Spend less. Earn more. What’s It Gonna Be?
Posted by Gail | Filed under Take Control
I get a lot of letters from people describing in detail their dire financial circumstances and asking me what they should do to make the problems go away. I know I’ve said this before, but apparently it bears repeating. If you get to the end of the money before you get to the end of the month you have two choices:
- You can spend less money, or
- You can earn more money.
Them’s your options. It’s that simple. One isn’t better than the other. And sometimes it takes doing both to fix what’s broke.
Routinely, when I work with families, I cut their spending by 60%, 75%, 80%. That means I give them a whole lot less than they were living on a month in their jars. And you know what? They get to the end of the month. Yup. I haven’t had anyone so far call us up and beg for more money. Quite the contrary. It’s become almost a personal quest among my fams to see how much they can keep in their jars.
How come? How come I can cut their spending from $4,000 a month to $1,000 a month, and they still have money left? How is that possible?
Could it be as simple as they fact that now they’re watching their pennies, they’re prioritizing, they’re making choices? Hmmm. And because their budgets are so tight, sometimes those choices are pretty easy. After all, if it’s $40 at the pizza palace or a box of diapers, what do you think’s gonna win?
The whole point of a budget is to figure out what you can afford to spend. I see families spending $1200 a month on food and I cut them back to $600. I tell them to get rid of that stupid truck that’s guzzling $500 a month in gas and cost $300 a month to insure. I tell them to swap bad habits like smoking, gambling, and partying for good ones like meal planning, exercise, and the building of fond (if cheap) memories.
This website has the Interactive Budget (with instructions) that not only helps people build budgets, but shows them how they’re doing on the percentages and allocates the money to the jars on a weekly basis. All people have to do is use it. And yet I receive stacks of emails from people who won’t even try. Gosh darn it. That’s what it’s there for. Try. And if the budget seems not to work, jiggle the numbers around. There’s no magic to this. It’s a trial-and-error process.
If no matter how hard you try you can’t get to zero at the bottom then it may simply be a case that you don’t make enough money.
When I first started doing the show, I’d ask people to make an extra $100 a month. Maybe $200. Wait until you see what I ask people to do in the later seasons. OMG. Make another $500 a month, say I. Make another $900 a month, say I. Double your salary, say I. And you know what? My fams step up to the plate and do it. They take on more hours at work. They get a second job. They start a side business. They get a different job. They do whatever it takes, and they earn more.
Ultimately, if you want your life to change, you have to do something differently. For those who can’t figure out what to do, there are tools here, and all over the web, on TV and elsewhere that can help. But YOU have to be committed to doing something differently.
Throwing up your arms in resigned desperation won’t get you out of a pile of poop. Nor will going over and over and over how you got into the mess you’re in. It’s irrelevant. You’re in a mess and you want out. So now it’s time to take action.
First decide what’s really important to you. The guy who prioritizes the kind of truck he drives over how much money there is to feed the family isn’t ready to change. The chick who would rather shop herself out of a funk than pay the hydro bill isn’t ready to change. The family who thinks spending money they haven’t yet earned while leaving themselves open to crises because they have no savings, no emergency fund, or insufficient insurance, isn’t ready to change.
If you’re ready to take control of where you’re going financially (and probably in other ways too), then you have two choices:
- You can spend less money, or
- You can earn more money.
So, what’s it gonna be?
April 7, 2009 at 6:55 am
After coming close to having no contract renewal this year I decided that I would do both. In the last 3 months I’ve managed to pay down thousands in debt (spending less and giving myself a higher salary from my company this year) and for the first time, I don’t feel deprived. If my kids decide they need new [fill-in-blank-here] when I know what they’ve got will do, they have the choice to spend their own money or change their minds. 4 months ago I would’ve been first in line to buy it for them, but now the onus is on them. DH thinks I’ve gone overboard, but I remind him that until the debt is paid, I’m done spending on un-necessities. Friends think I’m cruel for not buying them new shoes, despite the fact that they’ve got 2 or 3 pairs already that although a little dirty are still the right size and in decent shape.
I’m done keeping up with the Joneses, and I’m done looking at my annual income statements, seeing a $0 in my savings account because I spent it all, and then feel sorry for myself because I have nothing to show for my annual salary besides more debt.
Being aggressive with my debt has been painful, no doubt, but seeing that balance or cards and loans being completely wiped out is exhilerating! May 1st I’ll make a final payment to a $45K loan, this month I made the final payment on a credit card that was over $5K in January, and the upcoming months I’ll be wiping out my final $6K and $12K credit cards as quickly and as furiously as I can. If my contract ends, I’ll finally be debt free but also have enough savings to carry me through. Thanks Gail and thanks to all the success/struggling posters here. I know I’m not alone and I’ve learned there is a simple way, make more AND spend less…not one or the other. Slow and steady wins the race, but quick and dirty also helps keep the momentum going if you can do it! Get mad at that debt and you’ll find you’re loathe to spend another $20 on gidgetydoos when it could’ve gotten you $20 closer to your debt-free goal.
