Most people, I suspect, have no idea where their money goes.
They know roughly where it goes, but similar to the amount of income tax they pay, have no idea how much.
I, unlike most normal humans, find it fascinating to know how much we spend each month. At times it can be depressing, like when we spend $500 more than what we should have. But it can also be exhilarating, like when we produce a $50 surplus (yes, the small things excite me).
I do miss the days of two incomes and no mortgage. After being a poor student for five years, it was like winning a lottery, but without the million-dollar home and Ferrari.
Instead we had a two-bedroom apartment and an old Honda. But we could eat out whenever we pleased and could buy things that were not essential to living.
Shopping has changed in nature since we bought a home and started a family. It’s certainly our choice to live the way we do, and we have few complaints, but it is interesting how our spending patterns have changed.
Our big shopping days now involve trips to the grocery store. Prices are monitored carefully, restaurants are visited infrequently, and finances are tracked diligently.
Every receipt gets entered in the master Excel file that produces a monthly number – the “number” tells us whether we’re free to spend or forced to save.
Sound too regimented or anal? Perhaps. But in a society that has more debt than ever before (the average Canadian’s personal debt is at its highest level in history), is it not wise to watch our finances a little more closely?
I do it because I know how easy it is to spend money when you have it, leaving nothing for when you need it.
Just a few years ago, I received a healthy bonus in my paycheque due to a retroactive pay increase (yes, those are nice). Did I wisely invest my windfall? Three days later we had a new laptop and bike. It’s human nature to spend when it’s there, and it’s human nature to always want more.
To overcome human nature is no small feat, but it can be done if you have the fortitude to engage in a little self-deception.
For myself, I start by under-stating how much we make while over-stating how much we spend. Put in your expenses today what you plan to spend tomorrow, as much as this might drive your significant other crazy.
“But we didn’t spend $100 on our vehicle this month,” your spouse may object when looking at your newly minted spreadsheet. To which you will respond in your all-knowing financial voice, “Honey, all depreciation is now expensed. Our vehicle just lost $100 in value this month.”
If you can start to generate a surplus, make sure the money is gone before you realize it’s there to spend. Divert it into a long-term fund as soon as your paycheque arrives.
The final element of self-deception may be the hardest of all, but is likely the most effective. It is to deceive yourself into thinking you belong to a lower economic strata. Essentially, this means hanging around people who have less than you. Most financial hardship results from trying to keep up with those who appear to have more (the proverbial Joneses). Stop admiring the guy with the Lexus (unless, like my uncle's, it’s 20 years old), and start befriending the guy with the Dodge.
Nothing will help to keep you out of the red more than this.
A good book I enjoyed: http://www.greenwithenvythebook.com/book.htm
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