Saturday, March 24, 2012

No Willpower Finances - A 3 Step System

Revisiting the Your Money or Your Life financial exercises with Candi's reading group over at min hus, has gotten me to thinking...

I don't consider myself to be a person in possession of a great deal of willpower.

In fact, generally speaking I'm pretty much a lazy bastard who would just as soon lay on the couch watching football as do something meaningful.

Yet somehow, I've managed to get by on far less money than your average American bear... without feeling any sense of deprivation whatsoever. Looking back on it, I didn't always consider shopping to be the horrible pain in the ass that it is today... there was a time in my life when I actually enjoyed being able to spend money, and thought that "being rich" was the goal of all goals.

So how did I get from there to here?

I don't think of myself as a particularly rule-bound person, but when I really look at it, I had some strategies that ended up working out really well for me in the long run.

Strategy Number 1: Deal with Your Big Rocks First

A dear friend of mine once told me this little parable... It's often credited to Dr. Stephen Covey, the author of the Seven Habits of Highly Successful People (which I own, but alas, have never read.) Anyhow, the basic theory is that in order to have time and energy for a full life, you have to deal with the big important stuff first. Here's a delightful video (I think this is Covey) demonstrating the principle.

While they're generally talking about expenditures of time, the principle totally holds true for financial decisions too. I can't count the number of times that I encounter people on the interwebs (or in real life) who try to be frugal by pinching pennies on every tiny little purchase, all the while making really stupid financial decisions on the big ticket items.

I have a dear friend from high school who is a great example of this. They have a giant house... the ridiculous kind with at least 30% of its space dedicated to high vaulted ceilings. Their little family of 4 (mom, dad and 9 year old twins) has 3 vehicles, plus a camper and a garage full of jet skis & snow mobiles. Their house is only about 10 years old, yet they've had the carpet replaced twice and are constantly replacing their brand new furniture with brander newer furniture.

One day I was visiting, and I happened to notice that their office had a neat modular desk/shelving system. I commented that I liked it, and her husband piped in telling me all about it. And it only cost $12,000! I just about fell on the floor! I mean, I could live for a year on $12,000!

But here's the thing... my friend is always broke. She is forever taking extra jobs to try to make ends meet, and strategizing over how to save a few pennies at the grocery store. She really wanted to come to our 25th high school reunion, but couldn't afford the $50 admission.

I think you're getting the picture. A frugal lifestyle is pretty easy to maintain if you focus on making good decisions on the big ticket items. Do you really need a huge house in an expensive neighborhood? How about cars? Maybe you need one, but do you need two or three? Why not get a used car? Trust me, you simply cannot cut enough coupons, or pinch enough pennies to make up the ground lost by a humongous mortgage or new car loan, or $12,000 shelving unit.

Strategy Number 2: Pretend You Make Less Money than You Actually Do

It seems to me, that they key to keeping your spending under control is to limit the amount of money that you have at your disposal.

In a way I am quite fortunate to have spent my early adulthood being totally and completely broke. It allowed me to develop very good spending habits out of necessity. Nevertheless, as I started to earn more money, my spending went up accordingly... until I read YMOYL, that is.

At that point, I decided that the way to keep my spending from going up with my income was to trick myself into believing that my income was still as paltry and small as it had once been.

And the great thing is, there are easy ways to do this. Once I made the commitment to live on less, I sat down and figured out how much money I really needed each month, and then started looking for ways to keep anything above that amount from ever showing up in my hands to begin with.

The first first thing I did was to up my retirement contributions. The non-profit that I worked for didn't have a real retirement plan, meaning that they didn't contribute anything to my retirement savings, but they did have a 403b (the non-profit equivalent of a 401k) that I could contribute to tax free. Within a year or so I was taking the maximum allowable contribution (which, I think, was around 20%.)

The other thing I did was to set up a retirement savings account, and had my bank make automatic monthly transfers from my checking account into this savings account. Then when I was dealing with all my tax time finances, I already had the money set aside to make my IRA contribution (the max allowable) for the year. I pondered setting up a similar strategy for my regular savings, but by this time I was sitting pretty squarely on the saving bandwagon, so I just made my monthly savings transfers manually.

