The reason you’re always broke
Last week I met a lovely married couple in their mid-thirties earning around $110,000 per year, clear. Two kids, two dogs, house in the burbs, pool, and a small aluminium boat that he loves and literally makes her sick.
They’ve got a half-million dollar mortgage which only seems to grow. And no savings. I’m there to help.
Me: So, what are your monthly expenses, roughly?
Them: (laughing) Ummmmm, dunno.
Me: What do you mean you ‘dunno’?
Them: We’ve never worked it out
Me: Why not?
Them: Too busy.
15 minutes later and we had a good idea of what they spend each month and where exactly the money is going. It was easy. Really easy. What did we find? Take away all expenses, including mortgage repayments and we worked out that each year, there’s $56,000 left over.
Me: So, umm, where’s the fifty-odd grand going, you guys?
Him: Handbags, hahahaha (kick)
Her: The HSV Clubsport, hahahaha (grunt)
Me: What about the pool, the boat, the dogs, the clothes, the holidays, the movies, the booze, the dinners, the ab blaster you never use, the snooker table, the BBQ area with hot tub, and, and, and.
It adds up.
Tim came up with the phrase ‘spending awareness’ a few months back (probably nabbed it from someone else) but it’s a poignant turn of phrase to sum up the problem so many people we meet can’t seem to get a grip on. The problem therefore, is a lack of spending awareness.
Using plastic to pay for everything is part of the problem, but not the cause. Direct debits set up for everything from the gym to your e-tag is part of the problem, but not the cause. Persuasive marketing is part of the problem, but not the cause. Keeping up with the Jones’ is part of the problem but not the cause.
Like time, you can’t ‘bend’ money. You can’t receive $1800 in wages, blow $2000 and then save $500. Sorry.
The cause of this lack of spending awareness is that people have not taken the time to review where their money goes. Some people tell me they just try to live as frugally as possible and hope things will work themselves out.
Whoops, we’ve dipped into the offset. Whoops, the Visa is out in full effect. Whoops, we’re spending from the savings account.
Budgeting is extremely helpful, but extremely unsexy and boring. Few people I meet – even the business minded – do it. Self-discipline goes in waves. One month you’re an angel, the next you’re a demon. Lulu Lemon got you with their unadvertised special customer secret sale and boy did you spend.
In time, budgeting, self-discipline and – check this out – the empowerment that comes from sticking to them, comes in time.
But let’s start small.
Do this: Print out your last three months bank statements. If you’re sharing accounts with your partner, I suggest you do this together (when you’re sober) and spare yourselves the finger pointing.
Add up all the bills, school fees, grocery, fuel, insurance, necessary spends you must make to live.
Then, add up the unnecessary spends; the spoiler for your car, the xenon headlamps, the pair of shoes you’ll wear only twice, handbags for the collection, junk for your home like the fragrance sticks that cost $60, fishing gear, crap from Bunnings and IKEA, more clothes, the movies and cocktails you can’t really afford.
$50,000 right there. You’ll be blown away when you bring out the calculator.
And boys, don’t point the finger at your missus – I’m telling you right now you’re just as bad, if not worse. Girls – don’t look so smug, you’re still bad.
Spending awareness. It is what it says on the tin. Nothing more-or-less than being aware of exactly what you’re spending your money on. Take 15 minutes to go review your bank statements and add up your spending like I suggested above. Do it on paper, get snazzy with excel, whatever. Just do it.
I promise that after six months, your spending habits will naturally begin to change. Suddenly you’re in Myer admiring the cut of that jacket in the mirror and then you realise it’s August and you might wear it twice this year. Boom – 200 bucks straight back into your pocket.
And spending awareness isn’t about being a miserable penny pincher. It’s more like knowing that you can splurge and shout dinner, but only once every so often.
Within a year you’ll fee way more in control. You’ll be saving, or better yet, reducing the balance of your mortgage – quickly.
Can’t seem to make it happen? We’d love to help, so feel free to get in touch.Want more insight? Give us a call on 1300 823 995 or touch base below