Making Ends Meet

The old saying is wrong. Or at least from an emotional point of view it is mis-leading.

The old saying goes, “It all adds up.”

It would have more impact if the saying went, “It all multiplies out.”  The only problem is- that saying is lousy…”It all adds up” is much catchier!

Now look, everyone is sick of the same old story, “If you just cut out that $4 cup of coffee you could save twenty million dollars a year.” Can anyone come up with an original magazine article? Besides how many people do you know who actually get a $4 cup of coffee everyday?

It’s not the small habits that necessarily make the difference. It’s just the pesky math.  If you take the family out to eat twice a week and it costs $30 each time then you spend about $260 bucks a month- over $3,000 a year.  You can eat at home for a third or less of that amount.

Now the problem is that I think that you probably need to go out and eat- at least as our society is now. It gets you out of the house. It is fun. The food tastes good. You can’t just never eat out again. This is not about that. It’s about the principle.

Every time you spend money the effects of that multiply. Do you play golf every week? $50 a weekend for 40 weeks a year is $2,000. Have a shopping habit? $100 here, $20 there, a fabulous $9 pair of shoes over here. And pretty soon you are spending $300 a month.

Keep it in mind– “It all multiplies out”   Not in and of itself as a behavior modification tool- but as an awareness tool.

“Wow, I notice that I go to Red Box 3 times a week. That’s $156 a year.”
“I go to Sonic every night after work. Wow, that’s $27 a month.”
“My mobile phone plan costs $150 a month. My goodness- that’s $1,800 a year!”

Then if you are married you take both of your habits and expenses together and it really adds up.

The consequences and the solution:
The solution is not elimination, it is modification. Really, if you like Red Box then go to Red Box- but maybe you only do it twice a week- savings: $52 a year.
And say you go to Sonic three times a week instead of 5- savings: $156 a year.
Then you take a look at your cell phone bill and you realize you have a feature you don’t use- your bill is reduced by $30 a month or $360 a year.
Just these three little items and you have spent  $568 less.

Have you ever wanted to take a Caribbean cruise? That’s the consequence part. You can take a 5 day Caribbean cruise for around $600.  So by doing all these small things over and over and over you multiply your spending.  Instead you could almost pay for a cruise!

The important thing to remember is this- don’t try to cut all this stuff out. Obviously you “need” a mobile phone these days and going to Sonic is a ritual you cherish and a good movie is how you unwind.  So keep all these things around- just do them a bit less often so you can do big stuff more.

(Notes- Sonic- $1.50 a day, 5 days a week, 4.33 weeks a month.  Red Box- $1 a movie.)

Each of these “Ten Reasons” needs their own blog post. But if I want to get them in here for you site visitors to be able to see.

Ask me questions about them-  then once you read them you should fill out the form below to get started with your own Three Piece Plan.

1. It requires no continuous work- no entering categories, dividing up receipts, etc-   who has time for that?

2. You get paid every week. Or at least that is the way you will feel when you are on the Three Piece Plan.

3. You are doing SOMETHING.  Doing nothing won’t work. So having a simple system helps you keep your mind focused on getting out of debt and not overspending.

4. The Three Piece Plan decreases consumption. Because now you feel like you run out of money more often. So every week you find yourself eating at home, not shopping, etc. And the best part is that you don’t mind it!  You know you have money in the bank and that “pay day” is just a few days away.

5. You build an emergency fund almost automatically. Enough said!

6. You KNOW, instead of guessing and overshooting, exactly how much money you have to spend. This keeps you from bouncing checks, etc.  No more, “Whoops, I thought that check had cleared!”

7. You enjoy your money so it motivates you to spend it right. It is an UPWARD spiral. You spend less, you stress less, you worry less, you take care of things faster, etc.

8.  It is easy to adjust. If you get extra income you are not inclined to spend it so fast. If your income goes down it is easy to look at where you are and adjust accordingly.

9. Communication. It gets much easier on the Three Piece Plan. You look at how much cash you have, or how much you have in your “Today’s Money” account and know exactly what you have to spend. So it is easier to tell your spouse, “Uh, honey, we only have $25 to last two days, can you wait until Wednesday to get your hair cut?”

