How to Get your Spending Under Control: Pay With Cash

Jen grew up in Port Hardy, a (now) small town on the North end of Vancouver Island. It wasn’t always a small town though; while Jen was growing up, it was around four times the current size that it is now. It supported numerous industries, including fishing, mining and the important one to our story, logging.

When Jen was young, her father saw the potential Port Hardy had, and so one day made the decision to move the family up there so that he could start his own logging company. Along with much in the world, the logging industry was booming during the late 70’s, and as a result her dad did very well with his company. The family lived in one of the nicer houses down by the beach, they took annual holidays to Hawaii, they went through a number of nice cars… money was never an issue for the family while the kids were growing up.

But like all good things, that gravy train eventually arrived at the end of the line a number of years after Jen had left home and finished up her schooling. And despite all the great things her dad had taught her, money management was not one of them. As a result Jen has slowly crept further and further into debt over the years since then.

But shockingly you don’t need to grow up in a well to-do family to have bad money management skills these days: banks and credit card companies thrive on the fact that no one wants to face the fact that they have little to no money. And they don’t even teach people the skill in school! It’s almost as though there is a conspiracy between the banks and the schools to keep people continuously in debt between graduation and death (is there??). As a result of this, Jen is far, far from alone.

Cash is King

Fast forward to January 2013. Like the Noble Anarchist, Jen hates making these silly resolutions that no one keeps beyond 30 days. What’s the bloody point. But with the Noble Anarchist’s pending mantra “Big Changes coming in Spring 2013”, it just might be the right time for Jen to make a change, and make one that sticks. The time has come for her to stop falling further and further into debt, and the easiest way to accomplish this is to get her spending under control. But how to do? By following the Noble Anarchists information-age-long strategy, that is, don’t do what everyone else is doing, instead do what your grandparents did (except maybe the first point):

  • Find a way to amalgamate all debt into one, cheap place so you can easily make one lowest possible payment per month towards it (ie. a good, prime-plus-one line of credit through a credit union). This will now be a bill until one day it’s paid off.
  • Figure out how much money you must spend each month on things you have no control over (ie. bills)
  • Figure out how much money you would like to be saving each month (ideally 50% of your income if you want to retire while you’re still youthful enough to spend some of the money you’ve been saving your whole life, but 10% is a good place to start for now if you think that’s all you can do)
  • Calculate the difference of those two numbers and divide by 4
  • Every Monday morning, go to a bank machine that is free for you, and take out that amount of money
  • That is what you get to spend until the following Monday morning. No debit or credit cards allowed. Period.

There are many reasons why this idiot-proof way of budgeting is so great: its effective (remember – no cheating!), its dead simple causing it to be forever maintainable (I’ve been doing it for many years – it really is hard to fall off the wagon), the short-term (ie. weekly) cap that allows you to not have to think very far ahead when deciding whether or not you can buy something, and most importantly, the fact that you get to physically feel every dollar that passes through your fingers and into someone else’s hand every time you spend one. Oh, and also you can speed up cashier lineups every time you pay for stuff, and personally I like not having a permanent record somewhere of all the stupid shit I blow my money on.

As an example, Jen knows she’s going skiing up at Whistler this coming weekend, and she knows the weekend is going to cost her $200. It is currently the Monday before and she’s been wanting to get a hair cut for a few weeks now, but rather than just blindly booking it for whenever the stylist is available, she can’t since that will only leave her with $20 for the rest of the week. And so the hair cut must wait until the following week. Simple logic.

Here is something I bet everyone has heard someone say at some point (if not themselves): “I never use cash – as soon as I have it, I spend it.” (or something to that degree). I think what people are actually trying to say when they make this statement is, “I never use cash – I hate feeling guilty about the fact that I spend too much.” The truth is if you follow the simple rules above, you won’t spend it because you have it because it has to last until Monday (and you will always be thinking about that), furthermore you won’t feel guilty about spending it because you have an allotted amount that you are allowed to spend.

Saving is Addictive

Once you manage to get yourself on the right path, you will find saving money addictive. For Jen, I told her she should be taking out $400 each Monday (that will cause her bank account to grow every month), but she keeps pushing herself to live on only $300 a week, and in fact she seems to be doing it quite successfully. After a mere 3 months, she’s gone from losing some unknown amount of money to the credit card companies every month, to now having $2000 sitting in her bank account to go towards her next holiday. Clearly she’s enjoying the challenge – I can see it in her smile when she talks about it!

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