The Simple Dollar chronicles a man's road to recovery from "total financial meltdown." As author Trent Hamm puts it, "The Simple Dollar is a blog for those of us who need both cents and sense: people fighting debt and bad spending habits while building a financially secure future and still affording a latte or two." We'll post a couple of entries a week, but you can check out his writing daily at www.thesimpledollar.com.
Just this morning, I was leafing through my favorite personal finance book of all, Your Money or Your Life, when I came across the idea of the “purge and splurge” cycle. From page 148, discussing what happens after you start buckling down and paying serious attention to your financial state:
In the first month of recording your figures you might confront one of our national foibles. Your income entry might well be lower than your expense entry. You may have spent more than you earned. (It is, after all, the American way.) Seeing this reality might come as a bit of a shock. Chances are you’ll want things to change - and change now. Accustomed to budgets, diets, and New Year’s resolutions, you swear on a stack of bank statements and credit cards that next month will be better.
This is when people often go on a “wallet fast” with the kind of zeal characteristic of first-time dieters. They scrimp. They save. They deprive themselves and their families, putting everyone on beans, rice, and oatmeal rations. They concentrate daily on that expenses line, determined to cut it in half in one short month. Amazingly enough, many do. Entering the expense figure the second month, they proudly note a steep decline.
This kind of austerity, however, isn’t sustainable. By the third month expenses often rebound with a vengeance, making up for the second month deprivation.
I’ve been there. Have I ever been there. In the years before my financial meltdown, I went through this “purge and splurge” cycle several times. I’d have one month where I really cut back and saved a lot of money, then I’d “reward” myself in the next month by massively overspending on unnecessary stuff. When the bills came in, I’d panic again and go into belt-tightening mode, just to toss it all out the door once again.
There were several big things that I was doing wrong, though - things that I didn’t see at the time because I didn’t really understand how personal finance worked. If you’re having trouble escaping this cycle, just as I once did, here are some techniques to try.
Use a longer period for evaluation. Don’t just look at your spending over one month - that doesn’t really matter. Instead, look at your spending over a long period, like six months, and compare that to your income over that period. The short term really doesn’t matter that much - the difference is made over the long term.
Focus on not just avoiding spending, but changing the underlying behaviors that lead to spending. During those belt-tightening periods, I’d still go to bookstores and electronics stores, but I’d walk out the door proud of myself for not spending. The problem was that I was still in the mindset of a consumer - I would still go into the stores, tempt myself, and just use sheer willpower to pull myself away.
There’s only so much pure willpower can do. Use that willpower instead to change the habits that tempt you. Don’t use willpower when you’re in the store drooling over a new goodie - use willpower to decide to take another route home from work every night so you’re not tempted to stop in.
Make changes that are hard to undo during the belt-tightening phase. That’s the perfect time to cancel your credit cards or freeze them up in a big block of ice. Call up your service providers (your cell phone company, your cable company, etc.) and cancel some of the services. Look at your monthly bills and see what else you can trim that will take action to undo. Doing these things will ensure that some of the savings will remain with you, even if your resolve weakens a little.
Set tangible goals on a very regular basis - and keep setting them. Don’t just promise to trim the fat. Set a clear numerical goal to reach and, when you reach it, set another goal for the next month. If a month is hard for you, set week-long goals: I won’t eat fast food this week, for example. Make the goals very concrete and clear so that the things you need to do for success are obvious, then just keep setting them over and over again. Eventually, the techniques will become natural to you.
If you make a mistake, don’t follow it with another one. So you splurged. That doesn’t mean it needs to be followed by more splurging. Recognize that you slipped and then go back to your goals. The point is to keep generally heading in a good direction - everyone slips up on occasion. The winners, though, are the ones who don’t use “I splurged already, so it doesn’t matter” as an excuse to splurge even more.
Investigate new, inexpensive things that you like to do. One big problem that people have when following a newly frugal lifestyle is that they get bored. They wonder if pinching pennies is all there is to life, and they get tempted to spend. My advice is to do some research and load yourself up with as many free and inexpensive activities as you can find. Look up your community calendar and plan for events for the next two months. Check out a series of books from the library. Keep trying things that don’t cost much until you find things that bring you a lot of enjoyment, then start using those things as your regular recreation.
Just a few pages later in Your Money or Your Life, Dominguez and Robin nail the most fundamental key of all:
There are two keys to making this process work for you:
2. Keep going.
That’s really it - success in a nutshell.