10. The Three Piece Plan family budget system is sooooo easy to set up. I can literally set up the basis for one in less than five minutes. It also works well for budgeting on a variable income.

We’ve already been working to get our money under (more) control for nearly a month. In a normal budget we would have not been able to stick with it for even three weeks.

So it’s the start of week four for us today. And I admit– it’s not as “fun” as it was three weeks ago- but guess what- that’s how the Three Piece Plan is designed. It does not have to be maintained or kept up with. Today I will go to the bank, get out the cash and we’ll spend it. The only thing we have to do is not spend more than we get out of the bank. Next Wednesday we’ll get more money out.  No “household items”, “automobile expense”, etc etc blah blah blah to keep up with. We just do our thing and the money takes care of itself.

Last week I said that we had overspent some- so I subtracted that from this week’s money. It just turns out that we did find- even working off of 75% of our normal weekly amount.  There is a reason for this- check out the category–”Why Use the Three Piece Plan”== it’s because the Three Piece Plan reduces consumption.  We knew going into this week that we were short of money so we just simply spent less of it.  Keep in mind that we got paid last Friday. We only get paid once a month…on the last working day which happened to be last Friday- three days BEFORE the first of the month. This should make for a long month but it also should have been the time of month where we are all excited and go out and eat and spend a bunch of money over the weekend.

But with the Three Piece Plan budgeting system we don’t have just one payday a month. We now have 4 or more paydays in a month! So making our money last from payday to payday is much easier.

Something different did happen this week- we were not short of money- it’s just that we needed some go go juice for the car. I had $15 with me and my wife had $20 or so with her.   So, I just put the gas on the debit card. Tomorrow when we pay ourselves I will simply deduct the $30– but this week instead of being short of money we will have about the same amount we normally would have had.

The point is this– it is VERY VERY VERY (Did I say “Very”?) important that you stay on track with your “Today’s Money”.  The whole idea is to spend less money now so you have it later.

Whoops, there goes another one.
And another.
And another.

The seconds just tick by. Gone. You cannot have this second back, nor the last one, and when the next 60 go by they are gone forever.

And oh boy do we ever wish we could have some moments in our life back. Those embarrassing speaking gaffs, or the time you blew your temper, or looked up just in time to rear-end someone.

But here’s a principle  for you– money is like time.

You only have so much of it and once it’s gone it’s gone.

“But you can earn more money, right?”

“You still only have so much of it.”
“I don’t understand.”
“Well think of the money you will earn in your lifetime in it’s totality.”

At birth you get a two dollar bill from your grandma to put in your piggy bank. Then you find money laying around the house, earn an allowance, baby sit, and mow lawns. Then you get a job waiting tables. Then you get another job, you sell real estate for awhile, and you get an inheritance along the way. Soon you retire and start drawing down your savings and collecting Social Security. The last dime you earn in life is a small stock dividend for $3.42 that you never expected. And, oh, by the way you still have that two dollar bill from birth!

Taken all together you will have earned or received all the money you will ever earn or receive. No more, no less.  It’s what I call the Whole Pie Principle.

You only got one money pie- and if you eat it too fast, spill it, or let it spoil you ain’t gettin’ no more.

So the whole point is to use your money like you use your time. Wisely, because once it’s gone you can’t get it back.

It is the end of the month. We started our Three Piece Plan the second week of the month. Payday is tomorrow. But two things interesting happened…as I expected when theorizing the Three Piece Plan.

1. It is the end of the month- and we have money left over. Wow.

2. And more significantly– tomorrow is payday– but we don’t feel like it. There has not been five days of worry about if we’ll have enough cash to make it. We have not had to clean out the cupboard to scratch together dinner. Our car is not running on fumes.

So we lose out on that “Thank God it’s Payday” feeling. Instead we’ve replaced it with THREE (Next month it will be four, sometimes five) days where we replenished our cash and felt a similar sense of “OK, we made it this week.”

There is still some work to do. Some evolution that needs to take place. In short we need to figure out how to have some of our Everyday Money left over at the end of each week. That is because there are SOOO many things unaccounted for- the car repairs, vacations, etc. This is one of the areas where we will need to learn from others (like you) about what is best to do… either way money burns holes in our pocket- the question is what is the most fireproof pocket?

A separate savings account? I don’t like this- the more you spread your money out the more likely you are to bounce a check!