Whew, sorry so long…must’ve gotten caught up in my own momentum there!
April 7, 2009 at 8:00 am
Michelle-that’s so awesome! Its going to feel so great to make the last payments on those bills. Good for you for ignoring the naysayers.
Honestly, there is nothing wrong without having the latest and the greatest for your kids! With daughter #1 I bought her all new stuff, that she outgrew in 2 weeks b/c I didn’t want to dress her in used clothing (I know, I’m an idiot). Luckily I reformed…
April 7, 2009 at 8:15 am
I am on Week 3 of using the “Jars”, we use Ziploc bags! It’s been a little difficult at first, unexpected expenditures that we weren’t prepared for has forced us to empty out the jars, but I feel like this week we are really going to start to have some money building up. My husband and I actually looked at the prices in the grocery store for the first time in about 5 years. We had only $40 left to shop for and we did it. We just re-financed our mortgage, and are debt free and are planning to stay that way. I can’t wait to start to see the savings build up. This blog is the first thing I read every morning, it motivates me everyday to stay on track.
April 7, 2009 at 8:37 am
Michelle, Way to go! You sound so determined. Someday those children will thank you for teaching them to prioritize. I really like the idea of giving them the choice to either buy it with their own money, or reconsider. We all need a reminder now and again that what we HAVE is often just fine.
Christine, Good for you for learning from the 1st! If I ever have another child I will do things a tad bit differently too. Lucky for me, I have a friend who is more than enthusiastic to buy my son’s old clothes & items from me. She enjoys not having to go searching for the clothes & items and this way she knows they have come from a clean home and will be in good condition. It’s been nice to re-coup some of the money.
Nickiford: Good luck with your new budget. Sounds like you are off to a good start.
We recently found out my DH will be laid off as of the end of May. We had some indication this was a possibility so we’ve been trying to be careful about spending. Now the changes will need to be implimented.
I will be returning to work full time and that should balance out the difference between EI & our old income. We’ve been talking about ways we will cut expenses such as meal planning, driving less, no unplanned spending,figuring out a way to pay off our car early etc… I’m up to the challenge and sure hope we can make it work. I’m sure I wil be studying Gail’s budget suggestions much more carefully.
April 7, 2009 at 9:28 am
I’m with Michelle…definitely both! Why not? At least until things are on track, and there is a big safety net.
Question…my husband is against an emergency fund because he says he has life insurance and disability insurance…I don’t know much about this disability insurance, and I’m nervous it would not be enough. I will put money away in my name anyway, but I would like to convince him to be on board as well…
April 7, 2009 at 10:03 am
Michelle: Tell you husband that that only covers two emergencies… if one of you passes or is disabled enough to qualify for the disability insurance (if you get sick but its not permenent, i dont think disability would cover you) …Have him think beyond these situations… what if you are laid off (which is becoming quite common in todays economy) or need a major car repair that came out of the blue. An emergency fund is not to replace life insurance and vice versa. It is for things that come up unexpectedly. Having a good emergency fund will allow you to stop being dependend on credit when the caca hits the fan(as Gail would say). And if no big emergency ever comes up just be thankful and know you have money set aside if you need it.
April 7, 2009 at 11:10 am
One thing I’m considering is putting our emergency fund into our mortgage. I’m thinking of withholding about $2K in a regular online savings account and putting the bulk of it into prepaying the mortgage. I can withdraw the funds from that prepaid account at any time (though at a slightly higher interest rate than the mortgage). Advantages are that the interest I save on the mortgage exceeds the interest I’d earn in savings; disadvantage is that if I need to withdraw it’s a penalty. Thoughts anyone?
April 7, 2009 at 11:24 am
We found it tight to budget on one FT income and freelance income with our debt b/c as prices increased for some basics, but income didn’t follow the same 20% growth! The mortgage was up for renewal. So we rolled the debt into the mtg, renewed at a lower rate and the payments make our budget balance with a surplus. So the goal is to bank the surplus for 6 months then start to make lump sums to the mtg to eliminate what we added within the three year benchmark. While doing this, I have also found ways to increase my freelance work without sacraficing valued family time. We are going to try the jars next month now that mtg stuff is settled. I look forward to significant balances by the end of the year.
Thanks to Gail and everyone who posts here–your lessons are invaluable and help me stay on track everyday. Thank you!
April 7, 2009 at 12:02 pm
Geoff:
Don’t get too comfortable! Just because you don’t feel like you have a need for an emergency fund (maybe because you did not need it the past two years or something) does not mean that there is not another emergency around the corner! Keep 3-months at a minimum and 6-months (best) in a cashable vehicle and have a budget line that allows to replenish the EF if you need to use it!
If you have already 6-months of mandatory expenses or more, THEN putting the money assigned to replenish the EF into the mortgage seems logical.
