Monday, January 3, 2011

Resolving to Spend Less?

We aren't. It's damn near impossible for us to spend much less than we already do. But as a reformed shopaholic, I can proudly boast that I now kick ass at spending less. But as most of y'all know, we were forced into a financial makeover more than two years ago. So we didn't really have the choice to say, "Oh I think we'll resolve to spend less this year." No, we just kinda had to. And of course, as I've said countless times, it was probably one of the best life lessons we've ever been handed.

I know "spending less" and "saving more" are two of the most popular New Year's resolutions people have. It's very easy to say, but not so easy to do - especially if you don't have a plan. So as someone who not only spends less on everything, but has also been on a self-imposed shopping hiatus for over TWO years, maybe I can help. At the very least, I can tell you how we do it. We've been sticking to our guns for over 26 months, so I can guarantee these methods are tried and true. You may argue, "that's great for you, but that wouldn't work for me." But all I hear is "I'm not willing to make those sacrifices." The truth is that it does work. It doesn't matter who you are or what your financial situation looks like. There's nothing fancy or sophisticated about this, but you gotta work it. I realize it's a lot harder to *choose* to cut back than to be forced into it. But if you want it badly enough, you can do it.

Below are five keys to spending less and saving more. I didn't make these up. These are things we have learned and ingrained in our heads over the last two years. They are not temporary changes - they are lifelong. Whether we have $10 in the bank or $10 million, these principles hold true.

1. Get on a budget (and actually stick to it).

Oh, that dreaded "B" word, I know. Someone says "budget" and we immediately picture a straight jacket. But the big secret is... a budget is not a form of bondage; it is freedom. Most simply put, it is a plan. As my go-to guru Dave always says, "If you don't tell your money where to go, you'll wonder where it went." And a budget is just that: telling every dollar where to go. We do what's called a "zero-based" budget every month. This means every single dollar that we know is coming in has a name on it before the month begins - before it ever hits our account. So, income minus expenses each month equal to ZERO.

Pictured here is an actual screen shot from our current budget. Just a snippet, obviously. But this is basically how our main budget is laid out each month. We have 13 different categories of expenses and three are shown above. Amounts that are estimated are highlighted in green until I receive the bill and know exactly what's due. If you're interested, I'd be glad to go into a lot more detail with you about how we run our budget. I use Excel to keep up with the budget (which is one file with several worksheets) and I use Quicken to track our cash flow. Drop me an email if you have questions - I seriously LOVE helping people with this stuff, so feel free.

Aside from the mechanics of the budget itself, it's extremely important to do this with your spouse if you're married. A plan is no good if only one of you is on board. The other one will screw it up in about two seconds flat. This doesn't mean you both have to sit down at the computer and hold hands as you punch out your budget. I'm obviously the nerdy one in my marriage - so I actually put together the budget and pay the bills each month. But the hub is certainly involved in all decisions and we sit down together monthly (at least) to go over what's going on in the upcoming month. Generally, one of you is better at handling the budget, but you both have to be involved in carrying it out. Once you've settled on the budget for a given month, consider it a contract between the two of you. This is our plan, and we're sticking to it. You of course will run into something every month that wasn't in the plan. That's just life. Take a time-out, juggle some things around and continue on.

2. Give, Save, then Spend.

Without a plan, most of us will spend, spend, spend... and if there's anything left at the end of the month, we might give and/or save. What's a sure fire way to rock your financial world? Turn your old spending habits upside down. I dare you to give FIRST out of your monthly income. Pay YOURSELF next by saving. And lastly, live on the rest. This concept alone has changed our lives and the hub and I both agree it's the best decision we've ever made together. At the very top of our budget each month is our tithe. It comes out automatically twice a month, so it's gone. And thank God for the automatic withdrawal because if it didn't go first I know there's many a month it might not have gone at all. Second on our budget is our "Savings" category. I will touch more on savings here shortly. Everything that follows is general "spending." Our monthly bills, debt payments, and everyday living expenses.

