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.

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.)

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.

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.

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.