Debt-Free Forever (14 page)

Get yourself a small notebook to keep your lists. You might use the front of the notebook for grocery lists and the back for your stuff list. Before you buy anything—clothes, a new TV, or paint to redo the basement—you must first make concrete your intention to buy by writing the item on your list. If something is not on your lists, you don’t buy it. No matter how good the deal is. NOTHING.

If you have kids, shopping with a list will go a long way to demonstrating that you can’t always get what you want. Parents complain all the time that they can’t take their kids into a store without them wanting to buy something … anything. It drives parents crazy. And yet, when kids see their parents go into stores and buy stuff, seemingly with no plan, they learn from them that buying is the name of the game. Shopping with
a list lets you demonstrate to your kids that your purchases are planned, that you aren’t simply reacting to the Great Deal or the Fancy Packaging. Shopping with a list demonstrates how to shop consciously.

Keep a long-term list for things you want but don’t need right away. Maybe you’re planning on buying a treadmill so you can work out at home and save the $1,000-a-year gym membership. First you put it on your list. Then you save the money. Then you buy the item.

GAIL’S TIPS

You can manage the money you are planning to spend in a couple of ways:

1.
You can set up a separate account for each planned spending goal you’ve set and then have the specific amount you’ve designated automatically moved from your regular account to each of your savings goals. This is clean and simple, and since there’s no cost for a savings account, you can have as many as you want as long as you can keep track of all your pots of money. Just make sure you’re aware of when the money’s being moved over so that you don’t end up in overdraft.

2.
You can set up one savings account and then keep a paper trail of what’s going into the account and what it’ll be used for. Let’s say you’re saving for a roof ($5,000), a vacation in two years ($2,500), and those stunning new boots ($240). You’ve allocated $350 a month to the roof, $250 to the vacation, and $50 to the shoes. You’d move $650 a month to your savings account each month and you’d note how much more you have for your planned spending within each category. When you hit your goal amount, you go shopping.

See how easy? The idea is to have a system for dealing with the money you are accumulating to spend at some future date so that you don’t use credit that can’t be repaid immediately.

Shopping consciously also means being aware of how much of your life’s energy you are exchanging for the stuff you’re buying.

You’ve decided that you just
have
to have the newest cell phone that spits nickels and whistles “Dixie” while calculating how far you haven’t walked this week. It runs for $379.99. You’re planning to spend the money, so you’ve put it on your Stuff List. And you’re accumulating the money you’ll need so you don’t put it on credit. Good for you.

So, how many hours are you going to have to work to get that Phat Phone?

This is a useful step to see how much energy you’re prepared to expend to have all the Stuff you want. While it’s easy to spend money mindlessly, when you take the time to figure out how many hours you will have to work to get that great new whatever, you may find it just isn’t worth it.

Let’s say you take home approximately $50,000 a year net. That translates into a net hourly income (assuming 50 weeks and 40 hours a week for work) of $25. You make a whopping $25 an hour after taxes. But that’s not your disposable income. You have to cover stuff like rent, car payments, debt repayment (for the last phone and all those dinners out), savings, and the like. Okay, let’s say your essential expenses—rent, food, and all the other things you
must
pay—add up to $3,300 a month. That breaks down to $19.80 per hour.

Are you still with me?

So your actual disposable income is your net monthly income of $25 less your essential expenses of $19.80, which leaves a whopping $5.20 an hour as your Hourly Disposable Income (HDI).

Now here comes the really painful part.

Take whatever you’re thinking of buying and divide the cost by your HDI to see how much of your life’s energy you have to swap for that handy-dandy new device. In the case of that Phat Phone, you’d have to work for about 73 hours—almost two weeks. Hmm.

If you really want the phone, and you have the money set aside to pay the bill right off the bat, you should buy it. But you should also do this exercise since it’s useful for putting things in perspective.

If you really want the phone and you’re going to put it on credit, then you have to add in the interest you’ll pay to come up with the right number of hours of your life you’ll be swapping for it.

