#fireblogger

1.     The first step to create a budget is to document your expenses. If you don’t know how much you tend to spend then it will be very difficult to create an effective budget. If most of your transactions are on debit and credit cards, then you can go back through previous months to track your spending. Or you can start tracking today so you have a better idea in the future.

2.     Once you have a good idea of how much money you tend to spend on various categories you can start building the budget itself. (Don’t forget about annual or semi-annual expenses like car insurance). Make sure you are aware of the differences between needs and wants when you are budgeting.

3.     Once you have a budget you aren’t done, you should continue to track your expenses and adjust the budget as needed.

So, now you have a budget. How does that translate to actually spending less money?  Here are some behavioral tips to help spend less money:

·       Now that you know about how much you spend on things start paying for them in cash. When you go to a grocery store with a $100 bill (or a $100 gift card) you are forced to spend less than that $100. You can’t go over, but if you had a debit card a $112 bill would approve even though it was $12 over your budget.

·       Change your daily habits to avoid temptation. Does your route to or from home pass by a fast-food restaurant that you just love? Did you just notice that you actually spend $50 a month there on coffee and French fries? Try taking a side street so you never see the sign. Do you habitually order delivery through your handy-dandy phone? Try deleting the apps, not seeing them on the phone can reduce temptation and the extra step of needing to redownload every time can slow you down when you’re thinking about ordering. Even if you don’t want to delete the app you can hide in somewhere in the back folders of your phone so you don’t see the icon and thing huh, think imma get myself some pizza.

·       If there’s a consistent ‘treat’ you like to get, think about low-cost alternatives. For example, I love pizza. Like, it’s not healthy, neither is my solution but we’re talking about money not fitness. I will often keep some tortilla shells, a cheese blend, and a bag of pepperonis on site. Then if I’m craving pizza, I can make myself a 400 calories pizza roll that costs less than 50 cents instead of spending the minimum of $10 (to deliver) which usually ends up being a $12 order which also has a delivery charge, tax, and tip and becomes something closer to $20 for a single craving?

·       Consider how your spending habits change when you’re emotional, are you more likely to buy yourself a treat and how much does that treat cost a month? Make the decision before-hand to redirect emotional buying to other positive behaviors instead. Things like working out, calling a friend, drawing a doodle of whoever pissed you off then burning it in the sink, or meditating. Whatever you do, don’t open up Amazon.

·       Ask yourself if you need something or want something before you buy it. Do you need those new shoes? Or do you want them? Taking the time to add one more mental step before actually spending the money can help reduce impulse purchases. My No Spend Year | Michelle McGagh | TEDxManchester is a great TED Talk on this topic.

·       Forget trends. Don’t even bother trying to keep up with all the newest fads. And if a fad looks really cool? Take a step back and ask yourself if you really think that this new item is actually useful and will add joy to your life, or if you just think it is because of herd mentality.

·       Don’t go into debt to buy things. This mainly applies to credit-card debt and doesn’t really apply to houses (especially if you plan on getting a duplex and renting out of it). If there’s something that’s really cool, it will still be really cool when you have the money saved up to buy it in cash. It might even be really cool and cheaper if a new model comes out in the meantime.

Pay down your debts. This is less advice to reduce immediate spending and more advice to avoid future spending on interest payments. There are two main schools of thought when it comes to paying down debt:

1.     Start with the high interest debt. This makes the most logical sense as high-interest debt will end up costing you more in the long run.

2.     Start with the lowest balance, regardless of debt: This makes the most emotional sense. People are human, and they like to see progress on their goals. The feeling of success when you pay off a debt completely can help spur you on to tackle the next debt.

Starting with the high interest debt is my preference. I want to save every penny possible, and that’s the way to do it. But if you know that you may have difficulty sticking to a plan, or if you want the satisfaction of paying off your debt then the second option is a fine one to take.

Changing your behavior and paying down debt are some of the harder steps to take when trying to spend less money overall. Here are some simpler, practical, pieces of advice:

·       Buy in bulk. When you go grocery shopping do some meal planning first and buy in bulk. If you have a larger family then stores like Costco or Sam’s Club can be very useful to get some discounted prices. However, if you’re like me and live in a very small household then buying some items in bulk at a local cheap grocery store can be just as effective without cluttering up limited storage space.

