It is possible to make cuts to your household spending so you can save money, pay off debt, and do all the things that you want to do without feeling sad and deprived financially. But the thought of it sounds like starving yourself, right?
Most people who come to see me have tried budgeting and making cuts. But the thing about it is… when you look at your money from strictly a dollar and cents standpoint, you miss part of the picture.
I don’t even teach my clients a budget. I teach them The Invisible System. We won’t get into it here because I have an entire Webinar on it (which you can watch here), but this is where Pocket Cash comes in.
Pocket Cash is the money we use to go to the grocery store, gas station, and coffee shop, and purchase all the things we need everyday. Most of us are overspending in this category. Not only are we overspending, but we are doing it in ways that cater to Low-Joy experiences. They’re not in ways that enhance the quality of our lives. In fact, most people that come see me want to be able to travel or make big home repairs, but they’re really buying sandwiches.
So how can we fix this? It’s as simple as starting out by doing these four things:
1. Print Out Your Bank and Credit Card Statements
When it comes to increasing the efficiency of your money, you need to look at all the ways you spend money. Print out one month’s worth of statements, bust out some highlighters and categorize your spending. You want to focus on food, gas station/convenience store and retail shopping purchases.
2. Count the Number of Transactions in Each Category of Spending
You’re looking for the number of transactions you make in each category. How often are you going food shopping? If it’s more than four times a month, you need to evaluate why. Write the number of trips for each category down on a separate sheet of paper. Surprising, right?
3. Look for Spending Habits
When reviewing your transactions, look for the habits that cause you to overspend in these categories.
Here’s an example. I had a client come to see me because her student loans and credit cards were stopping her from buying a nicer house in a neighborhood with better schools. When we got into the numbers, I saw the payments she was making weren’t the kind of numbers that should be stopping her from doing these things.
She told me she was spending $250 a week on groceries. When we got into her transactions, I could see that she was spending $250 a week at the grocery store. Every Sunday, there was a $250 purchase. But she often forgot to pick up an item that she needed to make dinner. And this is where habit blindness comes in. When she forgot an ingredient, she’d send her husband to the store or run to the farmer’s market or order a pizza. Often, they picked up more than the one missing ingredient. She was really spending $500 a week on food. That’s a big difference!
She was going about it all wrong. When she thought she was spending $250, she was asking herself, “How can I coupon?” or “How can I spend less at the grocery store?” The grocery store was never the problem. The habit was. If you forget the hotdog buns, use bread. If you forget one thing, make do with what you have.
Most of us focus on the wrong thing. You want to look for the number of transactions because you can get a pretty good idea whether or not you’re being super inefficient in a particular spending category. The more times you go to the store, the more money you’re going to spend.
4. Evaluate the Level of Joy Your Spending Brings
Much of our overspending comes from Low-Joy Purchases. If you’re going to drop $60 in any given category, you want it to be on something that brings true happiness into your life.
Here’s another example that deals with food. Food is one of the biggest areas where people bleed. My client was a single lady who didn’t like to cook for herself. I could see that she was buying three meals out per day. It was a breakfast habit, a lunch habit, a dinner or cocktails habit, and a Saturday night out with friends habit.
We don’t necessarily want to cut out the Saturday night out with friends habit. We want to look at it from a Level of Joy standpoint. Breakfast ended up being her lowest joy transaction. It was stressful for her to go. She would order it through the drive-thru, which would sometimes make her late, and eat it in her car while driving. Breakfast was an easy fix.
Going out to dinner with people is fun and exciting. But if you look at it just from a dollar standpoint, going out on Saturday night and with friends during the week, those are bigger transactions. We remember those things way more than we remember the $7 sandwich. Right?
But the $7 sandwich is the problem because we get very little joy from it. Instead of looking straight at the numbers, look at it from a habit standpoint and then you can start to see where the money goes and where it’s not making you happy.
When we realized that breakfast and lunch were costing her about $100 a week, and she was getting very little joy from them, it was as simple as saying go to the grocery store on Sunday. Buy a bag of salad and salad supplies to take to work. Don’t even make your salad. You don’t have to prep them. There’s a fridge at work and it can be made right then and there. This fit into her life. So did yogurt and a bag of almonds. It was easy to replace those habits and there’s no resistance because she wasn’t loving those sandwiches anyways.
When you’re making cuts in your spending, you want to look for the Level of Joy a spending habit brings and whether or not you can do things more efficiently. You don’t have any regret about spending that makes you feel good.