Posted by Robert on August 8, 2011
Allowing spending to exceed income is the cardinal sin of good cash flow management. Earned income is normally used to cover day to day expenses, with a little left over for a rainy day (or retirement). But when spending outstrips earnings, savings are used up and debt grows. Debt is literally the opposite of financial freedom, making a promise to work in the future to pay (a higher price) for enjoyment today. Debt has the effect of narrowing options and forcing a person to work for someone else.
How can you tell that you are losing your financial freedom? A sure warning sign is carrying a balance on a credit card. If someone were paying with a credit card, but not able to pay the full bill each month, they are spending more than they can afford. Another warning sign is a growing line of credit. Maybe the credit card is paid off each month, but the line of credit grows larger. Another signal is getting help from a parent or other family member. Some people get into “temporary” trouble with a credit card or a medical bill or other expense, and get help from family to get out of a tight spot. The problem is when they keep getting into trouble and asking for more help.
Often, the first reaction is to set a strict budget. I’m not a fan of budgets. I don’t have a budget and I have rarely met anyone who enjoys budgeting. What I believe is that it’s essential to understand how much spendable income you have, and to try to arrive at the end of the month with a little left over. What my wife and I found helpful was to look at our bank statement each month. Our bank totaled the deposits, totaled the withdrawals, and showed the difference as an increase or decrease (in net worth). Most months, we were proud that we had an increase, although there were some bad months. The important thing was that there were more good months than bad ones.
I don’t care how you decide to spend your money. Personally, I hate lists like “how to save $0.10 on a grocery bill”. It’s important to use our resources (money) wisely, but there’s the risk of being cheap. And that’s before accounting for the fact that people will spend differently, depending on what’s important to them. It’s not my place to judge what’s important to you, as long as you spend within your ability. Otherwise, you’re selling away your freedom.
If you find that you are overspending, I have a suggestion. First, put away or cancel your credit cards. Don’t use them for one year. Don’t use your debit card for purchases, only for deposits and withdrawals at the bank. It turns out that there is more psychological resistance to parting with cash from your wallet than there is to paying with plastic. So take out enough cash for a week (or two weeks, or a month) and use that to pay. When your wallet is empty, stop spending until the next withdrawal. In this way, you can mentally track your spending and build good habits. And if there’s money left at the end of the month, feel free to indulge. Money is meant to be enjoyed, not to cause feelings of guilt.
How do you keep your spending under control? Has this ever been a challenge for you?
Posted by Tim Stobbs on August 4, 2011
Dear Reader,
I apologize for the drop in the frequency of posts and the quality of my writing for the last month or so. I was little overwhelmed from the new day job and really needed a solid break from everything, which I did manage to do during my vacation in July. Unfortunately this blog got the short end of the stick during it. By quirk of fate I was also reading a few books regarding life planning and doing lots of thinking about what do I want from life. I was defining what is working, what isn’t working and what would I change next.
So while I’m not totally done that process yet I am getting closer to defining what I do want to keep and this blog is firmly in that camp. So while I get back into the routine of writing more and paying attention to the quality of the writing I thought this would be a good time to ask you for your opinion.
What would you like to see from this blog? Please feel free to name topics, posts you would like to see an update to, excel tools or even short ebook ideas. Heck I’m even open to the idea I should just finish switching this blog over to a group blog by picking up a few more regular writers since we are half way there already. Frankly feel free to ask for the moon if you like, I may not be able to do it, but you can ask for it. Or if you find it easier feel free to outline what isn’t working for you on this blog. I’m open to any and all feedback that is constructive. You can either leave a comment on this post or send me an email at candian.dream.free.at.45[at]gmail.com.
Thanks again for your patience during this period.
Tim
Posted by Tim Stobbs on August 3, 2011
“Oh my word…these are the best Boston baked beans I’ve ever had.” I said to my wife the other evening. She agreed and that is when I learned a few interesting lessons all in one day.
The first lesson was the more obvious one by using a slow cooker you can make your own Boston baked beans for the fraction of the price of retail. How much cheaper is it? Well I only had one recent receipt to compare to but from that I know we normally buy beans from my chili recipe for $1.37 for a 398mL can. Cost of beans to make six cups (or 1500 mL) was about $2 plus the other ingredients which lets be generous an assume another $0.75 for those. So in total the homemade version cost about $0.18/100mL while the store version was $0.34/100mL. So just about half the price and it tastes much better, so good bye beans from a can I will be making my own in the future.
The second lesson from the beans was a little bit more interesting. I was under the impression that making your own beans from scratch was difficult or something. In fact the recipe goes something like this: take 2.5 cups of beans add in half an onion and five cups of water. Turn slow cooker on low for 8 to 10 hours. Now the hard part: add ketchup, molasses, brown sugar, dry mustard, salt and pepper and let cook for another 30 minutes. Eat.
Obviously making the beans is very, very easy to do and I have to say I don’t know where I got that impression that making your own was difficult. Yet that was my second lesson: don’t assume something is hard until after you have tried it. Your life is going to be full of assumptions and impressions that under even a mild amount of examination will be proved false. Perhaps my favorite one is: I would love to retire early, but I can’t. I call bullshit on that one.
Retiring early is easy to do. Cut back your spending on crap you don’t need, boost your savings and put more of your cash on things you love to do in the mean time. Then get creative with your expenses and find a method that works you. It might involve moving to a more affordable smaller city or town, getting used to living on a little bit less and creating a more realistic picture of what you want to do with your extra time in retirement (less golf and more hobbies that actually don’t cost you anything). You can do all of that, but often people choose not to. We hide under reasons like: I have to be close to my family (Why? Because right now you only see them once a month anyway and then complain about it), or perhaps I have to keep this job (Why? Just because they haven’t got to making cuts to your department yet doesn’t mean that job will be there for long).
In the end we often assume we can’t do things for reasons that really don’t matter that much if at all. You have to get in the habit of questioning your assumptions about your life since once you do that you can realize just about anything is possible depending on how much work you want to put into it.
So how about you? What assumption have you faced and realized it wasn’t true? Or do you make your own beans or buy them in a can?
