Friday, October 23, 2015

Financial Discipline Requires.... Discipline

In order to be financially independent, you have to discipline yourself.  If you don't, others will do it for you, such as banks and credit card companies - or the government.

In my previous posting, I may have come across as a little hash, but the OP on reddit asked for harsh truths and someone to "tell her what to do".   Sadly, the financial "advice" on Reddit was to get a new job to make more money, or get a special super-duper credit card.  In other words, work harder and pay more interest.   Who posts this crap?  Trolls for the banks?

But the real answer is that there are no easy answers.  And that unfortunately is not what people want to hear.  They want "one trick of the tiny belly" or "these easy steps to be debt-free!" or "you can retire on $7,000 a year!"

These answers are not answers at all, and are in fact harmful to people, as they suggest that financial discipline is "easy" and if you are screwing it all up, then you must be an imbecile.

It isn't easy, but it isn't hard, either - certainly not impossible.

When I was 25, I was like the young lady in the scenario (not the one above!).   I spent money freely and wondered "where it all went" every month.  If I had a dollar in my pocket, I spent a dollar.   I was working at a $4.25 an hour job and spending $6 every day on lunch.   Do the math on that - the first two hours of the day were spend paying for lunch.   Two more hours - at least - for my transportation.   Very little is left over for me, at the end of the day.

The discipline I didn't have was tracking my spending.  Oh sure, like the lady in the previous posting, I could track the major big-ticket items my life, like my student loans, credit card bills, rent payment, car insurance, and car payment.  But the rest?  It all just evaporated.

Once I started tracking and budgeting every damn expense I had I realized where the money was going - all over the place.

For example, it is tempting to think that if your car insurance is $240 a month and your car loan is $190 a month (more for insurance than the loan!  Very typical of that age.) that your car is costing you about $500 a month with gas, or about $6,000 a year.   But as I noted in another posting, the real cost - when you calculate from a net worth perspective - can be a lot higher.

It is not that money is being wasted all in one place, but that it is leaking out every which-a-way.  And unless you start tracking these things, you have no clue where you are going or where your money is going.

I recounted in another posting a friend of mine who told me I needed to "cut out the waste" in my business, but as I explained to him, there was no pie-shaped wedge in Quickbooks labeled "waste".   He had similar opinions about the Federal Government - that a quick click on "delete waste" was all that was needed.   Not surprisingly, he was a tax protester and got into trouble with the tax authorities.

Today, I log every transaction I make on Quickbooks.  I check the balance on my credit cards (one for personal, one for business) as well as my bank balances (checking, savings, business checking) on a daily basis an then reconcile the amounts with Quickbooks.   Each expense is categorized, so I can see where the money is going.

Is this a pain in the ass?  Not really.  It takes about five minutes to do. Yea, sure, there are "easier" solutions like Mint, but that application really doesn't track very well (as it only uses credit card codes to determine what you are spending money on).   Again, easy solutions are not usually the best ones.

Why do I do this pain-in-the-ass method of tracking spending?   Well, to begin with, it isn't as much of a pain-in-the-ass as you might think.   It doesn't take but a few minutes a day to balance the books.    But more importantly, I know, down to the penny, how much money I have in the bank,  how much is available, and what I am spending it on.   You literally cannot bounce a check, ever, if you use a technique like this.

Similarly, by checking the credit card balance daily (and logging charges and reconciling them) I can track my credit card balance and realize where I am going with my spending.   It is a lot harder to get into credit card debt trouble when you track expenses daily.   When you log on and realize you over-spent the day before, it motivates you to be more careful next time.

Financial discipline takes another form as well - cheapness.   In my 20's and 30's and even 40's, I never looked at the price of items in the grocery store, or on a menu, or at a bar.   I bought what I thought were the best quality goods and only little people cared about price.   In the scenario provided by our 25-year-old in the previous posting, she admitted she spent a lot on expensive "healthy" foods as she wants to "lose weight".   But of course, losing weight is akin to losing credit card debt - you just have to stop spending and pay down the debt (eat less and exercise more!).   Buying expensive foods isn't going to help you lose weight.

