Part Two: Limited Spending
Ted's here to finish his thoughts on building a budget. His current focus is the struggle that I have pinpointed as my weakness with money: not spending. I think I grasp fairly well the need to spend less, or spend wisely, but the perspective of truly limited spending is still a work in progress. I am endlessly grateful for Ted's vision and structure, as he keeps me within clear and marked guidelines. Here's hubby:
One aspect of macro budgeting is to focus on the idea of limiting spending. The one thing I see most people do is that they spend as much as they have (and occasionally a bit more). And when you don't know how much you have, you get into trouble. No one ever has enough – “if only I could earn a bit more, all would be well”. Hands up if this applies to you. The flipside of the coin is to spend less.
There are tricks to limiting your spending. For instance, we give ourselves only $400 for food and gas and clothing (which I still think is a bit high). While we'll likely spend all of it, we also won't spend more. Another trick was withdrawing cash. These function to limit our access to more cash than we've decided we need. Gail recommends paying yourself first, because then what's left is all you can spend. The most important advice I can give is that getting a great price or bargain hunting is NOT mutually exclusive with limiting spending. Go ahead and get all the great prices you can, so long as at the end of the week, you haven't spent more than $200. The only person you have to convince that you don't NEED that widget on sale this week is yourself.
Another critical component of macro budgeting is the time scale. I'm talking about planning long-term. For instance, when I found out that I'd be going overseas and making more than we had expected to make during this period, the thought wasn't about increasing the monthly budget or getting lots of toys, but about what happens when the earnings are saved up over a longer period with a specific goal in mind. But what goals can we chose from? Do we redo the kitchen, go on vacation, upgrade one of our cars to a van or SUV, buy matching iPhones 5 or pay down our mortgage?
Given these choices, we decided to split our income between the mortgage and the kitchen and these are the choices which will pay off the most. The kitchen, in 2 years when we sell (and really for the two years we live with it), is the medium term investment. The mortgage pay-down alone will give us nearly 100% return on investment over the 25 years of the mortgage. The vacation will probably happen too. Happy wife…