by Judy M McCutcheon MBA
You would think the way some people behaved with their money, that they had a money allergy. It’s almost as if they have a production line, as the money comes in it goes out. A fool and his money are soon parted, is an old proverb which speaks directly to the unceremonious way some people dispose of their money — overspending, overindulging, and spending just for the sake of spending.
The Good News Translation Bible (GNT), expresses Proverb 21:20 as, “Wise people live in wealth and luxury, but stupid people spend their money as fast as they get it.” While I am not too keen on their interpretation, as far as alluding to the fact the people who spend their money recklessly are stupid, it does point to a very serious issue. The issue of people spending more than they earn, the issue of living pay cheque to pay cheque, the issue of overdrawn credit cards are all serious issues, that plague people from all walks of life. The way we spend reflects our background, experiences and psychological make-up. If you grew up in a state of perpetual money emergencies, chances are that you never learned any money management skills and because of that, you spend money in a vacuum, not connecting the dots.
Is there a secret to saving money? The thing is, most people do not have the necessary money management skills required, to manage even the smallest amount of money. One thing I know for sure is that it does not matter how much money you have, if you do not have the have the requisite knowledge to manage that money, you will lose it. I hear people say all the time that their monthly income is too low and that they need to get a raise of pay. But no sooner they get a raise, they find some new debt to go into that will devour the extra income. Maybe it’s not a function of how much you get, but rather what you do with it. I wrote an article some time ago and one reader commented that people would have to eat grass to take some of the actions I was suggesting. But, if you were to ask some people, why they bought, that new ‘widget’ or why after their final car payment, that car is no longer adequate, they won’t be able to tell you. The fool and his money concept. The good news is that money management concepts are not new and they are all acquired skills.
Sometimes you make a decision and in hindsight, you think, ‘oh my gosh, I could not have made that decision, it must be the devil that made me do it.’ Because there could be no other explanation for your behaviour. But did he really? What your behaviour is really saying is that you have no control. Have you ever gone to the supermarket to get two items and before you know it your shopping cart is filled with whatever you think you might need? A recent survey indicated that people are spending $1.33 for every dollar earned — this translates into you spending more than you earn. Is it any wonder that so many people are in debt? You must have the ability to say no to those buying impulses, whether it’s a new car, the latest fashionable clothing, shoes, hair extensions, or whatever buying urge you might have. Every time you decide to buy an item, ask yourself ‘do I really need this item’ or if you can delay purchasing the item, then delay it and you would see that every time you delay the purchase, you end up not buying it.
We are impulse buyers, most of the decisions we make about buying are done when we are eyeballing the items on the shelves. A lot of people operate without a budget, so there is no way for them to track their expenses. A budget is not meant to be restrictive but rather, it’s a tool that helps to keep you on track with your spending. It helps you to control your money instead of your money controlling you. There is something called the ‘pain of payment;’ what this means is that when you use cash to pay for your purchases you are much more likely to pay attention to how much you spend. Using credit does not have the same effect. You end up buying more than you really need, forgetting that you must repay sometime in the future and at a higher rate. Another thing to be mindful of is that those little expenses add up. Buying lunch every day for $10 or $15 may not seem like much, but it amounts to over $3,000 in a year. Try writing down everything you spend on in a month and you’d be amazed at how much you are spending. There’s nothing like seeing your expenses in black and white, to make you reconsider and redirect where you put your hard-earned money.
We live in an instant gratification society, we must have what we want and we want it now. Shopping is so simple these days that you can even shop while sitting on the toilet. You must set up barriers to spending so that it’s not as easy to get rid of your money. One issue that keeps us in a downward spiral is that we avoid having to deal with our finances because we find it both confusing and upsetting. For you to get out of a bad financial situation, you must face what is happening to you, look at the numbers squarely, even if they make you want to hide. It’s your first step to financial independence.
Judy McCutcheon is a partner in the firm Go Blue Inc, a Human Development Company. www.goblueinc.net