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As someone who has definitely spent way too much money for the 26 short years I have lived on this earth, I should be the first to tell you that buying expensive things can definitely drain your cash supply faster than Justin Bieber running from the paparazzi. After blowing through my inheritance, I had to really scale back my spending; otherwise I would end up in more debt than I already had. I stopped eating out so much, stopped buying clothes every week and started shopping as cheaply as possible. I paired my monthly expenses down to about $1,200 a month at one point, including $400 a month for rent. And though many would praise that as frugal living and being smart with my money, I think it was a ridiculous way to live, and if I could go back, I would spend more money.
Getting Out Of Your Hole
I have counseled a handful of people financially, and have found that most of them are not financially stupid. They understand that they need to pay their bills and should probably spend less than they make. The only thing they are lacking is a financial plan. I helped them track their spending, get on a budget and make plans to reach their financial goals. For most, the first financial goal when finally deciding to get on a plan is to get out of debt. And that’s where I usually start, because I believe that getting yourself out of debt is the most financially freeing thing that you can do with your money.
To start, I advise that you write down all of your debts, and use the ol’ Dave Ramsey snowball method, placing them in order from the smallest balance debt to the largest. The idea is that you can pay off your smaller debts much quicker, and then use the freed up money from that payoff to put toward your next smallest debt. You then gain momentum, like a snowball rolling down a mountainside, rolling your extra cash into a large sum of money to pay down debt each month. The best part about this method is that when you are debt free, you then have a huge snowball to throw at savings, investing and giving. We used this method to pay down multiple debts and will pick it back up when we are making some more cash.
Now, once you have identified your priorities and resolve to get out of debt, I do recommend cutting back on excessive spending in areas that won’t help you reach your goal. But, I don’t recommend cutting so much out of your budget that you end up buying things that do not last and hating your life because you have no money for a date night. I’ve done that. It really did not do any good in the long run, and actually cost me more in many instances.
Frugal Extreme: Bad Idea
At one point during my “frugal extreme” period, I was living with 4 other dudes in a cheap apartment in a university district. The apartment was so old and crappy that the “management” didn’t repair the old, broken, almost-falling-to-pieces staircase up to our apartment, they just painted it black every year to try and hide the rotting wood (that surely has collapsed by now). I had a nice truck leftover from my spending extravaganza, but most everything else I owned was poor quality.
My clothes were from places like Old Navy and Ross, my bed was donated from a friend and I’m pretty sure I still used my backpack from 8th grade. Which means I slept horribly, my clothes basically dissolved in the dryer and my backpack was probably the ergonomic equivalent of having a Bruce Lee flying sidekick to the lower spine. Also, living in such a fine estate with a nice vehicle allowed the locals riff raff to peruse our dead-end, no-streetlight road and help themselves to my $1,200 in-dash DVD player and case of over 100 CD’s (all legally purchased). DOH!
Conscious Spending: Good Idea
What I really should have done is figured out my priorities. I should have picked a few things to cut out of my budget completely and then set a standard for the purchases of things that were staying in my budget. I said earlier that I wish I had spent more money during this time of my life. What I meant was that I wish I spent more money in the areas that were important to me and stopped spending money in areas that were not going to help me reach my goals. When I cut back to the extreme, I ate horribly , I hated everything I owned AND it ended up costing me more in the long run.
This may be a bit controversial, but I suggest to anyone who is climbing their way out of debt to go ahead and buy that $200 REI jacket. Heck, it may be a long climb to financial peace, you might want a nice waterproof jacket to keep you warm. Keep your spending cash in the budget, and ACTUALLY SPEND IT! Take your significant other on a date, once a week (I suggest two dates at home, two going out). SPEND YOUR MONEY WHERE IT MATTERS AND DON’T FEEL GUILTY ABOUT IT! Too many “get out of debt plans” involve completely depriving yourself to the point of exhaustion, and guilt you for any spending that doesn’t go to bills and debt. BEING IN DEBT DOES NOT MEAN YOU CAN’T BUY NICE THINGS.
How We Spend Our Money
Ok, now that I’ve thoroughly freaked out every financially prude person out there, let me explain how this works practically at our house.
If you’ve been around for a while, you know that we don’t make enough money to pay our bills. We do have substantial savings, and are almost breaking even at the end of the year, but we’re on a pretty bare bones budget. We have found that cutting out nicer activities or items might help us put some money toward our debt or help us save a little money, but we would miss them more than the money lost. We have cut out many places in our budget down to the lowest amount possible, sometimes giving up certain things altogether. We don’t have cable, pay the minimum for internet, share a family phone plan with others, and don’t spend on cars, golf, or other hobbies. We have set our priorities and have been able to direct our spending towards those things without compromising quality or the budget. This is how we can spend more and save more at the same time.
