To take a break from writing our Accounting 101 series, we thought we would have a 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 big issues in personal finance for many of us; and that is the need to control your spending if you want to build wealth.
Back in January 2013 we wrote about expenses you could cut when you are in debt, and more in particular some behaviors that may need to change.
It is interesting to see how our views change over time. This can be due to change in circumstances, knowledge and / or perhaps a change in wisdom. Having read what was written back in 2013 I can see my views about money and in particular about debt have really moved on.
Back in 2013 I wrote the comment “If you’re someone who is debt free or close to it, then you’re lucky!“. I could not have been more wrong and my personal finances reflected this too. Too much debt and not enough purposeful control over spending!
My wife and I didn’t have an income problem, although this has certainly 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 going forward, has a really good article on his site about why we overspend … causing the spending problem, 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 around avoiding late payment fees and interests, which is still sounds advice. But the more important behavior change that we more skimmed over was the move from plastic to paper, ie from paying for things using credit, aka debt, and instead using cash where possible.
The guys over at retireby40.org have a good article summarizing seven key benefits of moving to cash for making those every day purchases. When we started the Dave Ramsey baby steps program this is one of the changes I found more difficult because I really liked the credit card points. I lived my life thinking “points mean prizes”.
Needs vs Wants
The next section we wrote about was being careful of what were actual needs vs most things in life we just want. Certainly for us in the west, often, our wants are dressed up as needs; aka “I need that”. If you listen for that word when people talk about buying the latest iphone, ipad or new car; you won’t hear the word “want”, you will hear the word “need”.
Courtney Jespersen over at nerdwallet.com has an article setting out clearly how we use to understand the differences between human needs and human wants. It’s certainly worth a read as sometimes with so much choice available and relatively high disposal incomes, again meaning what that term use to mean, we have perhaps got a bit lost in our buying priorities.
In this part we were really highlighting again one of the key differences between carrying cash and carrying plastic. A couple of things I found useful for me stopping the impulse buying; keep off amazon, create a monthly budget (and stick to it) and get rid of the credit cards. These three things, and certainly the latter two made a huge difference to our family’s finances.
The Cost of Having Fun
The final section we covered was being mindful of making your money stretch further. And now days with the quality of the streaming products, the bundling of phone, movies etc and the range of easily prepared meals at home, the two biggest costs for many families can be much more easily managed – if they are willing.
By the big 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 not even aware and / or no longer want is a person not in control of 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 some quick wins and have real impact on your finances. Don’t underestimate the difference if can make. And this isn’t to say income isn’t important, it is, but we can often lose focus on where all that income is going as we aren’t watching how we are using it.