Understanding and Controlling Your Finances
by Marshall Brain
Now let's come back to Bob's one desire: pilot lessons. How in
the world is he ever going to accumulate $4,000 given the facts
gathered in the previous article? How are you going to achieve
your goals? You have to gain control of your finances.
This is why you were asked to choose the one thing you really want
right now. This one thing is something that you have to want so
badly that you are willing to make a bit of a sacrifice to obtain
it. You've got to want it very badly, because what you are about to be asked to
do will be impossible otherwise. What you need to
do is cut some of your expenses in order to save money. This is
hard, I know, even though it sounds simple. It is sort of like the
famous dieting advice: "If you want to lose weight, you need to eat
less and exercise more." What could be simpler than that? It is
hard to save money because it is so easy to spend it.
None the less, Bob is willing to give it a shot.
Bob looks at his expenses (see the previous article).
There is one easy option: cut that
entertainment number significantly. Say he were to cut the entertainment
number in half: he could save $210 each month without
effort. Since Bob is actually in the hole
$226 each month, he could reduce the hole to a mere $16 per month by
cutting the entertainment budget in half.
Here are some of Bob's other options:
- Get rid of the cell phone
- Get rid of the cable TV
- Move into a different apartment with a room mate
- Trade in the new car for a used car worth half as much (thereby
lowering insurance costs as well)
- Sell the computer
- Sell off some furniture to raise cash
The article on frugality included in this series may give you some other interesting ideas
to help you get started down this road
Let's say that out of all of those options, the only one Bob is
willing to try is getting rid of the cell phone. He cannot live
without ESPN. He has eight months left on his lease. He loves
his car and cannot part with it. And there is no way he is selling
his pit group.
So let's look at Bob's entertainment expenses and see if there is
room for savings. This is going to be hard. Speaking
as a person who once went out to lunch, and often dinner, every
single day, I know how hard it can be to give up lunch. It makes
you look like a fuddy duddy to bring a lunch to work every day. It is
too much work in the morning to make a lunch. People ask you
to go out and you don't want to say "no." And so on.
There are two things to do here:
- Keep your eye on the prize. On the inside of your front door,
and on your bathroom mirror, tape an index card that states your
ONE true desire. In Bob's case, he would write "Pilot License"
on two index cards and tape one on his bathroom mirror and another
above his door knob. He might even put a third index card in his wallet
to remind him of his desire every time he spends money.
- Start slowly and compromise with yourself. There is no way
Bob is going to give up a two-can-a-day habit, for example, cold
We are going to rely on your desire for the ONE thing you truly
want to carry you through the hard times that are to come.
Let's look at Bob's expenses again:
Car payment 300.00
Gas, oil change, etc. 70.47
Power bill 76.47
Phone bill 37.16
Cell phone 42.76
Cable TV 49.17
Entertainment, lunches, etc. 421.94
Other expenses 96.21
Grand Total 2076.84
If you look at it closely, the primary area for expense cuts is
in this region - the junk:
Cell phone 42.76
Cable TV 49.17
Entertainment, lunches, etc. 421.94
If Bob could eliminate the cell phone, eliminate the music, cut
the computer expenses in half, and cut the entertainment in half,
he could save a total of about $340 per month. Two questions to
- Will it help?
- Can it be done?
You need to look at your own expenses, go through the same analysis,
and ask the same questions.
The answer to Bob's first question, "Will it help?"
is YES, of course it will. If Bob could free up $340 per month
it would get him to the point where his Visa bill would stop growing,
he would be able to handle unexpected monthly expenses, and he
could put about $120 in the bank each month toward his goal.
The answer to the second question, "Can it be done?"
is less clear. Can Bob (and you) really change his lifestyle and
save $340 per month? The answer is YES, and the sub-answer is
it will work a lot better for some people if they start slowly.
Some people are able to make rapid strides, once they clearly
see their true desire. But a majority of people have to make the
change over time. So what can Bob do to change his habits slowly?
- Let's start with the soda-and-cookie habit, which costs about
$60 per month. This one is easy to change. If Bob were to buy
his supply of soda and cookies at a grocery store or Wal-Mart
rather than from the vending machine, he could save about $40
per month and still consume the same amount.
- Next tackle the lunch problem. It is costing Bob about $130 per
month to eat out. By bringing lunch just twice a week it would save $50 per
- Cutting back on the weekly movies with Jenny could save $16
per week, or $64 per month. Replace them with a video at home,
a walk in the park, a night at the art gallery, etc. Or keep the
movie and replace dinner out with dinner in.
