Remember when you were growing up and life seemed to be full of rules? Take off your shoes before coming into the house. Don’t speak with your mouth full. Don’t use your brother as a stepping stool (at least not when mom is around). Look twice before crossing the road. Finish your vegetables before having dessert. Be home before midnight.
Most of the rules made sense – well, except the bit about your brother. Mine made an excellent “assistant”.
Along with the slew of directives, did your parents have any money rules? I got to thinking about this after finishing Kristin Wong’s book Get Money in which she shares some of the money rules she’s created for herself:
- The 10/10 Rule when trying to decide whether or not to buy something: “I give myself ten minutes to waver over the purchase. After ten minutes, my time is up, and if the purchase is $10 or less, I buy it and stop wasting my time overthinking it. If it’s more than $10, I put it back on the shelf and save my money.”
- The “Per Use” Rule: “…calculate how much use you’ll get out of an item, then calculate the price per use. From there, give yourself a “per use” spending limit, like $1.”
- The “Wait One Week” Rule: “You want to buy [something expensive]? Force yourself to wait a week, do some research, then come back to it. This not only give you time to learn more about the item, it also gives you time to consider whether you really want or need it.”
As I thought about it, I realized that my dad, a sensible and frugal role model, passed on some rules that have served me very well. There was no decree posted to my bedroom door; it was the way he lived and spoke about money, which rubbed off on me.
- If you want to buy something expensive, don’t go into debt for it. Instead, save up the money first and buy when you can pay for it in cash. If it’s important enough to you, you’ll do it. If not, you didn’t really want/need it in the first place.
- Make good use of the items you already have. Don’t replace them just to get a newer, shinier version of them. Ask, “Is this a want or a need?” before buying.
Rules can be constraining and annoying when they’re imposed on us, but the flip side is that they are a powerful tool when we’re trying to improve our finances. Looking back at all the clients I’ve worked with who tackled corrosive debt, the ones who were most successful created a list of working rules for themselves. Here are a few that I recommend and personally use.
The “Shop With a List” Rule
Let’s face it, it’s super easy to spend money. Between e-tailer coupons, flyers at our door, omnipresent advertisements in the media, and store fronts assaulting our overworked, under-slept brains, holding on to our dollars can be a tricky business.
Behavioural science suggests that in order to resist temptation, we need to make the behaviours we aspire to easier to achieve – for example, schedule your work out, get your gym bag ready the night before, and place it by the door – while also making it more difficult to fall into old habits. With respect to your finances, that could mean avoiding wandering through the mall to “just look” and getting rid of inbox bait – that is, emails from retailers with hooks like, “40% off all clothes TODAY ONLY at ABC Fabulous Store! Click on the link for more details.”
If, on occasion, you make use of coupons, reroute the emails to a folder that is out of site. When you need something, check the coupon folder for the latest deal and add it to your shopping list.
One way to keep impulse purchases at bay is to create a rule that you will only buy the items on your list. Looking for a new blouse for an upcoming presentation? Great, buy the blouse and only the blouse. If you spot a terrific deal on pants while you’re out, check your list. Unless the word “pants” is on there, defer the purchase. Make a note to add them to your next list if you wish, then wait until you head back to the mall to purchase them. Odds are that by the time you get home, you may reconsider the purchase. At least you’ll have the time to ask yourself, “Do I really need another pair of pants?”
I know, it’s inconvenient. And that’s good! Dan Ariely, Professor of Psychology and Behavioral Economics at Duke University and co-author of Dollars and Sense: How We Misthink Money and How to Spend Smarter, points out that part of the problem is precisely that – it’s too easy to spend money. One swipe of plastic and you’re done without knowing precisely what impact the purchase has on your finances. The trick is to make spending your money less convenient.
The “No More Debt” Rule
This is one of the most important rules you can create for yourself, particularly if you currently have credit card debt. From my experience, it’s easy to get sucked into the belief that it’s impossible to get out of debt. It’s not. It’s all about awareness of your spending patterns, which you can develop by meticulously tracking your money, and conscious spending.
I’ve seen people with $6,000 of credit card debt pay off the balance, in full, within a couple of years and proceed to stay out of debt.
I’ve seen people with $50,000 of credit card debt pay it off, in full, within a couple of years and proceed to stay out of debt.
And I’ve seen people with $2,000 of debt stay in debt.
In each case, the results mirrored the people’s resolve. The first two families made a rule for themselves: No more credit card debt. Ever. The third family took a “we’ll try to pay off debt” approach.
“Trying” gives you an out. A hard and fast rule does not.
The “Values First” Rule
Have you noticed that money without a purpose disappears with alarming speed? It seems to evaporate in no time, lost in the netherworld of dinners out, drinks with friends, weekends away, and great deals that couldn’t be passed up.
On the other hand, money with a purpose helps you accomplish your goals.
Try the following for three months and see how you make out: Prioritize spending on your values before anything else, except for essentials. Start with essential expenses – the stuff you need to live, like a roof over your head, healthy food on the table, medicine and so on. Once those are accounted for in your monthly planning, spend on your values-based priorities before turning to discretionary spending.
Maybe that means you beef up your savings and investments, right after you eliminate debt, because you value financial peace of mind.
Maybe you save up for a fun holiday with your kids, because quality family time is right up there for you.
Of perhaps you pay for a gym membership and block out three visits per week in your calendar, because maintaining your health is one of your non-negotiable values. And because you feel like a million bucks when you stick with your gym routine; you’re happier, more productive, and you look great.
Whatever your values, make those the focus for your dollars for the next few months and see what that does for your results. If they’re anything like those of the members of my Women’s Money Group, you’ll end up getting a much bigger bang for your dollars.
The “One Year” Rule
Check your closet: How many items are hanging in there, barely worn? I remember seeing a pencil skirt in a high-end boutique, and lo and behold, it was 50% off. Well hot damn, who wouldn’t buy that looks-sexy-as-all-get-out-on-the-mannequin skirt for that price?! What else could I do? (That was before my days of shopping with a list.) It came home with me.
Want to know how many times I wore it? Once. That’s how long it took to realize that I would not have thrived in the 50’s when the thing was first popularized. It’s made for women who like to stand. Still. That is, not moving and certainly not getting in and out of vehicles. Or climbing stairs.
When I eventually went through my closet to do a triage, I found several other shunned items. In some cases, I wondered what the hell I was thinking when I bought them. That’s when I instituted the “One Year” rule: Will I still love this in one year? Is it useful? How often will I use it in the next twelve months? If there’s even a shadow of a doubt, I don’t buy it.
Now that I’ve shared what works for me and my clients, I’d love to hear from you. What are your money rules? What approach helps keep you on track with your money goals? Please share below.