Sometimes lucidity sucks. There are certain moments in life when truly understanding your situation is equally important and terrifying. Falling from an airplane and realizing that your chute isn’t opening, seeing a friend out on a date with someone other than their spouse, and showing up at prom with the same dress as someone else (especially if you’re a dude), are all situations that come to mind. These events are initially shocking and painful, but the quicker you work to find a workable resolution, the better.
The financial equivalent of these things is realizing that you can’t afford the life you are living. Like I said, it’s an important revelation, but it can be literally physically painful. You may discover it by realizing that you spend more than you make. Or you may realize that you spend more money entertaining yourself and having a good time than you do accomplishing true financial priorities. Sometimes my office seems like it’s a turnstile for people in the midst of this revelation. You should find solace in the fact that most people have been in this situation, including me. I was in this situation in my mid 20’s.
There is nothing more kick-ass than getting your first paychecks when finishing school. You go from BROKE to not-broke, and it’s amazing. For many people it’s the reality that pre-paycheck-you couldn’t scrap together $500, but after that first paycheck, you could. That is an amazing feeling that you may honestly never feel again. But this feeling can easily create some problems, and before you know it you can’t afford the life you are living. You may now be in your 30s or 40s, and you are struggling because of the “adult” financial habits that you developed in your 20s. BTW, “adult” financial habits aren’t the same as “adult” movies. There’s no pizza delivery man involved, and no one has a mustache. I digress.
So, here are 3 things to do to reset your financial life. Like I said earlier, don’t be ashamed, just fix it. I was in this same boat a few years back.
1. Look at item prices, not payment amounts– Can you afford a $300/month car payment? Maybe. Can you afford a $300/month car payment on a 9 year car loan? Well, you can afford the payment, but the cost of the item doesn’t make much sense. Putting yourself in situations like this, the 9 year car loan, will always leave you on the LOSING end of financial life. Yes, the $300 fit into your budget, but the financial prudence of buying a depreciating asset on a 9 year loan doesn’t make any sense. Stop concerning yourself with the monthly payment, and start considering whether buying the item itself makes any sense.
2. Use a freaking budget– Not really a surprising tip (especially on this blog). The absolute #1 sign of not being able to afford your lifestyle is A GIANT DINING-OUT BUDGET AND A PILE OF DEBT. If you dine-out constantly and you are in the hole financially (credit card debt), then you can’t afford your lifestyle. (Did this just turn into a “You might be a redneck” set? God, I hope not). Here is copy of Pete the Planner’s Ideal Budget. Compare your spending to the spending prescribed on the ideal budget. Do you have a problem category? Track it then. Hell, just track it for a week. If you struggle with your dining out category, and you discover that it is out of control after only 1 week, then you will have a better chance of fixing it.
3. Count and reduce your transactions– Another great way to get an unaffordable lifestyle under control is to count the number of times you spend money. I originally discovered this phenomenon when writing my second book, 60 Days To Change. The more times you spend money, the less you care about how much you are spending. The average American family spends money 22 per week. This is ridiculously high. The average household should only spend money 10-14 per week. If you want to shock your system and really hit the reset button, then try to reduce your transactions to 5 per week. This means that both adults in your family should only spend money a total of 5 times in 7 days. Try it. I did, and was really surprised at the long-term affect it had on my spending habits.
Don’t wait for your income to catch up with your spending. Not being able to afford your lifestyle can get really out of control. Besides, if your spending is way out of control, and you have a major problem on the amount of money that you spend on Mountain Dew, then your problem may not be financial. YOU MIGHT BE A REDNECK
Peter Dunn a.k.a. Pete the Planner® is an award-winning financial mind and a former comedian. He’s a USA TODAY columnist, author of ten books, and is the host of the popular radio show and podcast, The Pete the Planner Show. Pete is considered one of the foremost experts on financial wellness in the world, but he’s just as likely to talk your ear off about bass fishing.
This post is painfully on target.
I think perhaps the most challenging aspect of our financial lives is how individuals are supposed to do the opposite of what companies do. As an individual, you should be debt free. As a company, you should be willing to leverage debt to beat your competition. As an individual, you should be building up savings toward retirement so you can operate without income. As a business, having massive capital reserves is not usually beneficial. As an individual, you should live modestly. As a company, having a nice office space and lavish expense accounts is a way to attract clients.
Follow Pete’s advice! Don’t fall victim to what everybody else seems to be doing.
Great suggestions Pete. About 2 years ago, my wife and I realized we were spending more eating out each month than we were on groceries. We started a budget and made big cuts in our dining out budget, but now going out for a meal is a real treat as opposed to what we do when we don’t feel like cooking. We’re now spending less than $100/month dining out when we were spending $300-400 easily a couple years ago.
Thanks for this article! I laughed out loud when I saw the last line…. Mountain Dew is my budget blower! Looks like I have bigger problems than just financial!