Understand that there is something incredibly spiritual about this ordering. It doesn't always seem mathematically or logically sound. All I can tell you is that it will mess you up - in an amazing way. Tithing, specifically, is about trust. It will open your heart in ways you can't believe. In ways no financial expert can quantify.

One other thing I should say about giving... We personally only tithe right now. Our budget is extremely tight, so we do not currently do any giving on top of our tithe to our local church. We're told to take care of our own households first and foremost, and the hub and I take that seriously. When we're out of consumer debt and able to give more (one of the things we can't WAIT to do), it will of course fall in this "Giving" category on our budget. I know people are always pulling at you to give $20 here and $30 there for great causes. If you can, do it! But if you're in a financial bind, it's your responsibility to take care of you and your family first. It's OK to say NO, and you should. I have a big heart for giving and definitely understand the urge. Use your time and your hands instead. There are many opportunities to serve that don't require you to write a check.

3. Build an Emergency Fund.

And no, a credit card does not count as an "emergency fund." How many of you have stuck a credit card in your wallet "just in case?" That's a recipe for disaster, as I'm sure many of you know. Whether you're a proponent of credit cards or not doesn't matter here. I think you know my position (or you will by the end of this), but you've got to set CASH aside for emergencies regardless. Otherwise, your beautifully planned out budget can take a big unexpected whacking and suddenly bills aren't getting paid. A solid emergency fund is made up of 3-6 months of expenses. That's not 3-6 months of income; it's 3-6 months of funds needed to LIVE. So if you normally spend about $5,000 per month on the mortgage, utilities, debt payments, grocery bills, and other necessary spending, you need to set aside $15,000-30,000. In CASH. Not invested in the stock market or locked up in a 401(k). This is not an investment; it is insurance. It's "a buffer between you and life," Dave says. Stick it in an interest-bearing savings account and leave it alone.

That's a lot of money, right? And if you're familiar with Dave Ramsey's plan, you know the fully-funded emergency fund is actually baby step 3 (in his 7-step plan to financial peace). So if you're in the midst of paying off consumer debt, as are we, limit your emergency fund to $1,000. If you know a storm is coming, of course stop and save, save, save. Otherwise, believe it or not, you will get by just fine with only $1,000 put away. We have for over two years. The amount is small for two main reasons: It's easy to save quickly, but it's small enough that it's a little scary. The idea is to push you to get your debt paid off so you can fund the rest of it.

And remember we're talking about saving for *emergencies* here. New tires are not an emergency. Back-to-school clothes are not an emergency. Christmas gifts are not an emergency. An emergency is an unexpected event and none of those I mentioned qualify. But there are things, such as Christmas, that pop up every year that we need to plan for. And this is where other short-term savings come in to play. For example, put $100 in "Christmas Savings" on your budget every month and you'll be able to shop pain-free in December. Whatever you're saving for, the biggest point I'm trying to drive home is that your savings must have a purpose. If you just have a savings account at your local bank that you stick money in here and there with no real purpose, those "savings" are likely to disappear. You walk past a pair of hot new boots and suddenly you're transferring money from your "savings" account on your iPhone and viola! You've got killer boots and no savings.

Just like your monthly income, every dollar that goes into a savings account needs a name on it. Don't just save for the sake of "saving." Save with purpose. Whether you're saving for emergencies, future spending, or retirement, save with purpose.

4. Use cold hard CASH.

Maybe you're picking up on a reoccurring theme here... intentionality. Basically that's what all of this is - being intentional with your spending and saving rather than flying by the seat of your pants and hoping everything falls into place. We tried that method! It worked for a while. And then it didn't. So if there's one fool-proof key I can give you to carrying out your intentions each month (i.e. sticking to your budget), it's the cash envelope system.

