Monday, May 7, 2007

How To Save Money: Make Patterns Work for You, Not against You

Spot Patterns.
Track Patterns.
Make Better Patterns.

Spending Awareness

Everyone should know that trying to save the leftover scraps of a paycheck never works.

Reverse that recipe for failure by 180 degrees.

Plan to save most of your paycheck and leave the leftover scraps for discretionary amusements.
  • Each transaction can risk a “leak”: In olden days before direct deposit of paychecks, you cashed out each weekly paycheck before depositing anything (sometimes minutes before, sometimes a week before), so there was a risk to hold on to your pay as cash and then fritter away the money. If you visit the ATM more than you visit your family, there is a temptation to round-up your spending “needs” at each ATM visit and then fritter away the overestimate (plus maybe pay fees each time).
  • The invisible minus: Credit and debit cards are even more tempting to spend than cash because you do not do an actual tit-for-tat physical exchange at the purchase. Instead of having to leave cash behind in the store, you get your card back plus the new stuff.

The solutions are:

  • Minimize the number of transactions/handling.
  • Make debits highly visible at the time of purchase and after the spending euphoria fades.
Be creative in how you do these solutions:

  • Pay cash or record your shrinking account balance at time of purchase.
  • Post every receipt on the refrigerator (a cluttered refrigerator should tell you something—no, not to buy a bigger fridge).
  • Get cash once a month for the entire month and seal your weekly gifts to yourself in an envelope.

What method works for you?

Please share by posting a comment.


Debbie said...

I record my shrinking balance at the time of purchase. I have split up my checkbook so that I use one column for my checking account and one each for my two credit cards and a fourth column showing the total as if all the charges had come out of my checking account.

I also have a spreadsheet at home where I keep track of my budget with a different column for each category. This simulates the envelope system, because I put the budgeted amount at the top and subtract from that each time I pay for something.

J at IHB and HFF said...


You are very organized. My post mentioned using envelopes to allocate a total lump-sum per time period (like an allowance or take-home pay, without detailing the objects of expenditure) although I noticed that other people refer to the “envelope method” to allocate separate amounts to different spending categories.

Thank you for sharing.