·       Explore secondhand shops for new appliances, clothes, furniture, etc. Online marketplaces like Craigslist and Facebook Marketplace can be great places to get good deals. There’s no need to spend $50 on a waffle iron when the Youth Ranch down the street or Bob around the corner is selling one for $5.

·       Price-shop. Amazon won’t always have the cheapest prices, and while convenience is nice they aren’t the only home delivery store. Shop around to see where you can get the best price for your purchases.

·       Don’t buy as much stuff, borrow it if you can. If anyone knows me then know how much I love books. I used to have multiple bookcase that I would move about once a year when I switched apartments. Over time I forced myself to give away or sell most of them, and now check the local library for my next read. And by now I mean pre-COVID-19. But post Covid I’m sure I’ll be back at it!

·       Look for long lasting, high-quality versions of products. A nice pair of shoes can last you five years or more in my experience. If you can, save up for the longer lasting versions so you don’t have to replace them as often.

·       Reduce any monthly bills that you can. If you consistently have rollover data that may mean that you should pay less for less data. If you’re going to the gym just to use the treadmill, consider walking around the block a few times instead. Decide if you really need all those streaming services that you pay for.

·       Adjust the thermostat, especially if your home isn’t especially energy efficient. Keep the apartment a little colder in the winter and a little warmer in the summer for power savings.

Finally, this is all well and good. But how do you actually follow through? The best person to answer this is yourself, but here are a few options:

1.     Get an accountability partner. You can go through each other’s finances to make sure you are hitting your goals. Having an extra set of eyes can be incredibly useful to not only spot places where expenses can be curbed, but to make sure that what’s on paper matches what you wanted there to be.

2.     Pay for everything in cash. This is reminiscent of Dave Ramsey’s cash budget. But if you have an envelope of cash labeled food, and that’s all the fast food and grocery money you have for the month it will be difficult to go over the limit. There’s also something more visceral in giving up cash as opposed to sliding a card that may make you think twice about going through with your purchase.

3.     Feel broke to be rich. Try opening a second bank account for your paycheck and bills, then set up a recurring transfer to your main checking account. If you never see the bulk of your money, and if your bank balance looks low every time you open the app to check it may be easier to avoid spending money. This isn’t a mindset that everyone wants to be in, but I’ve found that constantly feeling broke means I am far less likely to spend money on frivolities.

I mean, just look at https://newrepublic.com/article/158555/whiners-earn-200000-complain-theyre-broke. Your salary could double or more without changing your economic posistion. (I mean, in the long run. Short term it would surely help). Making $50,000 a year is very different in New York, New York compared to a small town in the middle of Montana. And $50,000 a year is different to people with high credit card debt than to brigh-eyed bushy tailed kids out of college.

Let's use me for an example, I can't really afford to eat out more than once a month. And when I say eat out - I mean iHop, Applebees, that sort of cost. Upgrading my internet in this rural town? Fuggedaboutit. But my friends, who are younger than me and still working in the retail/food jobs can afford to go out far more often! (I'm pretty sure their internet is cheaper too, but they still live about 40 minutes away from me and they have infrastructure).

Why? Because of expenses. I spend 70% of my paycheck on retirment accounts and taxes, and while I could stop those contributions and start buying some (insert fancy restaurant here, all I could come up with was Red Lobster. . . ) one a week I'm not going to. Instead I'm going to live far, farr below my means and work less.

So, who's rich? Me, or my friends? The answer is actually both of us.

I may be broke but I've got assets building and I can pay all my bills. I'm making progress towards my goals, and I live comfortably because my idea of living comfortably is pretty darn cheap. When I went car shopping my standard was air conditioning (and that it runs of course). That has saved me a ton of money in actual car costs as well as insurance and interst.

My friends may not be investing as much, but they are enjoying life and they can pay their bills. One of them has bought a nice car because having a nice car is important to them, they have a studio apartment because privacy is important to them.

My point is, figure out what's important to you. And then figure out how much that's going to cost you. Who cares if you're making $50,000 or $200,000 if you can be happy on $15,000?

And that's that. That's the secret to being rich, live on less that you get.

I'm going to follow up on this to say that I'm trying to be concious of people who don't yet make enough. Not everyone is in a position where they can reduce their means. You may want to move two cities over because the housing costs are so much lower, but you need a deposit first.

I'm not trying to say everyone is rich. Just that being rich is closer than $100,000 a year.