you wouldn’t want to have such a jar and put the $$ instead towards the debt. But by having such a defined category you are almost ‘forced’ into spending it – this may possibly stop that feeling of deprivation where you go overboard, spend bigtime and suffer buyer’s remorse.
February 17, 2009 at 6:34 pm
Interestingly, I just read a book called “Not Buying It” by Judith Levine, where the couple goes for an entire year without buying anything that is not a necessity!
February 17, 2009 at 7:16 pm
@Saver Queen: sounds interesting! Was it a good read?
February 17, 2009 at 7:53 pm
Our next big purchase will be a newer snow machine. Hubby’s motorcycle is paid off now and since we are not use to having the money we’re just saving what the payments were.
February 17, 2009 at 9:03 pm
I’m having a hard time treating myself lately. My employer is downsizing because of the recession. I’d rather have another couple weeks of food than the pearl earrings I want. I’ve almost completely saved up for this year’s vacation, but I’d rather keep it in reserve so I can pay another month’s rent. It’s really tough to spend when you know you probably won’t have a regular paycheck in the near future…
February 17, 2009 at 9:56 pm
My husband and I have been saving (money and annual vacation time) for two years, and will be taking a 5 week trip to Australia in May. We are in our late 20’s, and figured we should have one big vacation before we thought about kids. We are both employed full time, and our only debt is a car loan (at 0.9% interest) which will be paid off next summer.
When my husband finished paying off his student loans 2 years ago we sat down and figured out what we should do with the money he had been putting towards debt. We had both wanted to visit Australia, so we set about trying to figure out how much we could afford, and what kind of trip we wanted. After some research we came up with a figure, and decided how long it would take to reach it. As a bonus, we planned the trip when our currencies were at par, but the exchange rate is now much more favourable!
Much like Julie we have an allowance of $200 each per month. We also have very affordable rent (we have a roommate to keep it that way), a penchant for home cooking, and a dearth of expensive hobbies. We are saving for a down payment as well, and are poised to buy something later this year when my husband finds out where he’ll working when his apprenticeship is over in July.
February 17, 2009 at 10:45 pm
I’ve read that book too, SQ. It was a while ago, but I do remember it as being an interesting concept and the couple did very well, with a few rough patches in there too. Gift giving and such was handled quite well, a special necklace for a niece that was graduating as an ‘heirloom’ type gift or something wasn’t it?
February 17, 2009 at 10:49 pm
Living within, I like that statement. I am doing something new this year that I have never done before – I added up all my annual expenses (car insurance, house insurance, land taxes) and divided by 12. I have an account where I deposit my 1/12 of the annual expenses so they don’t hit me up the side of my head this year, and I will actually have money to pay them. On time. With no stress. What a thought. Forgot to include the kids sports (got caught on that one already, soccer and ball season soon) but feeling more confident about finances in general.
February 18, 2009 at 6:10 am
Riann
Have fun in Australia make sure you go on the Great Ocean Road in Victoria its the best.
February 18, 2009 at 12:57 pm
This is why I suggest people write their budgets around how they live. A budget is a tool used to allocate your money where you want it, not to make you feel guilty. Then, once you get used to living ‘within’ a budget, if you’re not spending money how you really want to, you can start making gradual changes. It’s better to work on one sustainable change at a time, than to deprive yourself and go crazy. The best part is, you get used to living the way you want to, and stop feeling like you need to spend on this or that. Obviously, if you’re living over your income, some immediate changes are needed, but you don’t have to go crazy right away.
Also, nthing fun money or allowance or whatever you want to call it. I just spent mine to replace my broken headphones. I was going to get my piano tuned with a bit of my tax return money, but I should probably wait until the weather turns before I do that.
February 19, 2009 at 12:32 am
Saving queen, as I recall wasn’t that couple a DINK couple from New York city where they did alot of things for free. For example, the museum in New York is free (at least it was last time I checked) whereas in Toronto you pay $22 per adult and $15 per child so for a family outing you pay $74 plus parking or transit so the total is quite a lot by the time you get there, especially from the suburbs. Also, they had no kids to buy clothing for (which even at used or discount prices can be very costly, especially for winter gear like boots and snow pants). So while it may be interesting, I don’t think it is very realistic for a standard family.
February 21, 2009 at 10:21 pm
I absolutely love your show.. while I couldn’t get my husband on board, we have decided that each pay we give each other $200 for fun money, that way neither one of us ’strays’… he gets to golf, i get to shop, all is well.. BUT that extra $800 comes after all bills get paid, both have pension plans through work that money gets deducted from pay and employers match.. our son gets RESP and our debt went from 60k to 30k since i started watching ur show. this year we’re planning a huge trip to africa (which will cost 10k and we will save for it).. and when we come back, all we have is the car loan and student loan. my goal is to be debt free by the end of 2010. we both make decent $ (24/hour, working full time)… I just cannot wait for the day that we’re debt free, imagine all the possibilities w/ that extra money.. (PS, I’m looking for a part time job now to speed up my trip money.. I figured w/ a 3k income tax refund, 2 extra paycheques for both of us (additional 5k) we only need 2k between now and end of november.. =) it’s doable, thanks to you gail… all the best!