Lifestyle inflation<\/a> is the natural tendency to increase our spending as our incomes increase. When we get a raise at work, we’re likely to spend more at home. A little lifestyle inflation is fine. But there’s a real danger of becoming too comfortable with increased spending. Once we become accustomed to a certain lifestyle, it’s difficult to cut back.<\/p>\n On our flight home from Orlando<\/a>, Kris and I talked about my spending. It has increased in recent months. Some of this is deliberate. I’ve made a conscious decision to allow myself to spend more money on Wants. I can afford it. The trouble is that I’ve begun to spend indiscriminately again, and I’m afraid that’s a slippery slope. I’ll buy random magazines at the grocery store, or pick up a game for the Wii that I’m only half interested in.<\/p>\n I’m certainly not spending beyond my means, but I’ve begun to make more impulse purchases. I want to correct this now \u2014 before<\/i> it becomes a problem. In the past, I’ve used a spending plan<\/a> to help me meet my goals, and more recently I’ve been following the broad outlines of Elizabeth Warren’s balanced money formula<\/a>:<\/p>\n But sometimes broad outlines aren’t enough. In this case, Kris suggested that a budget might help curb my impulsiveness, and I think she’s right. With a budget, I can set specific goals. I can focus on the things I really want instead of just spending on random things that appeal to me in the moment.<\/p>\n So, I’ve decided to create a budget. Not a comprehensive budget \u2014 my Income, Needs, and Saving are all fine \u2014 but a budget for my Wants. I want to exercise discipline in this area so that I’m spending on things that are actually important to me instead of random stuff, stuff that ultimately turns into clutter.<\/p>\n To start, I reviewed my discretionary spending<\/a> from last year and compared it to the totals from the first four months of 2009. This is where tracking every penny you spend<\/a> can prove valuable. By comparing my past spending to my present spending, I’m able to detect trends. It’s very clear, for example, that I am again<\/i> spending too much on dining out. Time to cut back.<\/p>\n Next, I thought about my goals. What is it that I really want to do? Lately, travel appeals to me. Kris and I both would like to take a vacation to Europe in 2010. To make that happen, I need to save. This gives me a medium-term goal to save toward.<\/p>\n Finally, I allocated a specific amount of money toward my monthly Wants. Remember, because I’m self-employed, I have an irregular income that passes through my business account first. If I pull out $2500 per month (after taxes) to act as personal income, that gives me $750 to spend on my passions. That should be plenty<\/i>.<\/p>\n After collecting the data and setting my goals, I made a first pass at a budget. This is what I’ll use for June and July:<\/p>\n Obviously, you<\/i> might make different choices. I know that many GRS readers are avid contributors to charity, for example, and I suspect few of you budget for comic books! These are the allocations that seem to make sense for me and my situation. I’m sure that I’ll make changes to this budget as I work with it in the real world.<\/p>\n Actually, I have a lot of questions about how a budget should work in the real world. Because I’m a budgeting novice, I could use some help. I’m hoping that you experienced budgeters can answer some of my questions:<\/p>\n This is a strange new world for me. Over the past year, I’ve been pursuing more and more advanced personal finance subjects and concepts. Yet here I am, in better financial shape than ever, about to implement a basic skill I’ve never mastered before. That’s okay. I believe it’s important to continue focusing on the fundamentals even as we tackle more advanced topics.<\/p>\n I want to talk about a couple of my spending habits. One is a worrisome trend, and one is a thing I’m doing right.<\/p>\n Long-time readers know that Kris and I love to dine out. It’s one of those things we’re willing to spend on. We cut corners in other areas of our lives so that we can afford to make this happen. Still, I’ve been concerned about my restaurant spending for the past couple of years. It seems a tad excessive.<\/p>\n How’d I do last year? Well, my grocery spending dropped, but my restaurant spending went up again \u2014 a lot<\/i>. Here’s a look at five years of data:<\/p>\n Holy cats!<\/i> Will you look at those numbers? We’re only dining out about If I’m honest, I have to admit that I don’t<\/i> like the idea that we’re paying $50 per meal. I’d much rather return to our former habit: Dining out more often, but spending less each time. To that end, I’ve been brainstorming ways we can work to cut costs:<\/p>\n So, that’s one part of my financial life that still needs work. Next, let’s look at something I’m doing right.