I did, however set up automatic deposit of my pay checks, and automatic bill pay on everything that I could. This included using my credit card for all day to day purchases, and setting it to automatically pay off the balance in full each month. Let me tell you, it's really wonderful not to have to worry about whether you remembered to pay all the bills or not each month.

Many people shy away from this approach because they're afraid of overdrawing their accounts.

But I found that by keeping a decent cushion in the checking account I never had a problem. I did, however, schedule a monthly "day of reckoning" where I would sit down and look at my account balance and the upcoming bills, and transfer money from savings if necessary. I've gotta say, that whole process really helped to keep me honest.

And the final thing I did was to set up extra monthly principal payments on my mortgage. Actually, I refinanced the loan at a much lower interest rate, but kept the payments the same... which worked out to about $100/month in extra principal payments.

I realize that I am fortunate in that I didn't have any consumer debt to contend with, but if you do, I'm sure you can set up automatic monthly payments for that too (which, if you've got consumer debt, is probably your first priority over retirement, savings and mortgage debt.)

The point to all this is... if you set up all of your financial transactions to happen automatically, you really don't have to think much about money. Seriously, pretty much the only time money enters my brain these days is if I'm contemplating spending above and beyond my monthly allotments.

Strategy Number 3: Leave Room for a Few Luxuries

I'm not generally a big fan of most budgeting systems. The problem is that if you don't leave any room for luxuries, you can tend to end up being rather... well... miserable. I've lived in poverty folks, believe me, it isn't fun.

So when I calculated the amount that I needed to live on each month, I was sure to include about $100 for luxuries. Just knowing that I had given myself an allotment for things I wanted, but didn't really need made the entire process feel empowering, rather than like deprivation. Sometimes I spend my luxury bucks on little things like going out to eat, or buying a new piece of clothing, and other times I save it up for something more substantial.

The key here is to take your luxury dollars from your monthly allotment, and NOT from your savings (which is reserved for emergencies, and investment type purchases - like a new furnace.) This way you actually get to enjoy the money you save from pinching pennies and saving on the small stuff.

OK! So there you have it!

These are pretty much the three basic principles that I have lived by for the past 20 years or so, and they have served me very well. Things are a little bit different now since I don't work anymore, and don't have a steady monthly paycheck, but the basic ideas still apply. And the best part is... there is absolutely no will power required!


  1. LOVE this post; so inspiring. Thank you for taking the time to talk about specifically what worked for you. I am constantly tweaking and fine-tuning to get rid of consumer debt once and for all (stoopid for many years). I have some anxiety about automatic payments - kind of tough when paydays are every 2 weeks, not on specific days of the month. Surely I can figure this out - ?!?!

    1. Hi Misty,

      I was nervous about it at first too, especially with the credit card payment since it can very from month to month. But I found a few things that really helped.

      The first was to keep a cushion balance in the checking account to even out any cash flow issues. For me it was around $1000, but you'll probably have to play with the numbers a bit to find out what works for you. It took some fiddling to get it right, but the idea is that the cushion is there to cover costs when a paycheck hasn't come in yet, but it always gets replenished. I had to watch the balance pretty much daily for a few months until I got comfortable with it.

      The other thing that really helped, especially at first, was to set up reminders in my computer to check the balance of my checking account a few days before automatic bill pays were set to happen. I use Microsoft Outlook, so it was pretty easy to do.

      These days my expenses are generally very predictable, but my income does vary a bit. I have my ad revenues set up so that 2/3 goes into my checking account and the other 1/3 goes into a savings account. So these days I generally only have to bother checking account balances if my income has been down or if there's some big unexpected expense. I try to check it once every few months no matter what just to see where things stand.

    2. Great ideas; thank you! And I agree with the person below - you should write a book. I would buy it!


    3. Ha! CatMan keeps saying that we should write a book on this topic, but to be honest, the whole idea sort of fills me with fear and loathing. CatMan is a published author and I know first hand how much work it is to write a book! Plus, I hate the idea of being one of those self-promoting-buy-my-book sort of bloggers.

      But we'll see... maybe the stars will align someday...

