Budgets, Cash, and Principles.

During a recent bout with writer’s block, I asked my friends on Twitter (I’m @HJudeBoudreaux) for financial topics that they’d like to see addressed.  One mentioned that they’ve always been told that spending cash can help with budgeting, but she seems to spend more when carrying cash than she does using her credit or debit cards.  This is a case of personal finance being more personal than finance, as my friend Tim Maurer, CFP® is fond of saying.

I often recommend that clients withdraw and spend cash for a few reasons.  Cash is a great scorecard.  It’s easy to look in your wallet and see how much you’ve got left for the week.  It’s also more visually compelling than swiping your credit card, and signing your name, where unless you’re at a restaurant you don’t even have to write the amount.  However, it doesn’t work for everybody.  There’s no magic in spending cash, it’s just one of many tools that clients can use to begin understanding their spending habits.

There’s lots of general advice and Financial Rules of Thumb around that can be helpful to many, but damaging for you.  There’s no magic formula that will help you understand your spending.  There’s no one system or plan that leads to financial success.  There are a few principles that are common among those that I’ve seen make successful changes in their spending habits, and I’ve outlined them below.

  • Track Your Spending.  I’ve written in the past about tracking your spending, and I believe that you can do it in 15 minutes a week, once you get in the swing of things.  It is important to track your spending weekly, since it will give you more regular feedback on your habits, and keep it from becoming the multi-hour project it can be if you track your spending only once a month.  Whether that’s using Mint.com, Quicken, a spreadsheet you’ve created, a notebook, or envelopes in a kitchen drawer, I’ve seen all of those work.  I’ve also seen them all fail.
  • Have a Bigger Purpose.  Most of what I see tripping clients up about spending are their weekly spending habits, not large decisions like their home or cars.  In order to spend less, it helps to have a very specific goal.  Just like losing 10 pounds is a more achievable goal than ’losing weight’, saving for a 10 day trip to Italy is easier than saving for ’travel’.  The clearer the goal you have, the more likely you are to be able to achieve it by saying no to yourself on small decisions every day.
  • Do It For Yourself.  You can’t successfully change a habit for somebody else.  You have to do it for yourself.  The end result can be a benefit for your partner or your children, but if that’s your sole focus, you’re setting yourself up for failure.  Change your habits because it is important to you and you’ll feel more in control, not because you think it’s who you need to be for somebody else.
  • “Incremental Change is Better Than Ambitious Failure”.  That quote by Tony Schwartz resonates deeply with me and has deep truth to offer about spending.  We’ve all gone on crash diets, with food or money, and while we see some quick results we usually end up ordering the extra-large blizzard at Dairy Queen when we run out of willpower.  Making small, sustainable changes in your habits will bring you more lasting success than a few weeks of being on a crash spending diet.

Take small steps.  Commit to yourself.  Act with integrity, not guilt, when the time comes to make a spending decision.  Remember your bigger purpose.  Follow those principles, and whatever system you choose will have a far greater chance of success.