Have you ever heard of the “see food” diet? I like to joke that sometimes that’s my diet: I see food and I eat it! The best way for people like me to stick to a plan to eat better is to just not have junk food around, right?
Well, I’m also on a “see money” budget, and I think a lot of people are: I see money and I spend it. That’s why the only money I keep in my spending account is money that I can afford to spend on discretionary stuff like sushi, wine, athleisure-wear and spa pedicures, while money that I need for things like veterinary expenses, car problems and groceries is separated out.
The same principle applies when it comes to sticking to any type of budget or savings plan – if you want to spend less money so that you have enough set aside to pay for things that come up, for people on the “see money” budget, the best way to do that is to get it out of your sight.
The reason that many budgeting and savings intentions fail is that too often we try to eyeball whether we can afford to splurge on stuff, which often happens right before pay day – we see that we actually have some wiggle room in our checking account and we know it’s about to be replenished, so we go ahead and spend it, only to find that we need that extra money when something else comes up after pay day and all the money is already allocated to other priorities.
One idea I had to combat this issue, which is often what leads to credit card debt that can easily get out of hand, is to fund two specific accounts each paycheck:
Account 1: The ‘Oh, crap!’ account
This account is for things like, “Oh crap! I just dropped my phone and I need a new screen” ($90) or ,“Oh crap! I have a flat tire and I need a tow” ($100) or the latest in my house, “Oh crap! The cat has thyroid issues and needs monthly blood tests” ($120). In order to make sure you have enough money set aside to cover these things, take a look back at the last several months for all the things like this that made you say, “Oh crap!”
Set up an online savings account and have the amount put directly in from your paycheck. For me, that’s $50 per pay or $100 per month, which seems to be the average cost of “oh crap!” This account is for everyday life things that truly make you just say, “oh crap,” that you couldn’t have predicted. (Note that after the initial blood test for the cat, the $120/month became part of my monthly budget, since I can now predict it)
Account 2: The ‘treat yo’self’ account
Most people I talk to would say that dining out is one of the areas that they tend to bleed money and it’s one area they’d like to cut back, but they often go to extremes and just don’t budget anything for it. It’s unrealistic to think that you’re never going to eat out just so that you can build up a savings account or save for retirement, so why not have an amount of money set aside for things like, “Hey, I’m in the mood for a $5 Starbucks drink today,” or, “I really don’t feel like cooking dinner so I’m gonna pick up my favorite meal on the way home from work.”
Maybe this account can be used for salon pedicures or a personal training session at the gym – whatever it is that you’d like to limit, but not totally give up in order to buckle down on other goals. We all need a treat every once in awhile, no matter how tight our budget. Having a separate account with, say, $25 going in each paycheck, allows you to do that without going overboard.
What these accounts aren‘t for
Note that these accounts are different from your emergency fund, which is there to pay your bills in case your income goes away – that’s a third account that we all need, although it can sometimes do double duty if you’re just starting out. These accounts are also not there to pay for things that you can plan ahead for, such as gifts, vacation travel or ongoing care like hair cuts and childcare. That’s what the strategy I describe in avoiding the number one budget breaker is about.
Finding what works for you
The thing about cash management is that there are lots of different ways to do it, some more involved than others. If you’ve tried other methods and still struggle to plan adequately for your life spending, try this method. For me, figuring out this part about money is just as much about hacking yourself and your habits as it is about willpower and control. Keep tweaking it til you’ve found a way that works, allowing you to more effortlessly work toward other goals.