At home in cash? That is OK- but it seems like you’d be more likely to spend it.

In your regular checking account? More and more this seems to make the most sense. The money just builds up there. The problem comes because if you use it once you are more and more likely to say, “We’ve got money in the bank, let’s just use that.” It may be true, you do have money in the bank- but you need to not spend it because you have not accounted for nearly all of your “Everyday Expenses”. So the problem with keeping it in the bank is that you are co-mingling funds. Hum, we’ll see. I’ll, of course, keep you updated!

Why use the Three Piece Plan?
Because you don’t have to keep up with it daily!

I think this is the number one reason that people can’t do a category or software based budget.

Constantly having to divide up receipts, enter categories, shuffle money between envelopes (the only thing the envelope method gets most people is paper cuts!), and what do you do when you can’t figure out those last few pennies? You just quit.

I think it’s the same thing for diet plans that have you count calories! The only people who make money on that plan is Weight Watchers. No one has time to count calories every day… and no one has time to count every penny they spend!

So, why use the Three Piece Plan? Because it does not take any daily work.
Set it up once, let it work for you, and make minor adjustments when your income or your outflow changes.

This month it’s a birthday.
Next month a vacation.
After that a car repair.
Then an anniversary.
Valentine’s Day, Mother’s Day, Christmas, new tires, property taxes, car wrecks, Emergency Room visits.

Every month.

Something.

As in, “We were doin’ fine but sumthin came up.”

And always just when you think you are getting ahead.

It’s at least $200 a month, but can be $1000 or two.

And we always say, “Well if we didn’t have “SOMETHING” this month then we would have been OK.

The “Sumthins”  are a real big root cause of the Chronic Debt Cycle. We spend all our money and have to break out the credit card for sumthin.  One thing turns into two sumthins and pretty soon you have more sumthins than Willy Wonka has Oompa Loompa’s. Little things running around causing big trouble.

There is a little sum’n sum’n that can fix the “sumthins”– it’s called — “Never again will SOMETHING be a suprise.” There are no surprises in personal finance. Only lack of planning.

Wow. Week Three. The Third Week.

I admit, I am a little shocked.  We started our Three Piece Plan the second week of a short month (February). We get paid on the last working day of the month and get another piece of income around the 20th.

For a year now, every month, at the end of the month, we are out of money. Plain and simple. Out. The well has run dry. I mean we make it. But it’s with $18 left in the account or having to hold off on something for a few days.

Every month. Every month for a year. Every month for a year it’s been this way.

This month– it looks like we will have about 15% of our take home pay left over. Wow.  Now, to be clear this may not be a typical month. We did have a birthday party and Valentine’s day. But there is always something.

I know we need brakes on our car. But we are supposed to pay for such stuff out of our Everyday Money. So we will wait until we have enough of our weekly “pay day” money saved up to put the brakes on the car.

A second point- something very important needs to be mentioned here.

Last week we got handed cash $100 more in cash than our weekly “Everyday Money” pay day is supposed to be. We actually had to break into that money a day early. We also put $15 in gas on our debit card because our $100 bill was at home.  So really we are $115 “over”– that means that today, when I go to the bank to get out our cash- I am going to subract $115 fro it. That will keep us even and on track.

The flip side would also be true, as it was last week. If you get to your pay day and have had a slow week, let’s say you have $200 left over. You still need to PAY YOURSELF EVERY PENNY of your Everyday Money.  Things will come up, things you have not planned for and you need to have money to pay for it.

The CDC.  The Center’s for Disease Control? Nope.

The Chronic Debt Cycle (CDC).

The family caught in a CDC is the type of family that is most capable of breaking out of debt, breaking out of worry, and breaking out of the CDC for-eva.

You can recognize a Chronic Debt Cycle–  look for this…

… and the worst of the CDC breed– when you find yourself in $15,000 (or $60,000) of pure credit card debt, pay it off after a few years, then find yourself right back in it 12 months later.

… you go awhile without any debt, then a situation throws you back into debt.  A situation such as a move to a different house, a temporary layoff or job loss, the sudden loss of other expected income.

… you only go into debt certain times of year- such as a Christmas time or if you are self employed you survive on credit cards through certain slow months of the year.

