In the game of personal finances, you either invest and manage money or you spend the money today and die.
Or at least, that’s how it used to feel.
Before tackling my spend, I was living paycheck to paycheck and I still remember that sinking feeling when I saw my net worth go down and trending negative.
This article tackles what I did to reverse the trend and eliminate impulse spending:
(But first, thank You! Over 100 responses to last week’s post & survey. The post today tackles one of the popular themes in the responses: impulse spending.)
(One other big update: The early survey responses tell me I’ll be launching at least two courses very soon. The first on frugality, akin to Ben Franklin’s Poor Richards Almanac each year. The course will obligatorily be free of charge to all on the list at launch. More news on this later but I can confirm that unlike Ben, I won’t be charging a penny for my Magnum Opus on frugality.)
(Thanks again for taking the time as your feedback helps hone the aim of the content. A big bow is in order but first, we move on to eliminating impulse spend….)
Spending in Chicago
Our frugal approach to a night out begins with great intentions.
The intention is simple. Entrees & water. That’s it, but, spontaneously adding 2 drinks and an appetizer to our dinner adds another $30 to the final bill.
The spend happens before we know it, before we have the chance to say otherwise.
Or, we spend in the last moment as we cave in to not wanting to say no.
Tackling spending is a tough experience.
Great intentions give way to the realities we experience living paycheck to paycheck as well.
Typically, it all boils down to this.
The very next paycheck.
Simple questions helped me clarify what my intentions were and what they should be:
- Is my next paycheck going to pay off last week’s spend?
- Is my next paycheck going to pay next month’s mortgage with only $X left for the month?
- Is my next paycheck fulfilling the “pay it first principle” I learned about?
If the answers aren’t what you wanted them to be, then first take a quick snapshot of what you want them to be. For us, our answer led to a future 5 year goal of ours: being able to support thousands of animals via a shelter. For many, it includes eventually supporting some close friends or at least some very close family.
Whichever reason you’re looking to escape paycheck-to-paycheck, the specific reason doesn’t matter, at all.
All that matters is picking that one reason and starting with that next paycheck.
I promise. It will not kill you.
Turn the pain into a motivator.
I used to be upset the entire week before my paycheck. I would often overspend in the first three weeks and be left in a bit of a spartan crunch during the final week – having only a few dollars per day.
Cosco salads at $3.50 were a lifesaver at this stage in my investing life.
But, each moment that week I reminded myself that I was paying myself first with each paycheck.
The choice upfront helped down the road.
I didn’t need extra clothes or extra food. I didn’t need the extra money that week, but of course, we’re all exposed to marketing and advertising.
Each frugal decision we made was a step closer to financial independence.
(My late night posting failed when I couldn’t get this gif to run smoothly on the post. )
Scaling the mountain….it might only look intimidating but you might be asking yourself.
Where to start?
How to Tackle Spending when Living Paycheck to Paycheck
Paycheck to paycheck represented its own challenges. The strategy that worked for me?
Tackle spending by spending just a little extra on yourself. If you’re out and you throw down a $100 for a dinner, then simulatanesouly add $10 to a long term investment, preferarbly a low cost index fund.
As a bonus, if you can automate the process, then you might be able to squeeze the savings without feeling a pinch.
For another method to escape the deathtrap of living paycheck to paycheck….
Avoiding CC Surplus
Avoid Credit Card overspend by picking a day each week and leaving the credit cards at home. Convert to Cash only. Go old school! I’m considering going back to all cash for an entire year, based solely on hearing about the benefits it offers.
In the meantime, try all cash for just a day and as a bonus, do what we used to do. Have the cash day on Fridays, when everyone is typically out after work with happy hours or dinners.
It worked. At least, it helped cure the weekend hangover (a bit).
By setting up a set amount of cash, you can avoid a large part of the millennial credit card surplus.
A third approach to eliminate impulse spending.
Invest $100 a Month
As Warren Buffett says, “Don’t Invest what is left after spending. Spend what left after investing.”
Some survey responses especially enjoyed the $100 a week to live on approach we are applying in our latest frugality challenge, so I’ll add this piece below for those starting off.
If you’re at $0 then try ~$3.50 per day or $100 per month or as I used to do it, $50 per paycheck. The early days of investing might seem small but I still recall the sweet feeling of having every $25 invested earn me one shiny new dollar each year for the rest of my life.
That was one of the most liberating feelings I ever experienced in my life.
The same feeling happened for my fiancee when she discovered cash towards her debt was also cash used to reduce her liabilities. The subtle distinction sparked her to start accelerating her loans on top of investing even more cash. Right on!
Trust me, it was a 180 compared to how I first met her:
(Another fail at posting gif’s tonight as this one here didn’t make it.)
Becoming an investor, hopefully, is only an upward journey for the both of us from here.
If you haven’t linked the final piece yet, becoming an investor is akin to grabbing onto helium balloons. Each dollar lifts you up and compound interest only adds strength to the portfolio in the years to come.
Another analogy I like is growing roots.
Bottom Line: this is actually the first response to the survey as we’ll dive in more, feel free to take the survey if you want us to respond to your specific pain points. Link is here.
Actual Bottom Line: So…start somewhere, even if it is just $1 per paycheck. The moment you transform that first dollar into equity is exhilarating. I recall running around my parents basement on the phone. Start small and stick to the commitments at $X per week or whichever cash day of the week you pick to eliminate the credit card spend. Finally, add the 10% to pay yourself first, then build from there.
Have you tried any of these tips and tricks to reduce spend? Which ones worked for you? Any that didn’t work for you?
P.S. The second big topic mentioned on the surveys was towards securing retirement via investing. If you have additional topics you want me to cover, feel free to add via the survey by clicking here. As always, I appreciate all the time and hope the post above was helpful.