To take a break from writing our Accounting 101 series, we thought we would look back on our site and see how things have changed over the last seven or eight years. In particular, we wanted to look back at one of the significant issues in personal finance for many of us: the need to control your spending if you’re going to build wealth.
Back in January 2013, we wrote about expenses to cut when in debt, and some behaviours to change.
It is interesting to see how our views change over time. This can be due to a change in circumstances, knowledge, or perhaps a change in wisdom. Having read what was written back in 2013, I can see my views about money and debt, have moved on.
Back in 2013, I wrote the comment, “If you’re debt-free or close to it, then you’re lucky!”. I could not have been more wrong, and my finances reflected this too. Too much debt and not enough purposeful control overspending!
My wife and I didn’t have an income problem; although this has improved over the years with a lot of hard work, we had a spending problem. Dave Ramsey, more about him, I’m sure on this blog in the future, has an excellent article on his site about why we overspend. While we are often looking in the wrong place, saying to ourselves, “if only I could earn x more, we would then be ok.”
Switching from Credit Cards to Cash
The first area we covered in our 2013 article was “Watch Those Payments.” Most of this discussion focused on avoiding late payment fees and interests, which is still sounds advice. But the more critical behaviour change that we skimmed over was the move from plastic to paper, i.e., from paying for things using credit, aka debt, and instead of using cash where possible.
The guys over at retireby40.org have an excellent article summarising seven key benefits of moving to cash for everyday purchases. When we started the Dave Ramsey baby steps program, this is one of the changes I found more difficult because I liked the credit card points. I lived my life thinking “points mean prizes”.
Needs vs Wants
The following section we wrote about was being careful of actual needs vs wants in life. Indeed, for us in the West, our wants are often dressed up as needs, aka “I need that”. If you listen when people talk about buying the latest iPhone or new car, you won’t hear the word “want”. You will listen to the word “need”.
Courtney Jespersen over at nerdwallet.com has an article setting out the differences between human needs and wants. It’s certainly worth a read as sometimes with so much choice available and relatively high disposal incomes, again meaning what that term used to mean, we have perhaps got a bit lost in our buying priorities.
In this part, we were highlighting again one of the critical differences between carrying cash and carrying plastic. A couple of things I found helpful for me stopping impulse buying; keep off amazon, create a monthly budget (and stick to it) and get rid of the credit cards. Indeed, these three things made a massive difference to our family’s finances, and certainly the latter two.
The Cost of Having Fun
The final section we covered was being mindful of making your money stretch further. And nowadays, with the quality of the streaming products, the bundling of phones, movies etc. and the range of easily prepared meals at home, the two highest costs for many families can be much more easily managed – if they are willing.
By the significant risk here I should have mentioned was from subscription services. I don’t just mean Netflix or Amazon, but the subscriptions to all sorts of goods and services now. Retailers know how lazy we can be with these, and so the tempting offers and the savings made from them can often be gobbled up by the price rises and us even completely forgetting about them in the future. I’ve done this; I’ve been there. A person paying subscriptions they are unaware of or no longer want is not controlling their finances.
I’m sure we are going to come back to this topic again in our personal finance articles. In particular, the area of spending; if you can control your spending, it can give you quick wins and have a tangible impact on your finances. Please don’t underestimate the difference it can make. And this isn’t to say income isn’t essential, but we can often lose focus on where all that income is going as we aren’t watching how we are using it.