    4. You could be a go-to-the-library-and-check-out-my-book sort of blogger instead, though that wouldn't do as much for book sales ;-)

    5. Now that's an idea! I wonder what level of success a book must attain before the library will stock it... Somehow I have a very hard time imagining anything I might write being worthy of library shelves!

    6. I do know that libraries will sometimes purchase a book on the strength of a single patron's request. It probably has to be a book that seems like it might have some general appeal as well, but yours would.

    7. You are too kind... "random woman rambles about personal finance and cat food..." I dunno if I'd read it!

  2. I love the set-it-up-and-forget-it approach to budgeting. My problem is that I also adopt the forget it part of the approach to opening bills and facing the music. :(

    Interestingly, the allowed luxuries method works for dieting too. I eat a low-fat meal for lunch, beans and greens or such, but I have found it makes a big difference to my mood if I throw in a dollop of tofu-based sour cream on top. It feels decadent, somehow. I can't feel deprived if I add a bit of 'bad' to the meal.

    1. Little luxuries make a BIG difference, don't they? I think the key is to learn how to sort out what a luxury really is. You probably wouldn't appreciate that dollop if you were smothering everything with butter & cheese all day!

  3. Cat, you're wonderful. You should write a book about this -- I'd totally buy it. As someone who acutely hates dealing with money, your approach would absolutely work for me. I think I've already got major parts of it down (no large frivolous expenditures, paying off my credit card every month, predictable, low expenses). I just need a small, affordable house, and I'd have pretty much everything I wanted.

    I'm cat-sitting for some of Kevin's friends right now. They're about the same age, also childfree, but the husband works for Google, so they have a lovely (big) mission style house with a beautiful yard and two Priuses. I have to admit, I felt a twinge of envy. Not so much for the money, but for the security and decent health care and the fact that the wife doesn't have to work for a living -- she just does it to get out of the house. Sigh! For all my feminist blather, there's a part of me that would be very happy to be a kept woman. I'm busy reminding myself that I'm quite happy with what I have, and as long as I can get the income thing figured out within the next few years, I'll be good.

    1. Ha! I totally hear you on the kept woman thing. You know, I'm about as feminist as they come, but at the same time, I'm not entirely convinced that women's entry into the workforce has turned out to be a good thing. I mean, in theory it's great... and I, OF COURSE believe that women should be able to do whatever they choose. But what's happened is that in the 1950's we had a society where most families got by quite nicely on one salary... these days, most families, even if they don't have kids, need two.

      It's like the corporations said "Oh... gee... women want to work? OK... we'll just pay everybody less so that women HAVE to work!" I know it's more complicated than that, and that consumerism is part of the equation, but I just think that something has gone terribly wrong when people are expected to work 40-50 hours a week, then come home and cook and clean and shop and take care of the yard and do everything else that's "expected." It just doesn't seem humanly possible to me... certainly not if you want to enjoy your life at all.

      I'm still thinking about this quote from Candi's book review of "Take Back Your Time."

      "Our industrial society is poverty-stricken in the time we have to live as compared to most of the rest of humanity throughout history. Even the majority of slaves in the ancient world and serfs during the Middle Ages did not work as hard, as regularly, or as long as we do."

      It just makes me shake my head in dismay.

      The thing is, you don't HAVE to have a big, demanding job in order to be secure and have health care. My individual policy costs about $240/month... which is higher than it used to be because I just turned 45 and entered a new age bracket. $240/month is more than I'd like to be paying, but it's certainly not worth selling my soul over. I'm hopeful that as the provisions in the new healthcare law take effect, things will get easier on that front... well... I guess that all depends on what the supreme court says in the next few days... sigh.

  4. Okay, so I'm getting better about step 1. Step 3 I have down in spades. Step 2? FAIL. I move money from checking to savings, but I can't "forget" about it. I know it's there. And at the end of the month things get tight and I take it right back out of the savings. I would like to blame the fact that we are a family of four with a single income, but both my husband and I need to have better self-control. I can only fix me. That's not an excuse - I'm not blaming him or saying that if he spends I will too (k, I do that sometimes), nor am I giving up. I just have never learned self discipline and struggle to get a grip on myself.