We still tithe, my wife makes amazing, super-healthy organic meals (like, everything is organic), we buy (or find) nice clothes to wear, we enjoy good wine occasionally and both have spending cash each month. We try to go on 3 or 4 dates a month (though with a little one at home, this is tough), we still go on vacations and have family outings to places like the fair each year. We can do these things because we exercise conscious spending. It really all starts with a priority list (have I said that enough yet?) and then making some firm decisions to only spend where it matters to you. And hey, if your priority is golf, then cut out the crap you don’t need to get there, but don’t cut the quality of the things you do keep in your budget.
Comments: For those that are still paying off debt, do you still buy nice things? Do you find that being cheap ends up costing you more in the long run? What are some examples of areas in your budget that you compromised on to save money, but your purchase didn’t last? And who has two thumbs and is winning his fantasy baseball team? This guy.
33 thoughts on “Get Out of Your Hole Without Living In a Cave”
We still go on a trip every spring break, even when we were knocking out the stupid credit card debt. Everything was planned, down to how much we were spending on food each day, gas, etc. I’ve found that if you do that, you end up spending less. We brought back quite a bit of our food budget because we tried to beat what we had projected. When we didn’t plan, we spent more on everything. Wow, you really get date night with a baby? How do you pull that one off?
Planning is the key to this whole thing. if you have a good plan, then you know you are going to kill that debt. If you have a plan, then you know you can vacation while killing that debt, and not just be a hermit.
And our little guy had grandparents within 10 minutes on both sides of the family, so we get to go out. it’s been about once a month lately, but we usually shoot for 2. Our budget is $60 a month for dates, so it’s frugal, but enjoyable.
For the first 3-4 years on our get-out-of-debt journey we rarely spent or did much. We’d go on a vacation every few years but nothing really besides that. As I slowly realized it would taken us YEARS longer to get out of debt, we started to budget more in entertainment categories and do some nicer things (buy a camera, a newer TV, etc). However, we still don’t have cable and overall we’re fairly frugal (compared to the norm).
So you prioritized your spending on things you enjoy and cut out all the crap you don’t need? PERFECT!
I have made many cheap clothes purchases, and have come to regret them, as they do not last long and end up costing more in the long run. I do not want to get debt burnout, so I put a tiny bit away every month for a vacation. And I still let myself go out, I just try to be frugal when doing so.
It’s all about motivation. If you deprive yourself of EVERYTHING for a long period of time, you stop being motivated to kill your debt. A little bit here and there won’t move the needle back too far on your debt payoff, but will help you keep your sanity. In fact, I think conscious spending is a catalyst for getting out of debt quicker, so long as getting out of debt is one of your top priorities.
You guys sound a lot like us. Our monthly budget is minimal- no cable tv, we eat at home, etc. We do splurge on vacations and date nights a couple of times a month. We try to spend on what we love and not spend on what isn’t important to us!
You’ve got it! I’ve been preaching this since the beginning. I call it conscious spending, but it’s how I got my motto “spend more and save more at the same time”. Geez, I have a lot of mottos, huh?
Well, I’m going to Denver in a couple days…and that wasn’t cheap! It was a conscious decision to INVEST in our blog, though. As such…I also had to splurge on a new pair of jeans. Hey, I can’t go in ill-fitting jeans! 🙂
That’ll be me next year. I’m really bummed to be missing FINCON this year, as everyone I’ve met (online) has been incredible so far, but next year, trust you me, I’ll be there! And like you said, it is a priority and an investment in your blog, and you are putting your money there as a conscious spending decision. You could have also put that money into a huge Magic: The Gathering card collection….but Magic is not a priority to you. And the jeans are also an investment in your blog, because no one would even make eye contact with you if you were in horribly unfashionable jeans!
Every nice piece of clothing I own was purchased for me by a lady (mom, grandmother, mother-in-law, sister, wife). I have zero fashion sense and don’t mind looking like a hobo if need be. That being said I do clean up nice for work (when I have to). I am by no means a slob, but I am that guy who will continue to wear a 10 year old faded t-shirt assuming it doesn’t have holes in it and a sport a pair of flip flops that are held together by duct tape (they aren’t pretty but they are the most comfortable flip flops ever). Have I been judged by how I look? Absolutely! but I am ok with that. Living this way has afforded me the chances to travel overseas at least every other year if I wanted.
