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Part four of my “Stop It” guide happens to be the linchpin of personal finance. Here it is:
Stop It Rule Four: Stop spending more than you earn
If you’re living paycheck to paycheck, “Stop it.” Work more or downgrade your lifestyle or do both. The only way to get ahead financially and build wealth is to have savings. If you can’t wrangle savings out of your income, you’ll remain a financial loser for the rest of your life.
Spending less than you earn isn’t easy, of course. If it were, nearly 80 percent of American adults wouldn’t be living paycheck to paycheck. But it can be done. Here are two axioms that helped me turn my financial life around:
Frugality Ain’t Privation
Check out the below video. It depicts life in London in the mid to late 1800s.
If you have access to toilet paper and a flush toilet, you’re not only living better than the wretched refuse of years past, you’re living better than the elite of years past. So the moral of the story is this: modern frugality isn’t remotely close to privation. If you live modestly by American standards—you live in a trailer with an internet connection, drive a 10-year-old pickup truck, and go camping on vacations—you’re living better than 99 percent of the people who ever graced this planet.
One trick I learned to practice frugality and still live well is to be half normal. Just spend 50 percent or less than what the typical American spends on a particular item. If the typical American lives in a 2,000 square foot home, you live in a home that’s 1,000 square feet or smaller. If the typical American spends $38,000 on a new car, you spend $19,000 or less on a new-to-you new car. If the typical American spends $800 a month on groceries, you spend $400 a month or less on groceries. You get the idea. Just go modest or super modest on the Big Three—housing, transportation, and food—and you’ll have a much easier time spending less than you earn.
Aiming and Guile Are Your Friends
As Jordan Peterson has pointed out, we’re aiming creatures. We are built to hit targets. If our first attempt to hit a target misses, we have all the sensory tools we need to recalibrate and get closer to the target on our second attempt.
Now let’s take our aiming skills and target a savings goal. Let’s say we have a poor schlub who wants to save $500 a month. So he begins his quest by plugging the one major spending hole he’s acutely aware of: he’s only going to eat out at work on payday. For the other nine workdays during a given pay period, he’s going to prepare his lunch the night before at home.
Now let’s assume that our poor schlub successfully plugged his eating-out-at-work spending hole for the past month, but he was only able to realize $200 in savings. He’s still $300 short of his target. So what does he do? He recalibrates. He hit the spending side of his savings goal on his first attempt, now he’s going to couple that strategy by hitting the earning side of his savings goal. He’s going to deliver pizzas once a week or drive for Uber once a week.
So where does our poor schlub find himself at the end of month two? Well, with the aid of just two strategies—eating out at work only on paydays and having a once-a-week side hustle—he was able to save $600. Voilà! He not only hit his savings goal, he smashed it.
Exactly what saving strategies will work for you are impossible to say. Everyone is different. Some people have to concentrate on the spending side of the savings enigma. Others have to concentrate on the earning side. And this is where guile comes in. You know your financial circumstances best. And you know your financial strengths and weaknesses best. It’s therefore up to you to figure out how to crack your savings enigma. Just start with a modest savings goal and try to hit it. And keep recalibrating your saving strategies month after month until you do hit it. This is exactly what Mrs. Groovy and I did when we got sick and tired of living paycheck to paycheck way back in 2003. In a few short months, we were easily saving $500 a month. And by the time we relocated to Charlotte in May of 2006, our aiming and guile delivered us to the fantastic savings goal of over $2,000 a month. So it can be done. Aiming + guile = fantastic savings.
Stop It Guide Series
Stop It Guide to Personal Finance: Part One
Stop It Guide to Personal Finance: Part Two
Stop It Guide to Personal Finance: Part Three
One problem with spending less on groceries is that cheap food is usually not good for your health (pasta, white potatoes, white rice, white bread). Fresh fruits and vegetables and quality fresh fish is more expensive, which is a factor in why low income Americans are overweight.
