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This is a guest post from Kevin, who writes about getting and staying out of debt with a plan at No-Debt Plan.
Saving money and the frugal mentality are all about awareness. If you’re in the dark about where your money is going or how much something costs you each month, you can’t do anything about it. Life will continue — and you’ll keep spending as you always have.
The truth will set you free
Setting up a budget isn’t much fun for most us. (The sick ones like me get enjoyment from the task!) But a budget can reveal some ugly problems, problems you most likely don’t want to face. The reward for all of the hard work is awareness — knowledge of where your money goes each month. That knowledge can be very, very powerful.
For example, without taking a hard look at your finances, you might miss the fact that you’re unintentionally spending $300 per month on dining out. Maybe you thought you were only spending $50. You’re okay with spending $50. You’re not happy with $300. The difference? Awareness.
Let’s take that example one step further. Changing that behavior results in having an extra $250 every month. Applying that $250 to debt or a savings goal could substantially change your life. You’ll get out of debt faster. Or you’ll have a healthy emergency fund when your transmission goes out or an unexpected medical bill pops up. The difference? Awareness.
As J.D. noted a few weeks ago, items in the grocery store are shrinking. If you don’t notice the change, you might unwittingly pay 25% more than you’re used to for an item you use regularly.
Granted, paying extra for yogurt probably isn’t going to break your budget this month. But what if a bunch of your favorite products suddenly became more expensive and you didn’t notice? Suddenly you’re running out of money in the grocery category in your budget. You spend $350 this month rather than the budgeted $300. No big deal, right? But that $50 has to come from somewhere, and it might be your retirement savings, or the money you’ve set aside for a house down payment. Do that for long enough and you’ve got a serious problem on your hands. The difference? Awareness.
Awareness leads to informed decisions
Noticing smaller package sizes may not completely turn you away from using a product, but it can help you make an informed decision.
- You might decide to use the product less.
- You might choose to go with a substitute product.
- You might even seek out coupons for the product so you can keep using it.
As long as you know there has been a change — and I would argue 25% is a big change — you can make an informed decision about how to react.
The bottom line is you can’t cut back on comic books, eating out, or gasoline until you know how much you are spending on them. Take a look at your receipts or bank statements over the last three months. Compare your spending to your budget.
Find something that shocks you? Time to get to work. Investigate the discrepancy and address the issue. Make an informed decision: adjust the behavior or adjust the budget. It’s up to you.
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This article is about Budgeting, Frugality, Psychology, Shopping Wednesday, 17th September 2008 (by J.D. Roth)
September 17th, 2008 at 5:20 am
Thanks for letting me guest post, JD! And thanks to all the visitors who decide to come visit.
Also I apologize for the weird loading time on my front page. I am working on a fix for that.
September 17th, 2008 at 5:24 am
This is a great guest post. I like the no debt plan. I think it is more important to get out of debt before you build an emergency fund, because this increases your cash flow (less repayments) and gives you less need for an emergency fund.
Thanks for the post. I will be more attentive in my spending now
September 17th, 2008 at 5:33 am
I whole heartedly agree. Keeping a tab on where your money goes is the first step in figuring out what to do about it.
Even keeping track of my finances actually made me spend less, even _before_ I planned my budget. After all, you don’t know where you are if you don’t know where you came from.
September 17th, 2008 at 5:49 am
The subtle shrinking of grocery store products is really annoying when it comes to your budget, as you have to constantly re-evaluate what you are buying.
September 17th, 2008 at 6:00 am
Great post!
My husband and I recently set about becoming more aware of how much we were spending by setting up a shared Google spreadsheet. Having the spreadsheet online has been really handy because it means each of us can update it whether we’re at work or at home.
By tracking all our spending, we’ve worked out that we spend £80 per week in groceries, when we were previously budgeting £60 per week.
We’re fine with the higher figure, but it’s meant we’ve adjusted the rest of our budget accordingly.
Awareness!
September 17th, 2008 at 6:21 am
I can highly recommend the one month(or one week to start)- going on a cash basis for everything except major bills(mortgage, utilities, loans) and writing down everything you buy- I used a little notebook that cost me $.49- the first thing I wrote down was the $.49 cent notebook. If you only look at how much money you take out of the ATM- you don’t know where it is going. Not to say you have to stop going to Starbucks(I go) but you will know how much you are spending there.
September 17th, 2008 at 6:22 am
When I was fresh out of college, I never really kept track of little expenses here and there. Finally after 2 years of not really getting ahead financially- I sat down and made a spreadsheet of entertainment and misc expenses since graduating. I couldn’t believe what I had wasted so much money on! Bar tabs, coffee, lunches, DVD rentals - and late fees, cable TV, random trips to Best Buy, etc. I was enjoying my newly found prosperity after college, but really setting up bad spending habits in the meantime. All that stuff sure adds up. Once I “shocked” myself into attentive spending, things really turned around.
September 17th, 2008 at 6:42 am
Only tangentially related to the thesis of the post, but I thought of one advantage of the shrinking portion sizes at grocery stores: less obesity. People will get used to getting by on slightly less food because they won’t realize it is slightly less food. Either that, or they will start eating two portions (or approximately 1.5x the food as before!)