    1. Well... if your husband isn't bought into the whole idea, it sorta seems like you're fighting an uphill battle. Maybe you could read YMOYL together and work through the exercises together? This may sound crazy, but I've known couples who make savings into a game/competition in order to stay motivated.

      In terms of not just moving the money back from savings... one trick I use is to put the savings account at a different bank... that way you've still got the money if you need it, but transferring it is a much larger pain in the rear.

      Another thing that helps is to set up a system where you periodically move money from savings into a time account like a CD where it's MUCH harder to get at. You want to keep enough in savings to cover emergencies, but once you've got that amount saved, anything above that can go into a CD which will both earn more interest and be harder to spend.

      All that being said... I'm not a big fan of "self discipline." I mean really, truly, this is not about "being good" or any other black and white paradigm. Ultimately, it's about choosing to save money, and have more freedom and security because it's what YOU want, and because it makes you happier than spending does. Once you make that paradigm shift, the "shoulds" fall away, and the whole thing gets much easier. That was my experience anyway.

  5. Excellent post! I totally agree with you on looking at the larger purchases instead of penny pinching. One of the best things I ever did was to purchase my home with what I could afford for monthly payments based on a 20 year instead of a 30 year mortgage. The payment wasn't a huge amount more that way but my savings in interest sure was a big deal. The best part of all, my husband has no idea, he thinks we have a 30 year mortgage. Our house will be paid off in a little more than 2 years - I will continue making those monthly payments for an additional 10 years right to a retirement account!

    I don't have my bills on automatic pay but I do budget almost exactly like you do otherwise :)

    1. PS - Thanks for following along on my new blog!

    2. Ha! Now there's a creative strategy for getting your spouse on board with a savings plan... keep him in the dark!

      And I heartily approve of consolidating to one blog... I can't imagine trying to maintain more than one!

  6. This is very sound advice, and very doable. I'm as obsessive as the next person, and could probably get off track with the small stuff. But, this past year I looked at the big stuff and refinanced our house, shopped insurance (major savings), dumped expensive TV service, and just flat out stopped spending less.

    With the big stuff tackled, I did turn to one other smaller category first -- regular monthly recurring expenses. As a category these can nickel and dime you over time, especially if you just pay it without questioning. I called my internet and phone provider back last week and got a better "special promotion" on my landline and cable (they're afraid everyone's gonna dump their landlines but we can't because cell service is not reliable in the area where I live).

    Also, when we find errors on our credit card it's almost always in the area of subscriptions and memberships to things. Several times I have had charges reversed for magazines I didn't subscribe to, or the that we bought one year but then didn't realize we had to opt out or they'd charge us year after year. Many companies put the "opt out" language in the fine print, but I have never had difficulty when challenging this with a credit card company.

    And here's where I put in my defense of credit cards... I use one card to charge groceries, gas, and just about everything else except incidentals, and we pay the balance each month. I prefer them because we do receive benefits in return and from experience they offer great consumer protection. I have received exceptional service from my credit card company when challenging charges or following up with a merchandiser over shoddy stuff I've been sold. In fact, I can't remember a time when the issue wasn't resolved in my favor.

    1. First paragraph should read, "Stopped spending MORE", not less:-)

    2. Hi Janeen!

      I totally agree about those recurring monthly expenses. It really pays to go over those bills with a fine toothed comb.

      My last reevaluation was a few years ago. When I sat down and looked at what I was paying, I realized I was paying $100/month for cable TV that I NEVER watched, and $30/month for a cell phone that I NEVER used. So I dumped both, got Netflix & a pre-paid phone and now save about $100/month... and I have never once felt like I missed having either.

      The next thing to tackle is my Centry Link DSL/phone bill. My $36.99/month "price for life" plan is somehow costing upwards of $85/month! Good GAWD!

  7. I really love this post, three simple but excellent and totally achievable tips. *bookmark*

  8. These images are simply delicious :) I love the one with the racoon living in a box because of the mortgage! I used on of your images on my blog, giving full credit to you. Hope that's OK :)

    1. You are absolutely welcome to use the images, but I don't deserve any credit as they are all filched from the interwebs. I think that image is from


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