I’m sure there’ are ways to overcome this, like signing up with misfits, a company that delivers produce that’s less than perfect looking but safe to eat. Joining a community farm program that requires volunteering to offset the cost is another option. It’s just that it takes more effort than shopping in your supermarket. Another problem in America is that poor neighborhoods are often not served by large chain supermarkets ( those areas are called food deserts).
Food coops are definitely in order if there’s one near you.
I shop at a food outlet that offers foods at/over their expiry. it saves money and exposes me to a lot of stuff I usually wouldn’t eat, BUT I think it’s a false economy if I set myself up for big medical bills down the road. When I lost 100 pounds years ago I was “eating clean” and since I started “saving money on groceries” my weight has crept up again.
But that pint of ice cream is so cheap…
steve poling recently posted…Dave Ramsey Heresy
Excellent points. One way to work around the high price of good food–and I’m not being snarky–is to go the one-meal-a-day route. Our ancestors were lucky if they ate one meal a day. We’re therefore built for intermittent fasting. Thanks for stopping by, my friend. Hope to hear from you again.
I failed to mention the benefits of intermittent fasting.
One meal a day is not sensible for growing children, pregnant and nursing mothers. And for others, are you suggesting surviving on under 1000 calories a day? I’m not a nutritionist but am not sure that’s healthy.
Good points. Children and pregnant mothers should definitely avoid a one-meal-a-day diet. But for healthy adults? I don’t know. A one-meal-a-day diet for a long stretch of time would probably be a problem. But one meal a day for two or three days during the week? That might actually be beneficial, given the medicinal qualities of intermittent fasting. I got to ruminate on this some more. Thank you for exposing the flaws in my original comment. Cheers.
carrying too many extra pounds, type 2 diabetes and all that is hardly what you call “healthy.”
and the eating habits that make you unhealthy need to be disrupted if one wants to become healthy. Jason Fung has written about fasting and obesity and diabetes. I recommend his books.
steve poling recently posted…Dave Ramsey Heresy
I disagree that eating healthier must be more expensive. Here are my random tips and thoughts on this:
1) milk, eggs, oatmeal, potatoes (white and sweet), dry beans, tofu, bananas, apples, mandarin oranges, whole grain pasta – all cheap all year long
2) other fresh fruits and vegetables- buy in season – there’s almost always some type of fresh produce that is cheap because it is in season someplace in the US
3) stock up on non-perishable items when on sale/clearance- but don’t forget to use your stock before it gets too old (I just purchased organic canned pumpkin being clearanced after Thanksgiving for $.33/can – great for soups and smoothies not just pie!)
4) learn to like leftovers
5) find super deals in your area that seem to repeat – (examples – I live close to a Dollar Tree that from time to time has Dave’s Killer Bread for $1 a loaf – I’ll buy extra and freeze)
6) don’t buy processed food
7) learn how to store fresh fruits and vegetables to make them last longer you can then take better advantage of sales on these items
8) eat less meat
9) grow some of your own food – lettuces, greens, and herbs are generally easy, take little space and give you good ROI – and some can be grown inside
10) focus on super foods that are cheap – flax, kale, oats, beans, cabbage….not on trendy, highly marketed “health foods” like kombucha, juices and supplements
11) learn basic cooking skills
12) shop at Aldi
13) organic is great but don’t avoid fresh fruits and veggies because you can’t afford organic
Great tips, Lori. Thank you.
When Karl Marx devised his satanic theories the elites lived worse than welfare recipients in the US today. Income inequality isn’t a worthwhile consideration because it doesn’t make a difference to me if you’re 10x or 1000x richer than me when I have all my needs met. The easiest way to meet the needs of the most people is to increase the total wealth of a region. And the easiest way to do that is to stay out of the way of those who are most capable of wealth creation.
steve poling recently posted…Dave Ramsey Heresy
Amen, brother. My taxable income is roughly $30K a year, and I have everything I need and want. So why should I care that someone’s income is ten or a hundred times greater than mine–providing he or she garnered his or her income fair and square? Marxist envy poisons the soul and ruins the country.
Mr. Groovy recently posted…The “Stop It” Guide to Personal Finance: Part Four