And yes, there is a middle ground between "Raman Noodles" and gourmet cuisine.  Whenever I mention cutting back on spending, some jackass 20-something will say, "Well, I'm not going to live on Raman Noodles!" as if that was the only way in the world to save on expenses.   It is a straw-man argument of the worst sort.  It is also a self-justification for spending, just as "I need a reliable car to get to work!" is a self-justification for buying new cars all the time.

Today, I look at the prices of everything.   This is not to say I never spend money on stuff, only that I think about what I am spending it on.

For example, in a recent posting, I noted we spend the afternoon at the Hilton on the Riverwalk in San Antonio, having a bottle of Champagne and street tacos.   This may sound extravagant, but a bottle of wine is often cheaper than buying it by the glass, and a inexpensive Spanish Cava can be had for about $30 a bottle, even at the Hilton.   Buying top-shelf liquors and ordering large entrees, on the other hand (and taking home "leftovers" in a Styrofoam clamshell) would cost four times as much, and be far less satisfying (overeating never leaves me feel satisfied, just bloated).

So I look at prices.  Of food, of wine, of menu items.   Lunch at a fine restaurant can cost half the price of dinner.  Same good food and fine atmosphere, for a lot less money.   A lot of "brand name" things in the grocery store are no better and sometimes worse than store brands.  And a lot of things can be bought at the dollar store, leaving you more income for savings - and for doing more with your money.   I don't mind spending less if I end up getting more.

For women, it is doubly difficult to cut back on spending.  First, I think there is a nest-building, nuts-and-berries gathering instinct that perhaps is bred into women from our ancestry long ago.   Women love to shop, far more than men.    Second, women have to spend a lot of money on hair, makeup, and clothing - all expenses that for men, are very minimal.  I can cut my own hair with a $20 pair of clippers.   For a woman, this is not realistic - at least with today's societal norms.  And let's not get started on perms and hair extensions.   The poorest of women, it seems, spend the most on hair, as Chris Rock noted.

Women's clothing goes in and out of style yearly, while men's clothing is "classic" and styles last for decades before it becomes "retro".  And let's not get started on shoes.   A man can make do with a few pairs of sturdy shoes, boots, and sneakers.  Women pay top dollar for flimsy designer shoes that are wildly uncomfortable and end up causing foot and back problems.

Even something as mundane as laundry is more expensive for women.  As one of professor Banzhaf's students found out, the cost of dry cleaning a woman's shirt is 20-50% more than a man's - with no real basis for the difference in price.  So I can understand, somewhat, how for a woman such as in the scenario in my previous posting, cutting back on expenses can be hard.

Hard - but not impossible.

Financial discipline also means saying "no" a lot, to come-on offers, credit card offers, and things that seem "too good to be true!"   You will be pummeled by credit card offers in the mail and online.   If you take each one of these offers, you will end up with a wallet of credit cards and a world of woe.   Similarly, pitches for online "ebates" or whatever are not going to "make you money" as you cannot spend your way to wealth.

It is tempting to think that maybe that 1% or 3% you are getting back on your gas or food charges will make the difference in your life.   But if it means paying 15% interest - or even 7% - then you are coming out behind.

It takes a lot of courage - discipline - to say, "thanks but no thanks" to the carnival of spending offers that is shot at you like from a firehose on a daily basis.   And one way to achieve this discipline is to watch less media.   The media presents poor normative cues all the time, pitching such ideas as "rewards cards" and serial refinancing, and even payday loans and check cashing stores.    And let's not forget ideas like using restaurants as a kitchen, or "you're too tired to cook, order a pizza!"

The real discipline is to believe in yourself and those inner voices that say, "this is all a carnival of shill and scam artists out to get at my pocketbook!"   It takes courage to go against the flow, against what most of society does and practices.

It takes discipline.   And it isn't easy, it is very hard, and it never, ever ends until you are dead.


A reader writes:  Regarding discipline, I've heard "You can't manage what you don't measure."

That sort of sums it up in one sentence.   Once you track spending - every damn penny of it - you realize how much you are spending on certain things and know "where all the money is going" and where you can cut back.