Tighten budget thoughtfully
Don’t cut out things that matter most
If you’re trying to get your financial house in order and spend less this year, consider this tip: Rather than simply cut back on dinners out or trips to the mall, think instead about how to spend more meaningfully.
Jonathan Clements, a columnist for The Wall Street Journal Sunday, makes that point in his book, “Jonathan Clements Money Guide 2015,” a road map of sorts for managing your money. He says that to make our dollars really count, we should look back at how we spent our discretionary money during the past year. Then ask the question, were those expenditures satisfying?
If the answer is no, you know where to start tightening your budget.
A good way to get started is to look at a year-end credit card summary, which some banks provide. The summary gives you an overview of how much you spent in certain categories throughout the year, say, transportation and groceries.
You can also sign up for services such as Mint.com, which aggregate online financial accounts and track spending in real time. Mint will also look at past purchases and calculate how much you’ve spent, on average, in any one area.
Research shows that experiences tend to be more gratifying than possessions, and Clements suspects that will be the case for most people when they think about their past purchases.
“What made you most happy was, probably, going out to dinner with friends or taking a vacation with the family,” he said. “It won’t be the new refrigerator.”
In my case, I got a new refrigerator in late December. “I still really like it,” I said. “Wait a month,” Clements said.
That’s because, eventually, things start to lose their luster: A new car will one day need repairs. A new refrigerator gets dirty and cramped. Our memory of experiences, on the other hand, tends to grow fonder over time.
“The broken-down car just sits in the driveway, taunting you,” Clements said.
Once you’ve gotten your priorities set, you can make spending decisions that give you more bang for the buck and free up dollars for other goals, such as paying off debt or building up savings.
Jessica Flaherty, 30, graduated from law school in 2009 with more than $100,000 in student loan debt. She works in the nonprofit sector in Brunswick, Maine, and isn’t making the high salary she expected to earn when she was in school. To chip away at her sizable debt load, she doesn’t buy as many new clothes and other items.
But some things were just too important to cut.
“I kept the day-to-day things, like getting coffee,” Flaherty said. “I can’t make good coffee myself. I’ve tried, and no one wants to work with me if I haven’t been caffeinated.”
She also allows herself to go out with co-workers for a sandwich once a week.
“I didn’t want to miss that social aspect at work,” she said. “That was important to me.”
In 2012, Kelsey Folmar decided that she and husband, Kendan, should pay off his remaining $17,000 in student loan debt. Using Mint.com to scour their finances, she discovered they had spending leaks, including convenience store purchases, which alone averaged $130 per month.
After plugging those leaks — and renting a room in a family member’s home for only $400 per month for nearly a year — the Houston couple, both 27, paid off the debt last April. But they still allowed themselves some indulgences.