Everyone has stuff they can’t pass up. For some it’s that fine cup of coffee. For others, a great handbag. Some guys love browsing the aisles of the local hardware store, looking for the perfect tool that will make that job at home worth doing.

But how many of the things you buy come as a complete surprise to you? You don’t set off to buy a new set of wineglasses, but there you are standing in the store, paying for them. Sure, they’re great-looking glasses, and you can always
come up with a good reason or three why you need them, but you didn’t intend to buy them.

GAIL’S TIPS

Could it be that you can’t stay focused on what you do want? You want to be debt-free, you want to save money for a home, you want to have a big, fat emergency fund, but the end seems so far away. It may be wonderful to be debt-free, but giving up your day-to-day indulgences just doesn’t feel like it’s worth it. After all, it’s going to take months, even years, to get out of debt, and who wants to spend all that time denying all those small pleasures?

So how do you make your goal feel satisfying when you’re skipping all that coffee, not buying that purse, forgoing the walk around the tool department, all to make your dream of home ownership or debt-freedom a reality? How do you pass up dinner with friends, a movie with the kids, or that cruise you’ve been dying to go on with your honey? Here’s how: you create a tangible way to track your progress.

Parents who are trying to teach their kids about saving up their money to make a big purchase face the same problem keeping their kids focused. With short attention spans, kids often have difficulty deferring today’s gratification—the bag of chips—for tomorrow’s goal: the new video game. Here’s what I suggest parents do with their children when they’re trying to keep the kids focused on a goal they are saving for:

1.
Cut out a picture of whatever your child wants to acquire and paste it on a page171ith the price beside it.

2.
Find out how much your child wants to save each week and divide that into the price of the item. So if an item costs $20 and your child plans to save 50¢ a week, it would be a total of 40 weeks.

3.
Draw 40 small boxes on the page172ith the picture on it. You can label each box 50¢.

4.
Each week, as your child sets aside the 50¢ she’s saving, she gets to check off one of her boxes.

Kids respond well to the chart because it is a visual representation of their progress. As they check off each box, it gets easier and easier to stay focused because they’re building momentum. Once they’re within striking distance of their goal, they may even decide to add an extra dime or two each week to get them to the end even more quickly.

Charity drives use a version of this when they draw what looks like a big thermometer and fill in the amount they’ve raised toward their total goal, raising the mercury each time they get another contribution.

And you can do the same thing with your goals.

Instead of leaving the goals as an abstract concept, something that’s easily pushed aside by the smell of coffee or the anticipation of showing off a new purse, make your goal as concrete as possible. Part of your success in moving from impulse buying to planned spending will depend on your ability to “see” the progress you are making toward that family vacation, the new big-screen TV, or a new computer.

Once you’ve created your Goal Chart, display it prominently so you can watch the progress you’re making each day. Stick the chart on your fridge, on the wall beside your desk, or on your bathroom mirror. Each time you move closer to your goal, give yourself a check mark, colour in a box, or highlight your achievement in some way so that you get the satisfaction of momentum. And if you’re focused on your goal, you won’t feel deprived when you choose to forego an impulse purchase to get closer to your goal. You’ll feel smart.

GAIL’S TIPS

1.
Take your net pay and divide it by the number of hours you work a year. I find dividing by 40 (for hours worked in a week) and then by 50 (for weeks worked in a year) works great. This is your Net Hourly Income.

2.
Calculate your monthly essential expenses. Multiply that number by 12 and divide it by 40 and then by 50. This is your essential-expenses hourly cost.

3.
Subtract your essential-expenses hourly cost from your net hourly income. You’re left with your Hourly Disposable income (HDI).

Whenever you’re trying to decide whether a purchase is really worth it, divide the purchase price by your HDI to see how many hours you’ll have to work to pay for the item. Of course, you’d be a maniac to do this every time you’re considering buying something. C’mon, you don’t want to be obsessive or anything. But if you give even a second’s thought to the question, “Should i?” when it comes to buying something, do the HDI calculation and see just how much of your life’s energy you’ll have to swap for the new Stuff. if it doesn’t seem worth it to you, stick the money you would have spent in your savings account.