Most of us know, at least intellectually, that the key to prosperity is living on less than you make, and the key to that is to control spending, and the key to that is to keep to a budget. One of the reasons that most people never get around to budgeting is that their finances are too complicated to start with. Over the past few years, My lady and I have discovered a way to simplify our finances to the point where our monthly bank statement fits on one side of one sheet of paper. Sound intriguing? Read on…
Part of the problem is that for most of us, our spending pattern consists of a huge number of relatively small transactions; those of us who use their debit card to buy a pack of chewing gum at the convenience store or a boom-shakka-lakka-rakkachino at your local Fivebucks Bigbucks Coffee Shop know what I mean. All of those little expenses show up on your bank statement, and the result is an unholy mess that you just want to shove into a drawer and forget about.
The key here is to reduce the mass of small transactions into a handful of larger ones. The easiest way to do this is to combine the minor expenses, hit the ATM once a week and go cash-only. In my household, that cash covers: Groceries, Car Repairs (envelope), Household (envelope), Entertainment (Eating out, taking out, going out, and Sending out for Pizza), and a small amount of spending money for each of us “to walk with”.
The first time you do this it will be uncomfortable, make no mistake; if you are used to swiping your card without thinking, you will experience an “ouch” moment every time you open your wallet and see that inadequate wad of banknotes… but this is a good thing. Research has showed that people spend 15- to 35% more when they use plastic. So now, instead of “I came, I swiped, I bought“, your thinking becomes “Is this important enough for me to invest a portion of my ever-dwindling stash?“.
The real pain comes a little later; when you run out of money and realize that you were spending more than you thought you would.
Suddenly you are thinking and prioritizing – which is exactly what the marketers and merchants don’t want you to do. They want you to buy without thinking. Did you think that McDonald’s put in all those CC swipe machines out of the goodness of their hearts?
When you receive your next statement, however, you will see how much simpler it looks, and how much easier it has now become to count the cost… which is the first step towards setting up a budget that you can actually use.