To me, this is the absolute secret to success. It is so simple yet SO effective. It is revolutionary, yet it's not - it's just common sense. In fact, your grandmother probably did this. The short of it? Use cash (as in the green paper stuff) for your everyday spending instead of debit cards or credit cards. On your budget, identify what categories you'll use cash for and designate a dollar amount. We typically have cash envelopes for Food, Entertainment, Dogs, Dry Cleaning, Gifts (birthday, etc), Hair Cuts, and Miscellaneous. Some months call for an added category or two, but these are our most-used ones, personally. Each pay day, I pull out the amount of cash we need to replenish our envelopes (we fill them every pay period, not just once a month). When I go grocery shopping, I use cash from the Food envelope. If we go to the movies, the hub pays for his popcorn from the Entertainment envelope. We both have our own Miscellaneous envelope for whatever. But once an envelope is empty, it's gone. There is no "borrowing" from other categories or whipping out the debit card. If it's gone, it's gone.

Why is this method successful in cutting back spending? The truth is, spending cold hard cash "hurts" more. Psychological studies have been performed that prove there is an element of actual pain triggered by spending cash. Using a debit card still triggers some pain, but much less. Spending with a credit card registers virtually no pain. Translation? You spend a lot more when you use a card, especially credit cards. According to a Dunn & Bradstreet study, consumers spend 12-18% more when using credit cards. Do the math - that is a HUGE chunk of your budget. Huge. Think about it... why did all the fast food joints transition over to taking plastic? It's not for your convenience, that's for sure. McDonald's reported that their average ticket rose over 55% once they accepted cards. You spend more when you use plastic. You spend less when you use cash. If you want to spend less, use CASH.

I realize it's a big change for most. Pictured here are my actual cash envelopes. (I have a smiley on Food because I love food.) I was lucky if I had a single dollar in my wallet before we moved to an all-cash system. I whipped out the debit card for everything. But I think you'll find that being on a cash envelope system provides a lot of freedom. You've already pulled out the cash for the $100 you budgeted for clothing. You don't have to think about it or feel guilty for spending it. You (and your spouse) agreed to that amount on your budget and it's there for you to use accordingly. And once it's gone, you're done. No more shopping till next month.

This has particularly been a huge help for us on our grocery bill. As I'm going through the aisles, I'm tallying up everything I put in my cart. I round up to the nearest dollar to keep it simple, but I know how much I'm spending before I ever get to the checkout line. I've only got a set dollar amount in my envelope and I know I can't go over it. And yes, I've totally had to put stuff back after realizing I was exceeding my budget. And given that our grocery funds are very limited, I've become a coupon nut too. We've completely changed the way we grocery shop. I never paid attention to prices before, not really. I was a sucker for creative packaging. If it looked good, I bought it. And I'd swipe my debit card at the checkout, hardly ever taking real notice of what I spent. If I've learned nothing else, I've learned the true value of the dollar.

The biggest protest I hear regarding using cash is the we-run-everything-on-our-American-Express-and-pay-it-off-every-month. If that's your thing and you're "doing fine," go for it. I can give you a list of reasons why I don't agree with that method, but people are going to do what they're going to do. I just gave you one freaking huge reason. So if you really want to spend less in 2011, get out of that habit. You can easily afford airline tickets with the money you aren't spending on other crap.

5. Identify areas where you can make sacrifices.

"Every little bit helps." The hub and I say that all the time. When we were initially making over our finances, we had to quickly examine our spending and find things we could cut out or cut back. You may not have to do this, but maybe you do. We found ourselves immediately ditching our maid service, cable TV, and home phone service. We also cut out any dining out. We used to eat out ALL the time. So that one was a big adjustment for us. We still only eat out maybe once or twice a month at most, and if we do it's at our local dirty Mexican joint 90% of the time (very cheap). What's eating up your budget that you can trim down? The daily Starbucks? Weekly golf games? Pricey concerts? Gym memberships? (I'm not encouraging you to stop working out, but you don't need a gym.)

Whatever your goals are for 2011, there is undoubtedly an amount of sacrifice involved in order to win. Whether it's not spending money on something you normally would, or not spending time somewhere else in order to have more time doing something more worthwhile... we often must give up something in order to achieve something better. Sacrifices, even small ones, can have big payoffs. With spending less and saving more, you have to learn to say NO to some things. You have to learn to say NO to yourself. Dig through your bank statements and seek out areas you might need to say NO to... I'm pretty sure you don't need that $5 latte.