(The other Marie)
April 7, 2009 at 12:24 pm
Michelle – wow, congratulations. It’s very impressive and it’s so wonderful to how you’ve accomplished your goals (or are close to the mark, anyway!) Thanks for sharing your wonderful news. Your hard work will certainly pay off!
Melaniesd – sorry to hear that your DH will be laid off. But it sounds like you’re got the right attitude which is going to get you far! It sounds like you have all the skills at your disposal to make this work. Good for you.
April 7, 2009 at 12:35 pm
Bravo Michelle! We did the same. Now that the debt is paid off we have more money because we aren’t paying those banks all that darned interest. $100/month extra in our pocket because we don’t have to pay it to them! In the grand scheme it is short term “pain” for long term gain. Good for you!
Gail thanks for the great blog today. I have already referred a few friends to come read it. It must be very frustrating for you to repeat yourself so often but every day new people wake up and realize they need to get things under control. Thank you!
April 7, 2009 at 2:10 pm
@Geoff: My recommendation would be to find out how quickly you would be able to access funds in the event that you needed them.
Most banks will allow you to “increase” your mortgage back to the original amount without incurring any type of fee of penalty as they do not need to re-register the mortgage and if rates are low you could potentially “blend & increase” which would allow you to take advantage of lower rates on the newly withdrawn money. I would talk to your bank or mortgage broker, just make sure if you speak to someone at the bank you get someone that knows their mortgages well.
April 7, 2009 at 2:29 pm
@ Geoff – I just did it. As in I literally just got off the phone with my mortgage company and am making the extra payment. We took most of our emergency fund and put it in an RRSP to get a bigger tax refund (and play catch up). I just took that tax refund and put it on our mortgage. This is what hubby and I had decided but I think I am going to throw up! We have no other debt and I know it is going to be okay (I have Faith!!) but it was harder for me than for hubby to make that decision. Right or wrong long term we will have to see. I know it goes against what Gail says. I know we have access to funds in a real emergency – not what I consider an “emergency”. We have a new roof, a newer vehicle and insurance in place and we would be able to live on husband’s EI so if worse came to worse I think…wait…I KNOW(?) we are okay.
Make sure your spouse is on board if you do it! And make sure you have a plan to replenish your emergency fund ASAP.
April 7, 2009 at 3:16 pm
Sally Marie everyone – thanks for feedback. Please note that I’m not thinking of this as ‘depleting’ our emergency fund – it is available in about 72 hours at any one time. It’s more like transferring it from our ING account into our Mortgage account where it can be more effective but equally “safe” as I can withdraw as much as I put in that’s extra.
So it’s not particularly liquid but if I really really needed funds I could put it on our high limit zero balance credit card and if they don’t take credit (Trapped in Jail?) we have a line of credit to withdraw from and use that to pay in the shorterm while the transfer is engaged.
I’m just thinking it’s silly to earn 1.5% interest on our $10,000 when it could be saving the 4% interest on that same $10,000 on our mortgage.
Sally what you did is a little more risky – you took your emergency fund and put it into an rrsp and put your tax refund into your mortgage. My scenario is to put our emergency fund into our mortgage. You don’t say if your rrsp investment is in equities or fixed income however you should specify that as that makes a big difference. In effect you have eliminated your emergency fund if you really think about it (rrsp’s are not very liquid).
Personally I’d be very nervous having an emergency fund in anything but a NON-RRSP guaranteed investment (moving it from my savings account to my prepaid mortgage account means the principal is equally guaranteed but the returns on investment are different). And keeping it in an RRSP account is very illiquid regardless of principal protection level.
April 7, 2009 at 4:40 pm
Thanks for the kudos all! It’s been a hard process, mainly in how I look at debt now and what’s NOT ‘normal’ in my world anymore. Hopefully more people will buckle down, pay off the debt, and start enjoying life more with a brand new outlook on their money and their lives.
April 7, 2009 at 5:59 pm
You are solidly right (as usual) Gail!
So many people get caught up in what makes them feel good or what they believe they deserve that they forget those golden rules of money. I live by the idea that I haven’t earned anything unless I can pay for it CASH! As a result, I managed to squander away enough money to get my husband a present that he has deserved for a very long time, a $5000 trials dirtbike. It’s something he would never buy for himself, because it is a luxury toy, but he has always wanted one and he is so good to the family 24/7. Well that’s the best $5G I ever spent (though I nearly vomitted as I took the money out). It’s been a year, and he has had so much fun with it! And still we are okay with the savings and no credit (except the house). It just took a surprisingly easy bit of focused discipline and working more hours over a few years and viola! A major goal reached! The momentum will continue to beef up the long term savings now.
Spend Less or Make More….. it works!
April 7, 2009 at 6:59 pm
Geoff:
Additional thought about your plan:
Who needs to sign to get the money out? (Think illness, …; single signature, double, …)
How easy is it to get this done if you are travelling?
How many hoops and how ‘official’ are they?
You can do what you want with your cash, but someone else’s or money tied to a string of protocol.