- And so on
The other problem most people have, and this explains the random
music and computer expenditures seen in Bob's expense summary,
is the credit card. It is too easy to whip out a credit card to
buy something whenever the mood strikes you. This is fine if you
are living a random lifestyle, but to get what you REALLY want
this sort of behavior has to end. You can take several steps:
- For those with a lot of control, simply discipline yourself.
- For those with less control, wrap your card in a sheet of
paper and write your one true desire on the paper. Bob would write
"Pilot Lessons" on the paper. That way you are reminded
of your goal every time you buy something frivolous. If you find
that does not control you enough, wrap the card in paper and then
in lots of tape, so it is incredibly annoying to use it except
- For those with no control, cut up your credit cards and eliminate
You have to do something to break the bad habit of random spending
and replace it with consistent saving toward your goals.
Let's say Bob does this. The first month is kind of rough, but
by the second month he is in a groove and accomplishes the following:
- At the beginning of the month he deposits, just like it were
any other bill he had to pay, the $100 monthly average fee for
"regularly but unnerving expenses like car insurance"
into his savings account. It is important that you actually do
this, and treat it exactly like a bill every month, to get it
- During the month he actually cuts his expenses through a combination
of buying his soda at the grocery, eating out less, eliminating
the cell phone, not purchasing random "junk," etc.
- Even though he charged nothing new on his visa card for a month, he has
to pay $30 in interest on the outstanding balance and $20 more
to meet the minimum monthly payment.
- He actually puts $50 into his savings account at
the end of the month. For the first time in an incredibly long
time, Bob spent less than he earned, and actually saved a little
(although not the $120 he had hoped for).
Now, $50 is not a lot of money. In fact, at that rate it will
take Bob something like 80 months, or almost 7 years, to get his
pilot's license. It is really hard to get excited about a seven
year wait. Really really hard. In fact, nearly impossible. So
he can do one of four things:
- Give up and go back to his old ways. This would be
a mistake, because if nothing else this exercise has gotten him to the
point where he is living a life where expenses now balance with
income and he is able to handle ALL of his expenses rationally.
- Do nothing and wait 7 years. There is certainly nothing
wrong with that.
- Wait for a raise, a bonus, "found money" or a
tax refund and capture the entire amount into the savings program
rather than blowing it on junk. For example, if Bob gets a
5% raise this July as expected, he will have about $100 extra
income after taxes. If he deposits that money directly into a
savings account rather than spending it, it reduces the wait to
just over two years.
- Look for other ways to save money. For many people,
the first step is the hardest one. Once they taste their ONE TRUE
DESIRE and start saving for it, other ways of saving are easier
to find. For example, if Bob REALLY wants his pilot's license,
then a roommate might look a lot more palatable. That could save
him $300 per month or more, and let him get his license in less
than a year. Or he may find he doesn't mind brown-bagging it every
day. Or maybe he can cut the cable TV service agreement and read
more. A lot of things will change their value once you discover
that they stand in the way of more important things, like a pilot's
- Find other ways to earn money. Maybe you can take on
a part time or weekend job, have a garage sale, etc., to raise
extra cash. I once knew a guy in college who wanted to learn to
fly a helicopter so badly that he signed up for the nuclear Navy
program. This program paid him $1,000 per month in cash while he was
in school, and he used that money to get the helicopter lessons. A true
story. Of course
the other side of this deal with the devil was that he had to
also spend four years underwater for six months at a time once
Bob does have other options. It turns out he also has other responsibilities
he is not considering. We will examine these in the next article.
10 action items for you to try
If you want to try following in Bob's foot steps, here is a set
of action items for you to try:
- Identify ONE thing you truly desire, and that you will be
willing to make sacrifices for to achieve. See the previous article
for how to arrive at this item.
- Tape a note card on your bathroom mirror and on your front
door to remind you of this item. Maybe put a piece of paper in
your wallet as well. Imagine yourself owning or having this ONE
- Create an exact record of expenses over the next 30 days as
shown in the previous article.
- Categorize your expenses, as shown. You may be amazed
at how much money simply slips through your fingers right now.
- Determine your "hidden" monthly expenses: car insurance,
taxes, dues, membership fees, gifts, etc. and figure out how much
you spend on average per month for these expenses. See the hidden
expense calculator in the previous article for
- Look for expenses that you can cut and plan on how you will
cut them. It may be helpful to start slowly. Determine how much
you will be able to put into savings each month given these cuts.
- Open a savings account. Each month, when you are paying your
other monthly bills, write another check to cover your hidden
expenses and put it into savings. When you get a bill in this
category, pay it from savings.
- Conceal or cut up your credit cards to help eliminate random
- Deposit your excess money each month in savings
- Whenever you get unexpected money - a raise, a bonus, a refund,
a present - put it directly into savings to apply toward your
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