Sound money management isn’t about binge spending and then cutting back until it hurts. Sure, when you’re in a store and something new and shiny catches your eye, you’re tempted. But just like eating a whole bag of one-bite brownies and then refusing to consume even a slice of toast will leave your body rebelling – you’ll get sick, run out of energy, feel like a piece of crap – so too does binge shopping and then cutting back on real needs, hurt like hell.
We know that calories consumed on a consistent basis work to keep our bodies fuelled. You know what? Money budgeted keeps us financially strong. It’s just as easy to live without a budget as it is to shove too much pizza in your face at lunch after having skipped breakfast. There’s no plan, just reaction. Working without a plan means not measuring out your resources in the way that’ll do you the most good.
Experts tell us if we eat while doing other things like watching TV or working, we’re likely to eat more. Ditto trying to keep track of your money in your head while you’re out with friends shopping or heading to the club. The best way to stay focused on your consumption of money is to use a spending journal to track where your money is going. Every time you write down how much you’re spending, you make a conscious decision about what you’re doing with your money. It’s the same reason food journals work: by writing it down, you pay more attention.
While many financial products are great for your health, how you use them can turn them into traps. Potatoes are healthy, particularly baked, and even more so if you eat the skins. Peel ‘em, fry ‘em in oil and smother them in ketchup, gravy or both, and you’ve turned a great food into fat. Same goes for a credit card. Use it for planned spending, pay it off in full every month and you’ll build a solid credit history. Use it indiscriminately, carry a balance, pay interest or worse (you glutton!) put more on the card than you can ever pay off, and you’ll make yourself financially sick.
Everything in moderation applies not only to food, but also to money management. A cup of coffee is packed with antioxidants and lowers the risk of type 2 diabetes. Four cups of coffee and you’ll end up jittery (and you’ll teach your brain to count on you to zap it with caffeine). Ditto for your debit card. Use it to pull the amount you’ll need each week (or two) from your bank account and your bank charges will be reasonable. Hit up any ol’ bank machine to pull a twenty, and you could end up paying as much as $4 in ATM fees. You just blew twenty percent of your money on fees! Dumb.
Just as the food pyramid helps us plan healthy meals, here are guidelines that help with money.
- Save 10%: This guideline works if you’re in your 30s. If you start saving in your early 20s, saving 6% will get you to the same place. And if you wait until you’re in your 40s, you’ll have to up it to 18% to achieve the same end.
- Spend 35% of your income on shelter costs. If you have no consumer debt, you may go as high as 50%, assuming everything else is in line. But if you’re spending too much keeping a roof over your head, it’s only a matter of time before you’re using credit to fill the gaps in your cash flow.
- Spend 15% or less on your transportation costs. The proviso here is you can’t take the car financing for more than five years. Yah, those low, bi-weekly payments over seven or eight years fit better with your budget, but they’re a killer when it comes to interest.
Money management isn’t as hard as most people make it out to be. Sure, there are some complicated areas – investing, insurance, estate planning — but most money management is common sense. Of course, knowing and doing are two different things. You know when you put those chips in your mouth that you’re consuming empty calories, right? And if you spend money on credit, which you can’t pay off on time and in full, that will lead nowhere good. Doesn’t take a degree in finance to figure that out!