So, how do you live on less than you earn? Well, this series of 12 tips from the Commoncents website lays it out quite simply. It’s pretty basic.
Here are some steps for getting to that place, if you aren’t already there.
- Track EVERYTHING you are currently spending your money on for a month, including any cash spending. More than a month is better, but I understand that you may be itching to move forward. Absolutely NO cheating on this step.
- Group it together at the end of a month – into different categories like rent/mortgage, groceries, etc.
- Are there any horror stories staring back at you? A giant “other” category that is full of random $5 or $10 purchases? Everyone’s experience of evaluating their month end spending will differ, but if you are spending up to and over your earnings, there is a good chance you are suffering from unconscious spending in one or more categories. Maybe you have leaky bucket syndrome, or maybe you love dining out, or perhaps your Friday night takeaways are spreading through the week, and maybe you have a dreadful shoe-buying habit.
- Ask yourself if you are willing to work X hours each month in order to pay for that surprise area. My copy of Your Money or Your Life is a bit dated now (there is a new edition that will probably have brought it up to date), but it is great for this evaluation phase. It makes you frame your spending in terms of life energy. i.e. if you earn $20 an hour after tax and decompression costs, when you buy your 20th pair of Nike sneakers for $260, then you are essentially saying you are willing to work 13 HOURS in order to have them.
Once you’ve pulled yourself up off the floor after learning just how many hours you are working to keep up that latte a day habit it is time to take the next step… if you’ve found this to be shocking, I’m pretty sure you won’t be alone. I can remember being gobsmacked when I first did this a goodly number of years ago. But please, don’t stop with feeling shocked, as the next step isn’t really that hard.
Choose your priorities.
For most people that is a roof over their head and enough food and clothing to be healthy. After that, your choices will be determined by your own situation. You will have to see and decide what is excess baggage and what is genuinely necessary for your health and safety. And no, having a closet full of shoes like Imelda Marcos is not a genuine necessity.
The other aspect to consider about all of this is your own character. Some people can go all cold turkey on things and do really well. Other people, well… not so much. The cold turkey crowd, if they truly can maintain things for the long term, will reap the benefits faster. But if you’re more like a snail who retreats into their shell humming “la-la-la-la” at the first sign of things changing, your journey is going to be longer with more bumps and bruises. You will probably take two steps forward, one back – then one forward and two back. The key is to persevere.
If you genuinely find it hard to stop impulse buying, then you cannot go past using the old-fashioned cash system. In our household we use cash only for groceries (this was one of our big overspend areas – we like food) and have a set budget for each pay cycle.
For all those little “wants” that are not essential we have our ‘sanity money‘, which we get each week in cash – rather like pocket money for adults but with a bit more scale. Once that money is spent, we have to wait until next pay day. It’s amazing how quickly you can get the hang of weighing up the pros and cons of “do I really want to buy this?” when you have a limited supply to spend.
I don’t want to tell you that it’s easy, especially if you’ve struggled with impulsive spending, but I do want to say you can do it.
This September my goal is to reduce our spending right back – what is needed, the sanity money and that’s about it.
I know that there will be a few extras at the beginning of the month, as we will be heading to Auckland on a special birthday trip for the Oh Waily kids, but my goal is still to live on 50% of our income. I reckon you can too, and probably with a lot less pain than you think it will be. It may take you a while to get there, as you break age-old habits of believing “stuff” brings happiness, but get there you most certainly can.
Feel free to join in. Choose a level and see how you go. Don’t forget to leave a comment if you plan to give it a crack.
For the record, I’m going for the higher end of Seriously saving, as I know there will be some extra spending.
Baby-step beginnings: Live within your means (i.e. you spend no more than you earn)
Starting out: You save between 10% & 25% of your monthly earnings.
Got this sussed: You save between 25% & 40% of your monthly earnings.
Seriously saving: You save between 40% & 50% of your monthly earnings.
Savings Guru: You save 50% or better of your monthly earnings.
Savings means money that stays in your account rather than leaves for greener pastures in random business places. This includes (as far as I’m concerned) any reduction in revolving credit facilities, loans or credit card balances – so a bit of a cut-down version of your overall financial position. (I track my loans, my credit card balance, my savings accounts, and any improvements across the group = savings – in my world. Feel free to set your own definition, but don’t be too soft on yourself… you’re only cheating one person if you do – you!)