<\/p>\n Here’s something that amazes me: We’re twelve days into the year and I haven’t spent anything yet on personal expenses. I haven’t even felt the urge. I’ve bought gas for the Mini and groceries for home, and Kris and I went out to lunch last Friday, but I haven’t spent a dime on gadgets or books or games or toys or magazines.<\/p>\n “Big deal,” you might say. “That’s how it should<\/i> be.” You’re right. But for me, this is<\/i> a big deal. All my life, I’ve had the uncontrollable urge to buy Stuff. It used to be that I couldn’t go more than a day or two without buying something. Even while writing this blog, that’s been the case. (I’ve just learned to channel my desires into smaller, cheaper things.) Now, as last, I seem to have licked it.<\/p>\n I still want things \u2014 no question! \u2014 but I’ve become very good at ignoring the wants and moving on. How?<\/p>\n These techniques help me deal with desire. They don’t quell it completely \u2014 nor would I want them to \u2014 but they do keep it in check. That last rule is probably the most effective. By delaying purchases 30 days, I don’t feel like I’m denying myself. I can still buy what I want if I want it 30 days later, but I’m not just giving in to impulse spending. (When 30 days rolls around and I do<\/i> still want something, it actually feels pretty good to be able to buy it.)<\/p>\n My current spending moratorium isn’t permanent, and I know that. In fact, the new Dick Tracy anthology<\/a> comes out tomorrow, so if nothing else, I’ll be shelling over $25 for that.<\/p>\n Remember: there’s nothing inherently wrong with spending money on things that bring you joy.<\/b> Problems arise when you finance these purchases with debt. If you’re meeting your other financial goals and have money left over, it’s good to indulge your interests and passions. Just make sure you’re getting value for the dollars you spend.<\/p>\n I believe there are two components to building wealth:<\/p>\n Doing one or the other can help you meet your goals, but to really succeed, you must do both. My goal has been to create a significant positive monthly cash flow<\/a>. I’ve managed to do this. But as my income increases, so does the temptation to spend more. Have I been able to fight the urge? It’s time for the annual review of my largest sources of discretionary spending:<\/p>\n Although this report is interesting, there are problems with my methodology. For example, I’ve included my grocery spending above (although it’s not really discretionary), but have not included spending on exercise equipment (which is<\/i> discretionary). Also, Kris pays for much of our grocery shopping. Because we keep separate accounts, her share of that expense isn’t reflected in these numbers.<\/p>\n In order to be consistent from year-to-year, however, I’ve elected to continue reporting the same expenses in the same ways. You’ll have to take my word that the figures here are representative of my spending as a whole. This annual report is sort of like tracking a stock market index, I guess. It doesn’t reveal nuances, but it’s still a useful indicator of the Big Picture.<\/p>\n So despite cutting back on the areas that are really important to me \u2014 books and comics \u2014 my spending increased<\/i>. And most of that increase came from dining out.<\/p>\n How did you<\/i> do on your spending goals last year?<\/b> Are there areas where you wish you spent less? If so, what strategies do you use to keep yourself in check?<\/p>\n","protected":false},"excerpt":{"rendered":" I’ve decided to develop a budget.<\/p>\n This probably sounds strange coming from a guy who has been anti-budget all his life. Besides, haven’t I paid off all my debt<\/a>? Don’t I have a positive cash-flow of over $1,000 per month? Yes, these things are true. But I’ve noticed something troubling: I’ve begun to experience that lifestyle inflation I’m always warning others about.<\/p>\n<\/span>Cracks in the Foundation<\/span><\/h2>\n
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<\/div>\n<\/span>Blueprint for Success<\/span><\/h2>\n
<\/span>Building the Budget<\/span><\/h2>\n
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<\/span>My Discretionary Spending: Bits and Pieces<\/span><\/h2>\n
Food for Thought<\/h3>\n
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half<\/s> two-thirds as often as we were in 2006, but we’re spending nearly three<\/i> times as much per meal. At the current rate of spending growth, we’ll be spending $300 per meal in 2015! Since I can afford our current spending \u2014 I’m not living beyond my means \u2014 the real question is: Am I getting my money’s worth? I’m not sure that I am.<\/p>\n\n
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A Waning of Want<\/h3>\n
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<\/span>A Look Back to Previous Years<\/span><\/h2>\n
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