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As someone who has definitely spent way too much money for the 26 short years I have lived on this earth, I should be the first to tell you that buying expensive things can definitely drain your cash supply faster than Justin Bieber running from the paparazzi. After blowing through my inheritance, I had to really scale back my spending; otherwise I would end up in more debt than I already had. I stopped eating out so much, stopped buying clothes every week and started shopping as cheaply as possible. I paired my monthly expenses down to about $1,200 a month at one point, including $400 a month for rent. And though many would praise that as frugal living and being smart with my money, I think it was a ridiculous way to live, and if I could go back, I would spend more money.
Getting Out Of Your Hole
I have counseled a handful of people financially, and have found that most of them are not financially stupid. They understand that they need to pay their bills and should probably spend less than they make. The only thing they are lacking is a financial plan. I helped them track their spending, get on a budget and make plans to reach their financial goals. For most, the first financial goal when finally deciding to get on a plan is to get out of debt. And that’s where I usually start, because I believe that getting yourself out of debt is the most financially freeing thing that you can do with your money.
To start, I advise that you write down all of your debts, and use the ol’ Dave Ramsey snowball method, placing them in order from the smallest balance debt to the largest. The idea is that you can pay off your smaller debts much quicker, and then use the freed up money from that payoff to put toward your next smallest debt. You then gain momentum, like a snowball rolling down a mountainside, rolling your extra cash into a large sum of money to pay down debt each month. The best part about this method is that when you are debt free, you then have a huge snowball to throw at savings, investing and giving. We used this method to pay down multiple debts and will pick it back up when we are making some more cash.
Now, once you have identified your priorities and resolve to get out of debt, I do recommend cutting back on excessive spending in areas that won’t help you reach your goal. But, I don’t recommend cutting so much out of your budget that you end up buying things that do not last and hating your life because you have no money for a date night. I’ve done that. It really did not do any good in the long run, and actually cost me more in many instances.
Frugal Extreme: Bad Idea
At one point during my “frugal extreme” period, I was living with 4 other dudes in a cheap apartment in a university district. The apartment was so old and crappy that the “management” didn’t repair the old, broken, almost-falling-to-pieces staircase up to our apartment, they just painted it black every year to try and hide the rotting wood (that surely has collapsed by now). I had a nice truck leftover from my spending extravaganza, but most everything else I owned was poor quality.
My clothes were from places like Old Navy and Ross, my bed was donated from a friend and I’m pretty sure I still used my backpack from 8th grade. Which means I slept horribly, my clothes basically dissolved in the dryer and my backpack was probably the ergonomic equivalent of having a Bruce Lee flying sidekick to the lower spine. Also, living in such a fine estate with a nice vehicle allowed the locals riff raff to peruse our dead-end, no-streetlight road and help themselves to my $1,200 in-dash DVD player and case of over 100 CD’s (all legally purchased). DOH!
Conscious Spending: Good Idea
What I really should have done is figured out my priorities. I should have picked a few things to cut out of my budget completely and then set a standard for the purchases of things that were staying in my budget. I said earlier that I wish I had spent more money during this time of my life. What I meant was that I wish I spent more money in the areas that were important to me and stopped spending money in areas that were not going to help me reach my goals. When I cut back to the extreme, I ate horribly , I hated everything I owned AND it ended up costing me more in the long run.
This may be a bit controversial, but I suggest to anyone who is climbing their way out of debt to go ahead and buy that $200 REI jacket. Heck, it may be a long climb to financial peace, you might want a nice waterproof jacket to keep you warm. Keep your spending cash in the budget, and ACTUALLY SPEND IT! Take your significant other on a date, once a week (I suggest two dates at home, two going out). SPEND YOUR MONEY WHERE IT MATTERS AND DON’T FEEL GUILTY ABOUT IT! Too many “get out of debt plans” involve completely depriving yourself to the point of exhaustion, and guilt you for any spending that doesn’t go to bills and debt. BEING IN DEBT DOES NOT MEAN YOU CAN’T BUY NICE THINGS.
How We Spend Our Money
Ok, now that I’ve thoroughly freaked out every financially prude person out there, let me explain how this works practically at our house.
If you’ve been around for a while, you know that we don’t make enough money to pay our bills. We do have substantial savings, and are almost breaking even at the end of the year, but we’re on a pretty bare bones budget. We have found that cutting out nicer activities or items might help us put some money toward our debt or help us save a little money, but we would miss them more than the money lost. We have cut out many places in our budget down to the lowest amount possible, sometimes giving up certain things altogether. We don’t have cable, pay the minimum for internet, share a family phone plan with others, and don’t spend on cars, golf, or other hobbies. We have set our priorities and have been able to direct our spending towards those things without compromising quality or the budget. This is how we can spend more and save more at the same time.
We still tithe, my wife makes amazing, super-healthy organic meals (like, everything is organic), we buy (or find) nice clothes to wear, we enjoy good wine occasionally and both have spending cash each month. We try to go on 3 or 4 dates a month (though with a little one at home, this is tough), we still go on vacations and have family outings to places like the fair each year. We can do these things because we exercise conscious spending. It really all starts with a priority list (have I said that enough yet?) and then making some firm decisions to only spend where it matters to you. And hey, if your priority is golf, then cut out the crap you don’t need to get there, but don’t cut the quality of the things you do keep in your budget.
Comments: For those that are still paying off debt, do you still buy nice things? Do you find that being cheap ends up costing you more in the long run? What are some examples of areas in your budget that you compromised on to save money, but your purchase didn’t last? And who has two thumbs and is winning his fantasy baseball team? This guy.