I share these things with you not because I know it all. Again, I didn't dream up these ideas - we learned them and incorporated them into our lives. And we are SO the better for it. I was running our spending report on Quicken the other day - I get a really nerdy satisfaction out of revisiting where our money went over the last 12 months. As I did for 2009, I ran a tally of all my "shopping" for 2010. This is money spent on clothing and accessories for me, just because. I couldn't give you an "old me" tally because I didn't keep good records then. Let's just say it was exponentially higher than the numbers I'm about to give you. In 2009 I told y'all I spent $45.57. The only other spending I did that year was for a bridesmaid dress and shoes, which I didn't include in that figure. In 2010, I beat that number! Drum roll, please... I spent $34.90. Ten dollars was spent at Old Navy and the rest was on a Vera Bradley bag I ordered. Now of course I have gotten other clothes as gifts and have received a gift card here and there that I've used to buy clothing. But only $35 came out of my wallet. Pretty damn good, I say! Shopaholic reform is possible, girls, and I am living proof.

So if you are resolving to spend less and save more in the new year, you've now got a solid how-to. Incorporate these principles into specific goals for you and your family. Whether or not you want to do it is ultimately up to you, duh. But if you're serious about it and ready to make some big changes, you will find success if you apply these principles. All of this is an expansion on topics specific to spending and saving, but if you're really looking for a top-to-bottom money makeover, please go rub elbows with Dave and get cracking with the baby steps to financial peace. It'll rock your world.


Gracie Beth said...

I am the opposite when it come to cash for some reason if I use cash it is disposable and like I never had it however using my debit card makes me fret and anxious. I am FAR more likely to blow through cash than my bank account.

Buford Betty said...

I was the same way before being on a cash-only system. If I had random amounts of cash in my wallet, I'd blow right through it.

But if the cash in your wallet is ALL you have for spending (and you can't use your debit card), it's a different story and a completely different mentality.

The Shabby Princess said...

Oh my gosh, thank you for posting this! Two years ago when my husband was laid off, I went into super strict spending mode and it was really freeing--I realize that sounds weird, but, it was. Over time, I've gotten really lax about it and recently we had a major budget issue and once I was able to calm the heck down, I went through our bank account and cut out a lot of frivolous things I was purchasing.

I'm somewhat of a shopper, so, it will be hard for me to get back to my "I don't need, I don't buy" ways, but, I know I can do. This was just the kick in the pants I needed. Thank you!!

slp1 said...

Great blog! I love your entries on money management. You make them very relateable to someone just starting to make a budget. Right now, I budget on paper but would like to jump to a spreadsheet/Quicken. I would love to know more about it. It is great to see how you put Dave Ramsey's advice into everyday action. Many thanks on this well written entry. Keep up the blogging.

Preppy Pink Crocodile said...

Where did you get the little tally pad thingy you have pictured here? I like it. :)

Susannah said...

Damn Gina, just damn! This is amazing and you are super rockin for Dave!!

Anonymous said...

Thank you, thank you! I have just started Dave Ramsey!

Buford Betty said...

PPC - they are cash envelopes from Dave's site. I just buy the refills - they fit perfectly in my Vera Bradley wallet!

Jennifer said...

I came over from Preppy Pink Crocodile and love your blog! This is a great post! I would love to have a copy of how your budget speadsheet if possible. I am getting married in June, and I am graduating college in May. I have put myself in ridiculous credit card debt throughout college and now am living in a budgeted way. My fiance is great at budgeting, but I am bad at sticking to it. We are planning to have a budget that we both stick too, but I am not really sure where to start. I have one I work with now that is a zero dollar one like yours, but I would like to see how you lay yours out so I can tweak mine. For instance, I don't differentiate between entertainment and shopping money in the budget (although it's ZERO right now too!). I am a reforming shopaholic and proud of it. I am beyond excited to get on track and am bound and determined to stick to it, so that should definitely help us in our marriage! Anyway, any tips or advice or anything you can give me would be appreciated more than you know! My email is Thanks for putting this out there. I really love when bloggers speak out about sticking to a budget!