Spending For the Times

Perhaps I have just been watching too much Suze Orman lately (I love her, I don't care what anyone says), but I get the sense that there is a lot of anxiety out there surrounding money issues at the moment.  Not just the obvious "the economy is bad my job may disappear" but also "how do I gain better control over my situation".  I cannot claim to be perfect with regards to my money by any means, but after a couple of years of feeling off kilter with my finances (being a grad student with zero income will do that to you), I feel that I now have found a solution that gives me a sense of authority over my money again.

A bit of background.  I was raised by frugal parents, who also were also raised by frugal parents.

Both of my sets of grandparents grew up during the Depression, and it has always been abundantly clear that their spending habits were heavily influenced by the experience.  Both of my grandfathers had government funded jobs (one an officer in the Navy, the other a NASA scientist) which gave them each quite a bit of financial stability, and yet they pinched a penny like nobody's business.  To this day, my maternal grandparents save the twisty ties from bread bags and find the idea of spending more than $30 on a pair of jeans to be an act of insanity.

My parents have inherited this sense of frugality, and are pretty old school when it comes to spending.  They bought a house in 1982, renovated as they could afford to do so over the course of twelve years or so, and paid off their mortgage before they retired.  They drive their very practical cars until they die (the government paid them $500 to take the car my sister and I drove throughout high school off of the road...it was a year older than I was at the time).  My mother even suggested as a topic for my grad school essay requesting a description of a moral dilemma that I had faced "how you reconcile living in a city where jeans cost $300 when you were raised by Mr. and Mrs. Cheap".  This frugal attitude is, of course, how they were able to send my sister and I to such wildly expensive schools without burdening us with debt upon graduation.  

So, although I enjoy the finer things more than the rest of my family and I occasionally spend more than is really prudent, my cheapo gene is strong.  And now that I am back out in the real world, paying back my student loans on a recession period salary and living in a city with endless possibilities to spend and consume, I have, out of necessity I suppose, come up with what I find to be a very satisfactory, effective financial strategy.  I am posting it not out of a sense of superiority (my spending habits at times mirrored the consumption-mania of the past few years), but because when I mention what I'm doing to friends they often seem to find it useful, and I hope that it can be for you as well.  

Like many things, the whole thing started with Oprah.  A while back, I was watching one of her debt diet shows and a financial guru named Jean Chatzky was on.  She was helping a financially troubled family (they seemed to be leasing everything in their home and had some ungodly amount of credit card debt, I have to say it made me feel quite superior, however unjustly).  After taking the family to task, she imparted this rule of thumb for how to spend your take home income (after contributing to your retirement plan, I presume):

It seemed reasonable to me so I went about seeing how my budget measured up.  Turns out (shockingly enough) that my rent was pretty well in line with what I should be spending on housing, as were my daily living expenses.  Transportation for me is my $81 monthly Metrocard, which meant that I was under-spending quite significantly in that category.  But that was a good thing, considering that my monthly student loan payments well exceed my 10% monthly debt allowance (although luckily, not by more than my transportation expense excess).  The point here is just that everything needs to add up to 100%, not more.  So to adjust the guideline to your situation, just move some around here and there (but do not give the savings short shrift!).

Now you may say, this is all well and good, but am I carrying a pie chart around with me every where I go?  Clearly not.  The problem with every well intentioned budget is always sticking to it.  The way I deal with the discipline issue is this:  I take a quarter of my monthly living allowance out of the ATM every Thursday.  This is what I give myself to spend in a week.  If I run out of money, then I'm canceling dinners out, I'm bringing lunch to work every day and I'm waiting a few days to pick up my dry cleaning.  Period.  Need to buy something for which you can't use cash (yes, Gilt Group, I'm looking at you)?  Just deduct it from the amount you get out the following week. 

As restrictive as this might sound, I actually have found it to be quite freeing.  I have absolutely no stress at the end of the month regarding whether I can pay my bills or not...I always know I'll have the money.  And weirdly enough, by not spending money, you actually begin to want to spend it less and less.  As my mother says, money is like sugar.  The more you consume, the more you want to consume.  

In general, I find myself spending my money in better ways.  I want, if I'm going to spend $60 on a dinner out, for the food be great, so I don't allow myself to be dragged to mediocre restaurants, which means I have fewer options which means I eat out at expensive places less.  I don't spend $2 on a cup of tea when I know that I can make the same thing in my office with the tea bags I buy in the grocery store for pennies a cup.  And if I am going to buy a coffee, it is a delicious cappuccino from Zibetto once or twice a week rather than a big fluffy coffee drink from the-store-that-will-not-be-named.

But the best part of my little plan?  No guilt!  If I go out for an expensive dinner or buy that cute skirt, I don't chide myself for being too extravagant, because I know that I've forgone something else in order to have enough cash to pay for it.  I cannot tell you how empowering this whole thing has been.  I feel more in control than I have in quite some time.