A 50 Percent Raise

This is a guest post by Clinton, a 37 year old teacher from Ontario, who also wants to retire at 45.

When we first got married our personal spending seemed to be out of control.  We never knew who was spending what and our personal savings would quickly dwindle between pay cheques.  We were about to purchase out first home and knew we needed to make a change.  In order to rein in our spending habits and create a savings strategy we decided to limit our personal spending to a fixed amount every two weeks.

We have our work pay deposited into a chequing account  for family expenses and then every two weeks we would automatically deposit a fixed amount into two savings accounts – one for each of us for personal expenses.  We would then use this amount to make any personal purchases.  This has been the best strategy for us to eliminate extraneous spending.

Our family expenses includes mortgage, insurance, car loans, gas, utilities, groceries, anything for the kids, meals out when we eat as a family, and clothing.  In general, things that are more of a necessity than a want, or decisions that we have made as a family, like a family vacation fall under this category.

What we consider personal expenses are any meals outside of the home away from the family, gifts to each other, books, gadgets, going out to movies, going out for drinks, specialty clothing, etc.  In order to make bigger purchases you need to save up your fixed amount in your savings account over time.

Do we ever go over the limit?  Well, I can’t speak for my wife, but I have been honest about keeping to our budget.  I usually bring my lunch from home to work 95% of the time.  I might go out once every month or two for a beer and a plate of fries with my friends.  I used to get most of my books from the library and only bought a select few.  There were times that I didn’t have enough money to make a particular purchase, so I just waited until I could.  Sometimes I would forget and didn’t bother going back to make the purchase.

But … there was one time …

Being a typical male, I totally admit overspending my savings and not having enough money for my wife’s birthday gift one year.  I had to take out $20 from our chequing account.  I felt guilty that I had not saved enough, and paid the money back to the account the next week.

Well, this month was a real turning point for our personal expense budget.  I had announced to my wife, with some grandeur, that it was about time we gave ourselves a raise in the personal expense department.  After paying ourselves the same amount for the last decade (it really has been that long) we finally increased that amount by 50 percent.

At the beginning of this month we moved from paying ourselves $50 to each of our savings accounts every two weeks up to $75.  That’s a 50% raise!

I admit it, the change was all me, my wife was happy with $50 every two weeks.  I thought I could use the extra money to buy a few more things for myself, mostly hard to find books.  What is really funny, is that it now seems like I have more money than I can spend in that two week period.

So how do you keep you spending in check? And when did you know it was time for a spending raise?

New Attitude Not Required

I was at a training seminar yesterday that brought up some interesting conclusions that was found by some behavioral scientists which consisted of the follow two statements:

  • You don’t have to change an attitude to change a behaviour
  • Or the reverse, changing an attitude doesn’t mean you will change a behaviour.

So how is the useful for you?  You don’t have to change your attitude overnight to change what you are doing.  The classic example would be a teenager and staying out late.  They may not agree with being home by midnight (attitude), but if you put in a strong enough deterrent they will come home by midnight anyway (behaviour).

So you may not agree with how much you need to save for retirement, but that doesn’t stop you from saving more for retirement now.  Or you may not agree with how to invest your money in index funds for you to try it anyways. Or you don’t have to agree a budget will work in order to try it.  Agreement doesn’t preclude action, so you can stop using that as an excuse for not getting your financial situation in order.

So you can start:

  • using cash for spending money (so you can see you are broke and stop overspending)
  • stop paying fees on your bank account (find a no fee account or product rebate to get around it)
  • if you are not at your maximum contribution at work for matching pension money fill out the paper work today to get it  (don’t let free money pass you by).

The other interesting fact I learned was we primarily make decisions by just assessing the situation and then deciding.  We often don’t consciously compare our options in a methodical method all that much (except perhaps engineers and personal finance geeks – damn I’m screwed).  So you don’t worry about how you get yourself to do a good behaviour, just find out what works for you and use it.  If it means putting a pink ribbon or kitty stickers on your credit card so you are embarrassed to take it out and use it, then go ahead and glue it on.  Nothing is silly if it works.

So don’t you feel better now realizing you likely aren’t rational or logical in most of your decisions and no wonder your life was/is a mess at one point or another?  I know I’m likely going to approach problems a little differently now that I know how my mind works.

When do you let it go?

When do you replace something?  My wife and I have discussed this quite a bit lately, with our decision over the last couple of months to get a new car, we’ve set a repair maximum of approximately $1,000, over which we’ll probably just replace the car.  With a car, there’s a market for even semi-broken vehicles – they can be sold “as-is”, generally at a steep discount, but there are buyers out there for them, with published book values available to buyers and sellers.  With my car only being worth $2,000-$3,000 in its current condition, it really doesn’t make sense to spend half of the vehicle’s worth to maybe make the money back, if the car is at least salable.  In the past couple of weeks though, similar situations have come up with smaller items which have required repairs.

Earlier this week, it cost me $15 to buy a new watch band for my Timex digital watch.  I had to call directly to Timex to order it, because a replacement band was not available at retail stores.  The $15 I paid for a new band would have been about half the amount I would spend on a new watch to replace the five-year old watch.  It doesn’t really make sense to replace the band, given the cost of a replacement, but if I didn’t replace it, there’s really nothing to do with the watch at all, other than to throw it out (or alternatively let it sit somewhere until the battery dies in a couple of years not getting any use).

In the same vein, the set of hair clippers that I’ve owned for several years has a missing guard, something that happened during my move last year.  A new set of hair clippers is reasonably cheap (less than $30), but much like my watch, there would be a perfectly good product that would most likely go to a landfill because I’m not sure anyone would want a used set of hair clippers.  Ideally, I wouldn’t have lost the part, but a replacement part can be purchased for $10.

There are a myriad of products out there that are essentially disposable due to replacement parts being just as expensive to buy as the product itself (think printer cartridges).  What these products create is a lot of waste, as most people, including myself would rather pay a few extra dollars to get something new than keep the old product, which has a higher probability of breaking.  Over the last couple of years I have tried to reduce my waste as much as possible. I realize that a set of hair clippers and a watch really wouldn’t have that much of an impact on our landfills, but if applied across everything I owned, there would be a lot less waste created.

I’m just not sure where to draw the line – right now, the items that I’m “saving” are things that I use regularly and are easily (and cheaply) fixed;  the car decision comes due to my recent decision to replace our car in the spring of next year, as well as the fact it can be sold.

How do you decide what to throw out and what to keep?  Have you been burned by fixing something that broke again shortly after?