Category — Finance Hacks

Groups and individuals go on strike to make a point. Going without food or going without a paycheck? That’s some serious commitment. Are you committed to getting your spending under control? Consider undertaking a spending strike. One of the things that I’ve learned is that it is easy to fall into bad habits and much harder to develop good ones. A spending strike might seem to be a pretty extreme solution to a problem, but it’s the very nature of the idea which makes it so effective.

So what is a spending strike? When you undertake a spending strike, you stop spending money. Period. The benefit to doing this is that you get out of the habit of spending money. Open up your checking account statement and figure out the total number of withdrawals. Divide that by the number of days in the statement. How many times a day on average are you saying ‘yes’ to spending? On the peak day in my last statement I said ‘yes’ to spending 15 times. 15? What the hell was I thinking? And one of those was a cash advance which probably led me saying ‘yes’ 2 or 3 more times. Like I said, bad habits are easy.

Stop saying yes to spending and go on strike. The length of time one can undertake a spending strike is going to vary by person, but for the purposes of discussion let’s consider a 2 week strike. Undertaking a spending strike to improve your financial health shouldn’t damage your financial health in the process, so there’s some preparation work that needs to go on before you begin.

Before you begin:

1. Identify all recurring bills which will be due during the strike period and pay them now or schedule payments.

If you rent, electric bill and car payment will be due in the next two weeks go ahead and either pay those now or schedule their payment. If you can pay them now, I recommend doing that. One of the advantages to that is that if you can view your checking account and credit card statements online, if any transactions do occur during the strike they will stand stick out like a sore thumb.

2. Stock up on food.

You need to eat right? A spending strike means no eating out unless you’ve got a gift certificate you hadn’t gotten around to using. I normally go to the grocery store 2 or 3 times a week (I live across the street from one) so buying 2 weeks worth of food is a pretty big change for me.

3. Fill up your tank.

Unfortunately you still need to go to work during the spending strike. I know it sounds crazy but just because you’re not spending any money doesn’t mean that you can get paid for sitting around. If you are going to need to fill up during the strike, that’s unavoidable. However, don’t buy anything else at the convenience store and do your best to eliminate any non-essential travel (you’re spending gas money on those trips right?). Consider riding the bus or car pooling during your strike. Who knows, you may find that riding the bus is a nice alternative and carry that habit forward after the strike.

4. Put away your cards and cash.

Keep a single card in your wallet along with an emergency cash fund. Unexpected expenses can come up and need to be dealt with. The goal of a spending strike is to break bad habits not punish ourselves. So if something comes up that needs to be dealt with, deal with it.

5. Grab a notebook to record your observations.

Every time you would have spent money on something make a note of it. Record what it was and how much it would have cost. Also take some time to record your thoughts about the strike or idea you have for saving money on an ongoing basis at work.

Morning latte $4
Lunch with Bob in accounting $12
Surfing magazine $5

6. Have fun.
Really.

When you’ve finished your strike, drop me a note and let me know how it went. I’ve done this exercise a few times and have learned something new each time.

Its funny sometimes how easy it is to overlook the real cost of free. At my office we have free soda. It’s free. I can have as much as I want. Hell, at least once a day someone offers to bring me one so I don’t even have to get up to get it. Did I mention it’s free? I did some math last night and figured out that the free soda at work is costing me over $400 a year. How? Before I came to this job I had kicked the soda habit. Now I buy a case of soda a week (my son drinks some of that to be sure, but I wouldn’t buy it if I didn’t drink it). And where I used to normally just drink water when I went out now more often than not I have soda. I’ve been at this job for 6 years, so that’s over $2,400 in soda. I admit that no one forces me to buy soda outside of work, but it’s a habit and habits tend to carry over.

The same thing is true for all the free offers we’re bombarded with daily. Free copy of your credit report from your credit card company? Read the fine print to see that you’ve just signed up for a credit monitoring service @ $3.99 a month.  Sure there’s a ‘30 day out’ on the service, but if you forget that free report costs you $3.99 until you remember. Just remember anytime a business is giving you something for ‘free’ there’s a reason and a cost. Make sure you understand the cost before you decide to take them up on their offer.

“Mind the gap” is a warning to train passengers to remind them of the sometimes significant gap between the train door and the station platform. - Wikipedia

Minding the gap is also the key to financial freedom. The key to amassing wealth is not to make more money. If every month you spend more than you take in you don’t have wealth, you have debt. That’s true if you make minimum wage or if you make $250,000 per year. “The gap” is the difference between how much you make and how much you spend. By focusing on making this number a positive one and increasing it over time you build the foundation of financial freedom.

What is your current financial focus? Dollars to donuts more people who read this article will know how much money they have in their 401K or whether the DOW finished up today than can state their personal gap for last month. On one level, “the gap” is a small thing. But, if you take care of the small things, the large things take care of themselves.

It is said that the journey of a thousand miles begins with one step. So today focus on taking just a single step. Pull out your paycheck for last month write down your net pay. Then open your bank statement and determine what your expenses were for last month. Once you’ve done that you’ll know your personal gap. Write it down… on the back of a paper napkin or in Excel, it doesn’t matter. Next month do the same thing and compare the two. And between now and then focus on increasing the gap (or decreasing it if your gap is currently negative).

This is not just an exercise for a financial newbie. Even seasoned investors can benefit from this analysis. (Re)focusing on the fundamentals is the true secret to financial freedom and there is nothing more fundamental to finance than minding the gap.