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.
I used to waste tons of money on silly little things. I did it so often and so regularly that I didn’t even realize that it was adding up to a huge dent in my finances. A pack of Tic-Tacs here, a CD there, a DVD here, a new book there… it wasn’t long before I was dropping hundreds of dollars a month on silly things and not putting together the bigger picture.
When I reached my financial rock bottom and decided to change things, I realized it wouldn’t be easy to immediately change my habits, so I took a “one month challenge” to see what exactly was going on with my money. I kept a little notebook in my pocket and I recorded everything I spent in a single month, from a pack of Tic-Tacs to a book at Borders to an itemized grocery list to song purchases on iTunes. I kept a spreadsheet of every expense, including every single item I bought at the grocery store, item by item, and everything else.
At the end of the month, I went through and marked things as either essential or non-essential, then I totaled each amount. What I saw then truly shocked me: I had spent more on items I labeled non-essential than on items I had labeled essential. This meant that more than half of the money I brought in in an average month was completely wasted. Even scarier? I spent more money than I brought in.
I then repeated the “one month challenge,” except this time I made a strong effort to ask myself whether each purchase was essential or not. By simply asking myself that question for every single purchase, my non-essential purchases went way, way down. At the end of the second month, when I tallied up my spreadsheet, I knew the news would be good and it was: my frivolous spending was about 20% of my non-frivolous spending, and I still had about 40% of the money I brought in that month. That 40% paid off a good chunk of one of my remaining credit cards.
This experiment provided such a personal shock to me that I now ask myself before every purchase: do I really need this? If the answer is no, then I literally put it back on the shelf and give myself a few minutes worth of breathing time. Almost always, I don’t pick the item up again.
If you’re drowning, try taking the one month challenge! At the start of a month, begin a spreadsheet that includes every single expense you have in a month. I’d recommend going so far as itemizing receipts, listing each item that you buy and what it cost. At the end of the month, mark each item as essential or non-essential and total each, then compare those amounts to what you brought in for the month. If the non-essential amount is anywhere close to the essential amount, you have a lot of fat that you can cut from your spending diet!