Growing up, my family finances revolved around cheques. Routinely, we’d go food shopping three days before payday and hand over a bit of paper promising that, once the cheque cleared, we’d actually have the money to pay for the things we were taking home. My mother used to call this “robbing Peter to pay Paul”, borrowing from our future selves to enable us to eat today. This led to a vicious cycle; on payday, all the money would be pre-spent, leaving us with nothing for another two weeks until the next cheque could be written.
Of course, credit cards started becoming available to even those of dubious financial standing, and chequebooks somehow fell by the wayside. Why pay in full for something three days early when you could pay it off bit by bit over months or years? Hardly “robbing Peter to pay Paul”, more “giving Paul a PlayStation and making Peter put in overtime to keep up with the interest”.
Laid out bluntly, the maxim “don’t spend what you don’t have” is incredibly simple. Yet it’s also incredibly hard to keep to, or so it seems. I’ve fallen prey to it in the worst possible way — expecting birthday money, for example, I’d spend my existing cash in advance to get an immediate kick, then once the money arrived, spend that as well because it was my birthday. It’s pretty easy to do, especially if you’re not that connected to your personal finances and avoid looking at your online bank statements.
So, why don’t I do that any more? What’s made me realise I did it in the first place? Actually, it was teasing from people close to me who were familiar with my spending pattern and a little worried about it. I’m not the sort of person who announces my bank balance to friends at the drop of a hat, but they’d picked up on my money mismanagement from offhand comments and new purchases. If someone close to you seems to follow this pattern, it’s seriously useful to pick them up on it, though obviously calling an intervention on someone you don’t know too well is a bit much.
How to stop this unfortunate habit? It’s kind of easy, really: own up to your finances and therefore own your finances. Once you know you’re doing it, stop spending money you don’t have yet, or simply money you don’t have.
Keep your balance.
Know how much you’ve got in your accounts and when that number is going to change — set up Mint or Kublax, log on to your internet banking every day (force yourself for a while and it stops becoming scary; at that point, you can stop logging on daily, but still keep checking regularly).
Plan, but don’t spend.
When you have a windfall coming in, plan what you are going to buy, but don’t buy it. This has the added tried-and-tested advantage of giving you time to reflect on the decision, make the best possible purchase and even change your mind. Imagine yourself owning the item. Are you really happier?
Know where it’s going.
Using Mint, a spreadsheet or the back of an envelope, figure out what your finances generally look like, so you can work out when you have spare cash to spend — and when you don’t. Spending the remainder of your current account balance the day before your rent’s due? That’s money you don’t have. Finance automation is a great help — my income is pretty sporadic, so I squirrelled away my upcoming quarter’s rent and bills into a separate account, making my current account far more reflective of the actual money I had.
Cut up the credit card.
Seriously, they have their uses, but my life’s become so much better (financially speaking) since I stopped using my credit card. If you insist on keeping yours, be super, super aware of what goes in and out, how much that interest is really costing you, and pay it back before you buy new things. Far easier said than done, which is why ditching it worked for me.
Forget the numbers.
Finally, if you’re like me, you have an unfortunate habit of remembering your card numbers, making payments online far too easy. Stop yourself buying things by forgetting your card numbers (or rather, getting a new card and not learning it in the first place), unlinking your bank account from PayPal (no more impulse eBay shopping) and the like. Having to physically look at the card really makes you remember you’re spending money.
This post was originally going to be about more than money, as we “rob Peter to pay Paul” in more aspects of our lives than just the financial. Ever pigged out on food, skipped a day of exercise, procastinated on a deadline or pulled a sickie at work? We’re constantly living in the now, leaving our future selves to pick up the bill, and that’s before we even start to think about the state we’re leaving the planet in for our future generations…