September 17th, 2008 at 7:30 am
Excellent post! In my opinion this is the #1 issue when people get in trouble - just not being truly aware about what they are doing. Maybe spending $300 dining out is perfectly fine for me and fits within my budget & goals - but I can’t decide that for myself unless I am conscious about doing it. Thanks again for the great reminder!
September 17th, 2008 at 7:31 am
The key number in the supermarket for non-single-serving stuff is, and has always been, the per-unit cost. I know Kroger includes it on their tags, and it’s always been the one to keep an eye on while tracking spending. But you’re right that it’s harder to notice packaging-shrink than price-hikes.
As for single-serving stuff, until it ceases to be a satisfying size it might not impact our wallets so much. Sure, you’re getting less yogurt for your dollar, but if you eat one yogurt per day, you’re spending the same amount and just eating less.
September 17th, 2008 at 7:47 am
Good post! I like the idea of a budget pointing out areas were you are overspending.
September 17th, 2008 at 7:47 am
I also love setting up budgets! The only problem with that, however, is that I set up a new budget everytime I go over…
September 17th, 2008 at 7:48 am
I try to keep track of my cash spending, but it seems like the people behind me in line are impatient with the time it takes for me to put my change away, never mind writing down stuff.
Buying food in single-serving containers is rarely frugal or environmentally sound (although if you subscribe to the theory that chocolate only comes in single-serving containers, obviously your waistline and pocketbook will both benefit from buying smaller ones
).
September 17th, 2008 at 8:20 am
Thank you for the post. Will go through my credit card bills and get the real picture of what I am spending on. Hope that I can keep within my budget. Cheers.
September 17th, 2008 at 8:34 am
If your bank or CU offers CSV (comma separated value) downloads of your finances, you can dump them into a spreadsheet and very quickly have a multi-month history of where your money has been going.
If you spend a lot of cash or use a lot of checks, you’ll probably have to further break down those categories manually.
September 17th, 2008 at 9:12 am
The small packages point in retail stores is really interested. I myself stopped going to Cosco altogether because I discovered that even though my per unit cost was lower my cash outflow was much higher than what it should have been.
I was unwittingly buying more than I needed and once I stopped going there I was able to save a lot more. Using the Kroger card also helped a great deal.
September 17th, 2008 at 12:19 pm
Great point! Awareness is key! Recently our outgo seemed to be out pacing the income. We took a look at our spending report(free through our bank) and found that the new addition to our family had not only changed our numbers but our spending habits. We were able to quickly get back on line once the problem revealed itself!
September 17th, 2008 at 1:12 pm
I wanted to say that I agree with Manshu about Costco or Sam’s club. If you aren’t careful, because you know you have a lot, you use a lot more. I found that when I made a huge batch of granola, my husband would eat it two and three times a day. For our family, this tends to be true of snack foods more than any other category of items–ice cream bars, cookies, cereals, instant soup packages, etc.
I also find that I would sometimes give away more than I would if I bought just what I needed. This end results in not saving any money! (Though it is philanthropic.)
September 17th, 2008 at 4:31 pm
WRT Yougurt, never buy the small containers. They are a rip-off, costing 2-3x a larger container. Furthermore, they tend to only be yogurt-like substances, and not really yogurt in the first place. Buy a couple of kid’s snack containers, and put your lunch servings in those, if space is an issue.
September 17th, 2008 at 9:23 pm
I can relate to the awareness issue. One of my budget tools is this: For any given recurring thing, I decide I will spend no more than $Whatever/month on that item. If the cost goes over, even by only 1 cent, it’s off the table.
I lived up to that today, I found my rate had gone up with my ISP and was now past my cutoff point. When I couldn’t get them back below the cutoff, I had them reduce me to the next lower tier, which reduces me to near dial-up speeds, and am searching out another ISP. I am now below my cutoff, but any site more complex than GRS is essentially unusable.
Sometimes sticking to your budget is a real pain.
September 18th, 2008 at 10:43 am
Last night I completely emptied my pantry….and then put the items back in a neat and orderly fashion. While putting things back on the shelves, I checked the dates. I had let many items go out of code due to lack of awareness.
September 18th, 2008 at 2:06 pm
I couldn’t agree more: awareness is the key for improving our financial health. The power of tracking every cent that I spent, it’s huge, and it has been the first step on the road to freedom
September 18th, 2008 at 6:44 pm
This is the first time I’ve seen this site, but I find it kind of amusing how I keep seeing references to comic books as an example of wealth-sucking impulse buying. The things really are expensive and I’ve known more than one marriage that was saved when one member promised to cut back a bit (or a lot) on the things. Still, some people can only cut back so much and have to be hooked up to some kind of insane medical device if they cut back to much….
September 18th, 2008 at 8:18 pm
@Dennis: JD has written several times in the past of his love of comic books. They were one part of a spending problem that got him into trouble a few years back.
September 18th, 2008 at 10:20 pm
I have been tracking every penny for over a half year now, and I have saved every receipt and stapled them next to my little notebook where the ins and outs go. I feel so much more control over my money.
September 20th, 2008 at 8:46 am
I didn’t realize how little my husband spends until he started keeping a notebook of expenses. On the days he spends $0, he records that too. He has very gradually cut out all non essential spending during the workweek. (no coffees out, no vending, no meals out) One of the side benefits? He’s lost a little weight and become a faster runner. He’s happy.