Put your attention on your weekly money

What you want to do now is physically separate your money into different buckets.  Here’s what you do next:

1. Set up multiple accounts at your bank.  Most of the bigger institutions will let you set up multiple accounts for free if you automatically transfer money into them each month (which you will).  Nickname these accounts.
    
2. The first account is your “static account” (call it whatever you want).  All income is deposited here.  Leave money there to meet static expenses.  The rest gets transferred to your “discretionary” accounts and your “savings” accounts.
    
3. Only money for the week gets transferred from the static account into the discretionary account.  Make an agreement with your financial partners (if you have them) as to who is going to get how much.  Each person should get a debit card.  Each person spends that money through the debit card. No credit cards.  Pay your static expenses with a credit card if you want the miles. Use the static account to pay off the credit card, but ONLY for those expenses.
    
4. IMPORTANT POINT:  Get enough money only for the week.  Not the month.  If you spend all your money by day 5 of the week, you can limp along for two days without money.  But if you run out of money on day 15 of the month, two weeks is too long to go without money.  Putting your attention in weeks also helps you focus on what you’re doing.  You will be more present.
    
5. Transfer money automatically each month into your “vacation”, “kitchen remodel”, etc. accounts at a set amount (nickname the accounts as such).  For instance, $50 into the vacation, $200 into the kitchen remodel, etc.
    
6. Watch what happens.  

Here’s what I hear from people who have actually done this:  People start to turn it into a game.  They start to see where they could reduce their static expenses.  They start to contemplate whether they really want that new grill (or purse or pair of shoes) or if they’d rather add that money to their “kitchen remodel” account.  They watch their static expenses shrink, they get more present with their decision-making around the discretionary money, and they love to watch their “kitchen remodel” accounts grow.  It’s a game. It’s fun.  It requires little accounting, as most of it’s done automatically.  You don’t have to watch every penny.  You don’t have to know how to use Quickbooks.  Brilliant.  If you have success, I would love to hear your stories.

For many, this strategy isn’t working, either right now or ever.  Those folks need to watch where their money is going.  I’ve long believed the trick to getting started, leave alone getting it right, is to make it easy and fun.  I think I might have found it.  Now, I stick to my inclination not to work with folks on budgeting, bail-outs and bad attitudes, but I’m always willing to share strategies that work.

Think of your money in three buckets—static, discretionary, and future

I will start with an admission:  I don’t actually budget the way I’m about to describe.  I’m stealing this idea from a Financial Planning Association conference I just attended (my whole life is continuing education).  I’m one of those freaky people that keeps track of just about every expenditure, tracks it in Quickbooks with help of my assistant, and analyzes where money is being spent, where it can be saved, etc.  Most people won’t do this, so I rarely, if ever, recommend it. 

What I like about this idea is that it’s easy and fun.  This step should take no more than an hour.  Here’s what you do:

1. Get out the last six months’ worth of statements that contain your expenses (checking, credit cards, etc.).  Six months is required for homeowners, in particular, so it catches semi-annual expenses.  You might want to add other annual expenses.
    
2. Add up all the expenditures and withdraws (ATM withdraws included). Divide by 6.  This is what you’re spending per month.
    
3. Now, go through those statements and identify all your “static” expenses – that is, those that happen every month as a result of passed decisions you have made.  Those expenses include the mortgage(s), property taxes, insurances, car payments, utilities, other loan payments (including credit card interest), childcare expenses (not random babysitting), etc.  Add them up.
    
4. Everything else is discretionary.  Subtract “static” from total expenses.  Remember to keep your timeframe to monthly numbers.  That’s your discretionary budget.  Divide by 4.5 (or so).  That’s your weekly discretionary budget.
    
5. Now sit down and decide what you want or need to save for.  These things could be a kitchen remodel or new clothes or a vacation.  Some folks will add to this quarterly tax payments or annual payments like life insurance premiums.

Here’s what you’ve done.  You’ve gotten a clear picture of how much money you are spending as a result of passed decisions.  That’s your static bucket.  You’ve gotten a clearer picture of what you’re spending week-to-week on food, clothes, household goods, extra babysitting, pet expenses, etc.  You’ve gotten clear about what you want to do with your money. This may take some tweaking along the way, but you’re on your way.  See next week’s post on what to do next.

Make a list, check it twice, and stick to it

Here are other suggestions I’ve used for keeping the holidays sane:

• Create a budget and stick to it.  Don’t overspend at the holidays. It’s just no fun. Make a list, estimate your expenses and stick to it.
 
• For employees, give gifts of time off (half days, full days, etc.).  Let’s face it, during the holidays, they’re often less productive anyway.
 
• Reduce your work schedule during December and January.  The winter months are a time of rest and dormancy.  Plants need it, humans need it.  This over-activity during the holidays is not good for us, as it’s counter to the natural rhythms of where we live.  This is a meditative, reflective time.
 
• Let happiness and joy come naturally rather than as a mandate for the holidays.  The expectation that the holidays have to be fun and exciting does not allow for all our emotions to be present, like sadness for loved ones no longer with us or anxiousness about getting the turkey right.
 
• Love the gift you give another because you want them to have it, not necessarily because it’s “perfect.”  In our instant gratification world of Target, Costco, and online shopping, we rarely wait for the holidays for a special gift or treat.  More often than not, we buy that gift for ourselves when we’re ready.  The best gifts are usually not what’s expected.
 
• Get shopping done before Thanksgiving or by the end of the first week of December and buy nothing else.
 
• Get your holiday cards done over Thanksgiving and send them out the first week of December.
 
• Tell kids to pick the three things they REALLY want and get two of them.  Set a deadline for the list.  Let it change a thousand times before the deadline (you know it will) and then let the deadline stick.
 
• Create a ceremony to celebrate each other.  We do a solstice ceremony at home that takes us all of 15 minutes in which we go around and for each person acknowledge what we love about them, how we have seen them grow that year, and what we wish for them.  We do it on the solstice, and it’s the highlight of our holiday season.
 
• Remember, less is more.
 
Have a wonderful holiday season!

Gain Perspective

Think about it in this over-generalized, exaggerated way: Let’s say you have a garbage bag full of 500 $1 bills. If a gallon of milk costs $5, that’s going to cost five of your 500 $1 bills. Not a big deal right? You buy the gallon of milk and you hardly even notice. Now, think about it from the store’s perspective. If the store owners know you have 500 $1 bills, they also know you could easily spend 20 of them without blinking an eye. So they simply charge $20 for the gallon of milk. Ouch! Too much money chasing the same goods.

 If you’re concerned about inflation as it relates to retirement, you know you’ll need much more money in retirement than you do today (that gallon of milk is going to cost more). If inflation is wildly out of control, then your money needs to earn wildly out-of-control returns (and then some) so that you will have enough money for milk in the future. That’s a scary prospect given the stock market roller coaster of late.

 But what if you could reduce or eliminate a big expense in retirement so that you had more money available to spend on milk?  That would mean you would need less money overall and those wildly out-of-control returns would be unnecessary.   For many, that solution and that kind of planning and strategy exist.  The inflation monster might be your friend.  It might be what shows you the door to a tax-free retirement.