In the end, experiences mean more to me than things and if cheap stuff gets me by to my next experience then the sacrifice was worth it!
Brian, that is definitely conscious spending. Your priority isn’t nice stuff, it’s traveling overseas. And you have cut out the wasteful spending to splurge on that goal. My point is that you don’t need to buy horrible stuff if you won’t enjoy it or if it won’t last just because you are working your way out of debt. You should buy nicer things if it means they will last longer and help keep you motivated to stay the course for your debt payoff.
Disclaimer: I am by no means saying you should do retail therapy to make yourself feel better so you can stay motivated. That is bad and a sign of a shopping addiction.
We’ve decided that maintaining good relationships with each other and friends is next to impossible without setting aside money for eating out or grabbing drinks. We pick reasonable places and don’t go crazy with bar tabs, but we still go over our budget at times. We don’t beat ourselves up. To us, it’s a reflection of our priorities — things like people, getting out of our apartment (especially since I work from home!), and experiencing new restaurants in an awesome food culture. That said, we don’t have cable, we don’t drive our [cheap, old] car to work, and we eat dinner at home 5-6 nights per week. When it’s going to take you years to get out of student debt no matter what, it really isn’t worth it to put life completely on hold that entire time. These are our best years, right? 🙂
You are case-in-point for my post today. We feel exactly the same way. We know that God, Family and Friends top our priority list, so we are going to spend money there, but mall food, video games and Justin Bieber CD’s are not, so we don’t spend any money there. Though I might enjoy those things, I don’t enjoy them enough to allow them to hinder my goals (aka, debt payoff).
And for the record, I don’t believe in “best years” 🙂 . I think we grow in maturity and understanding, and enjoy things differently as we go through different stages of life. I believe that we can make all our years the best years, and hopefully they get better and better as you age.
Luckily, most of the things I like to do are pretty cheap. For my income, I suppose I should be spending even less on entertainment.
Living with roommates is something I willingly spend extra money to avoid. Everybody has their priorities for spending their money.
If you’re already in a routine of living cheaply, it’s probably harder to spend money. Do you find that you buy less expensive things and have to replace them or don’t enjoy them as much?
I think of it a lot like weight loss. If you deprive yourself for too long, you’re much more likely to lose the battle with your willpower and end up overindulging. Much better to let yourself have a few small treats now and then to keep progressing with your overall goal.
Yup! Exactly. We tried the whole “don’t do anything fun and only pay down debt” thing, and it didn’t work for us.
We budget in fun and date money. It helps keep us on track with our budget. It also means I don’t feel as guilty if I go to that race knowing that it came from my money and not from a debt payment plan. It lets us have a little fun but still are able to buckle down and get out of debt.
Those two categories alone can help keep most people motivated enough to stick to their budget. I’m convinced of it!
I absolutely think that being cheap just costs you more in the long run. After you live in a house with a family for a while and stuff starts to break, you really recognize how buying quality and reputable names saves you later on even if it costs you more up front.
My thoughts exactly!
Best line – being cheap can end up costing you more in the long run. I totally agree. For things that I plan on keeping for a long time, I make sure to buy quality over price.
More expensive up front doesn’t mean you aren’t making a frugal purchase. I learned this quickly in college.
For me, living like a starving student in university and backpacking through Western Europe is probably what helped me become a more conscious spender. My ING direct account is my vacation/fun fund. I put aside a little money from every paycheque. If there’s not enough in the fund, then I tell myself Ill have to wait.
One thing I think people should invest in is good quality shoes. Ones that will last and are comfy for your feet. Flip flops are only meant for the beach and in grungy shower stalls. They’re cheap but so bad for your feet!
Shoes are definitely important, and something I need more of. I have like 3 pairs that I wear, and most of them aren’t waterproof! (AND I LIVE IN THE NORTHWEST!)
Regardless of what anyone says, we make money to spend it. Sometimes, more often then not, we tend to spend more than we make. Take a look at your average college student. $40k worth of student loan debt and most of them don’t even make $20k a year. This county gives handouts to those who don’t deserve them and make the rest of us pay for it.
It’s true! I try to help get people on track, but not deprive them to the point where they give up.
I have just about given up. I budget and cannot cut anything else out. I have no money to “go out.” No spending money. everything is bills. Food budget is to the limit or we starve. We really need to make more money I feel. All the budgeting in the world cannot get you anywhere if you don’t make enough. Write an article on that…how to make more money.