… your debt load goes up and down up and down up and down– but you never get it paid off.  Something always comes up and it keeps you in Eternal Debt.

…  you may have never had a credit card- but most of your furniture is paid for $20 a month over a period of years.

… car repairs or vacations make you pull out the credit card.

… you have a home equity line of credit that you periodically tap- then pay off.

If you have any of these (or many similar) things happening in your life then you are in your very own Chronic Debt Cycle (CDC).  The good news is that this is the easiest kind of debt to get out of and stay out of.

The primary problem in a CDC is not lack of money- it’s just sheer lack of planning.

The easiest way out of a CDC is to use the Three Piece Plan. There are certain situations that I will address separately later- like for small business owners.

We pay ourselves on Wednesday. Every Wednesday. If you get paid weekly then of course pay day should be your “pay day.”  But we get paid monthly so we picked Wednesday for our “pay day.” This is when we go to the bank and take all of “Today’s Money” out in cash.

I think Wednesdays are the perfect day to declare that your “Everyday Money” pay day.  It works because it is two days before the weekend and just two days after it.  If you pay yourself on Friday you are more likely to blow too much money over the weekend and if you pay yourself on Monday you are likely to not have money to enjoy the weekend– then you just blow your budget altogether. Now that would be no good!

Now, what if your weekend is actually say Tuesday and Wednesday?  Then consider a  Friday or Saturday pay day.

We had an interesting second week.

Ella’s 2nd birthday party was that Sunday. It was like we were having a wedding. We were at the store constantly. We spent $1.17 for pipe cleaners to give antenna’s to the lady bug on the cake. Then there was candy to fill the pinata, last minute bottles of pop, an extra roll of wrapping paper, and “Whoops, we are out of wrapping tape.”   Not to mention the cake, a sudden realization that Ella just had to have a Mr. Potato Head (my idea), and an extra package of napkins.

By Saturday we were almost out of money. To the point where I said, “Boy we sure spend a lot of money!”

Keep in mind that when you get started on the Three Piece Plan it will initially cause some friction— but not as much as constantly being in debt!

As with any life change there is nothing better you can do than chronicle your journey.

So week one.

Starting off is always the hardest. For practical purposes it is really better to start right after a large grocery shopping trip. So the day before you set as your payday- go shopping and get all of the random things that you are out of.  This will go a long way to helping you even things out. How hard it is to get started depends a lot on just how tight your finances are and what your exact situation is. If you are like we are- you make enough money to cover your bills but just seem to blow a lot of money. You may find that you have so many bills (Today’s Money) and debts (Yesterday’s Money) that you really don’t have enough to live on every day.

If that is the case please- look at the top of this page and either click START or CONTACT ME. I want to help you out of your financial pickle.

Now, our first week.

We got our money out of the bank. And spent it. All of it. And we don’t know what we spent it on. There were multiple trips to Wal-Mart. We ate out a time or two, we filled up the car with gas.  And the money was gone.

Here is something to remember- let’s say you pay yourself $250 every week- you can only spend $25 ten different times before you are out of money! So you fill up your tank with gas and you have spent 1 and a half of those times.

Next week we have both Valentine’s Day AND Ella’s second birthday party to spend on! So it should be an interesting week.

It’s been 10 years since I realized that I am really passionate about personal finances.  There’s just something about numbers, something about the mental side of spending, something about the stress, something about the power that money holds over us that just makes it worth figuring out.

I remember very specifically when my idea of “how to budget” first popped into my head. I was struggling with the idea of budgeting- I knew that nothing seemed to work. No one sticks with budgets– with their endless categories– with envelopes or jars or spreadsheets or software.  Do YOU have time to sit down and enter your receipts on the computer? Do you want to shuffle your money between envelopes or jars?

Here is an even more important question– Say you are on a category based budget– you have $4 left in the “gas budget” but your tank is on empty and you need to make a quick trip “to the city” or “across town”… are you going to NOT go?  Doubtful.  If you need to go then you need to go.

Said another way– category based budgets don’t work.
I know that– and I am guessing you do too.

So, here we go.  Come along.  Learn with me.

P.S.  aka One Last Thing
This site is not a blog.  It’s an instructional site. I want you to participate with me.  I want you to implement the Three Piece Plan in your life.