50 days and a 1000 dollars – Part II
Mr. Overextender – The bad guy
In my article yesterday on the Money Experiment, I spoke about how we had mismanaged our mortgage by deciding to use cash instead of a home loan. Other than mismanaging our mortgage, there was something else we were doing wrong. Overextending. Yes, we were living beyond our means even after knowing that we needed to cut back. Our mantra was, just put it on the credit card. Almost all of us living in the great US of A can identify with me here. We just spend too much money on things that we don’t really need in the first place. Our latest and greatest hobby, unfortunately, is Shopping!
Two of our biggest expenses every month, we realized, were groceries and dining. Groceries is cool right? Well sadly, that $38 sweater at Target that you had to buy while you were waiting in line at the checkout counter, shows as ‘groceries’ in your monthly credit card statement. And our second most favorite pastime when we are bored is, well you guessed it right, eating out. And Austin does tend to throw at you an array of designer name restaurants when you’re bored and hungry. Weird! I ran the numbers a few days back and our average ‘monthly Dining expense’ category had ‘$500′ written next to it. Check yours, it must be really close to that number if not a tad north.
The way I tried to fix this was by identifying the top 2 to 5 biggest expenses of the month that I could cut back on. I ignored expenses like utility bills which were hard to trim. In my case, I wanted to fix my grocery and dining bills. I asked myself, how much was I willing to spend every month on these two expenses. I thought maybe $200 for dining out and another $200 for groceries. Then, I allocated cash at the start of the month to take care of these for the rest of the month. I was not going to use credit cards on dining and groceries anymore.
Overextending does not necessarily have to mean overindulgence. In fact I’m a firm believer of overindulgence, as long as it does not affect my financial life that is. I would love to drink that $70 wine provided I have the means to afford it and I have planned well ahead for that expense. I would certainly not call it an ‘overextension’. Some other overextensions might happen without you even knowing. For instance, I had a $60 Time magazine subscription that was getting automagically renewed every year. Never read a single issue! Another $156 for credit reports. Never felt the need to check my credit rating every month! $240 for a pricier phone plan. Never used even half the minutes. At the end of the year, just add these up and you’d have enough money to take that dream vacation, every year!
Bottomline, buy stuff that you really need, badly that is. I’m sure you can find something more interesting to do over the weekend than visiting malls! Shopping and eating out are not hobbies by the way Eat at home whenever you can. Don’t go and buy a truckload of TV dinners! Learn to cook, not only will it save you money, you will have acquired a new hobby and would have saved many a future trips to the doctor’s office.
Lesson learned: Avoid impulse buys. Cultivate new hobbies to circumvent pointless shopping and dining excursions. Allocate cash every month for your most expensive categories. Avoid plastic on the whole. Don’t pay for services or goods that you do not use.