Making Ends Meet

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Well, guess what- you can’t save money if you are spending it.

Saving money means one thing- you save it. You know, in something like a SAVINGS account.

I think maybe the reason we, as an American population, does not save is that we have misused the word so much that we don’t know what it means.

It does not work like this-
“Do you save money?”
“Yeah, sure, I mean, uh, I saved two bucks today when I used a double coupon.”

Again, spending money is not saving money. Pop Quiz– You slip through the “only one coupon per item” system and use twelve double coupons and only paid thirty cents for a huge brisket that would normally have cost $22. How much money did you save? The answer is not $21.70. The answer is NOTHING! You saved no money, you SPENT thirty cents.

It’s just a mind trick that we play on ourselves, thinking that we are always saving money when in reality we are only spending money.

Never ask of money spent
Where the spender thinks it went.
Nobody was ever meant
To remember or invent
What he did with every cent.
Robert Frost, The Hardship of Accounting

I remember reading this years ago when I first came up with the Three Piece Plan. I got goosebumps realizing I was onto something- because if this was written decades ago it meant I had hit on a principle.

Indeed, Robert Frost nailed it on the head- and it’s why regular budgets don’t work- “No one was ever meant to remember or invent what he did with every cent.”

The real trick to getting your money under control is using mind tricks. Having Yoda around would help. Unfortunately we have no way to Dagobah.

It has been common belief among economists for decades that humans, given two financial choices, will always choose the choice that is best for them. If you ever “accidentally” bought a car you will understand just how overwhelmingly stupid that statement is.

Almost every day we make financial decisions that make less than good sense. For instance- you have two choices- spend $2.00 on 20 ounces of Coke or spend $1.00 on 67 ounces? Spend $1 a night for movies for 22 nights a month or pay $17 a month for 30 nights of movies?

The reasons we make silly financial decisions is actually a whole line of study in itself- it’s called Neuroeconomics or behavioral economics. And it boils down to this- choosing a cold 20oz Coke when you are thirsty at the gas station is not the same decision as getting a warm 2 liter from the grocery story later tonight.

In other words there are lots and lots of reasons we make the decisions to spend our money the way we do.

That brings us back to the ways of the Jedi.

Just being aware that your mind and emotions can lead you down financial paths you don’t like can help you make the right decisions.

The biggest mind trick is a key part of what I teach in the Three Piece Plan.

When using the Three Piece Plan you separate out your “Everyday” spending money. This is a mind trick. Actually it’s a reverse mind trick- when your money is all in one place you think you have more to spend than you actually do– that’s the trick. And it’s what gets you into debt.

So you pull a fast one- you pull out your spending money, put it in a separate account and suddenly you don’t spend more than you should. Simple trick. Super effective.

I found a good reason to use debit cards- they help when you have junk you need to return to the store.

A pair of Old Navy jeans ended up in my possession. They were the wrong color. That dark dark blue makes me legs itch.

So I went to return them. As it turns out my wife had used Ye Old Debit Card to buy them. My receipt was long ago sent overboard somewhere. Ah, but this is where I got a little education in “The Ways of the Modern Retailer”

If you pay for your jeans with plastique (plastic- for the less French of you) then Old Navy can track them, determine that indeed they are Old Navy Jeans- for some reason the “OLD NAVY” label is not proof enough. From there you can exchange your purchase.

This isn’t the first run in I’ve had with the debit card trail.

But it is the one that got my head spinning on the age old question of what’s best- Cash or “Credit” (or debit- but Cash or Credit has a better ring to it.)

I work from a human behavior point of view and, right now, my gut tells me that human behavior works better when dealing with cash. It is easy to see– when it’s gone, it’s gone. And even better, you can easily see when funds are thinning up for the month.

So the debate continues- what works better- using cash for Everyday Money or using a debit card.

If you are a user of the Three Piece Plan you know we pull out a weekly amount of spending money (if you are not using the Plan click here and sign up to get started!) So I have two concerns with using a debit card for Everyday Money-

1. When you use a debit card you don’t know exactly how much money you have to spend.
2. You run the risk of incurring over draft fees.

So I am working on what I think the final answer is- let me know what you think…