mike (don_negro) wrote,

as promised

“The very rich are different from you and me,” Scott Fitzgerald once said to Hemingway, or so the story goes. “Yes,” Hemingway replied, “They have more money.” But in Hemingway’s day, the rich also knew what to do with their money. No longer. The days when being rich went hand-in-hand with yacht lessons, boarding school, and peasant-shaped blind spots are long gone. So if the rich don’t know what to do with money, and the poor (we can only suppose) don’t know what to do with it, who does?

You do, or at least you will by the time we’re though with you.

Part 1: “Budgets” or “You can’t shut down national parks to cover the MasterCard bill”

How much did you spend on groceries last month? How much did you spend on beer? Gasoline? Pizza? Whipits? A brief flip through your bank or credit- card statements can probably give you a pretty good idea. The first rule of managing your money is to figure out where it’s been going. Then you can be appalled at the amount you’re blowing on midnight pay-per-view authorizations and resolve to get a grip on yourself. Only then you can sit down with your financial statements, a pad of paper, your significant other (if you have one), and a stiff drink (you’ll need one). Yes, it’s time to work up a household budget.

This exercise may seem too lame or boring to actually contemplate doing. Fair enough, but remember this: Star Wars had a budget, Ishtar did not. Think about it.

First, figure out your monthly take-home income. Now subtract 15%. This is your monthly working capital. (Don’t worry, your 15% will be returned to you in a later article. Right now it’s either in savings or paying off your credit cards. Regardless, it took the keys while you were sleeping and split.) Start by subtracting your fixed expenses from your monthly working capital – rent or mortgage, utilities, student loans, car payment, insurance, recurring pharmaceuticals, etc. The amount you have left over is your food and discretionary income budget. Don’t spend it all in one place.

I recommend that you treat your food and discretionary income budgets as one because you have a great deal of flexibility in how much you spend on food. If nothing much is happening, you can eat out more; if your three favorite bands are coming to town, you can drop to ramen for a little bit. Better to voluntarily eat cheap than to run out of cash a week before payday. And that’s the kind of power that having a budget gives you.

What do you do if your monthly working capital won’t meet your expenses? Or if you’re left with ten bucks for discretionary spending? The first thing to do is to set aside a realistic amount for food and entertainment, then save the rest. It won’t help you to set it too low, and then have to reach for your credit cards to buy groceries. You’ll end up hurting yourself worse than if you just spend all you make. Once you’ve got a budget that can be reasonably adhered to, start looking for ways to cut costs. When your lease is up, can you find a cheaper place to live? Can you get by with a less omnivorous cable channel selection? Can you ease up on the air conditioning in the summer or put on a sweater in the winter? Call around for cheaper car insurance? If you can find two or three ways to pick up $20, you can give your budget some breathing room. That’ll make it easier to stick to, which will improve your financial position in hundreds of little ways that add up over the years.

A stickier situation occurs when you can stick to your budget but your significant other can’t, or simply doesn’t want to. I’m an investment advisor, not a marriage counselor (Damn it, Jim!) but it doesn’t take much imagination to see how often those two can overlap. This is a problem that you have to solve from two different directions at the same time. The first is our old friend compromise, which is a feature of successful relationships from desperately last-minute prom dates to the House Ways and Means Committee to your grandparents who’ve been married for 160 years. Talk about what the other person does and doesn’t find of value in your budget and share what you’re thinking. (Don’t share the thought that they’re a spendthrift-consumer-corporate whore who wants to be in debt for the rest of their lives. That won’t help.) Once you get to the bottom of it, find ways to accommodate the things that both of you find most important.

The other avenue of attack is to break out the calculator and figure up the opportunity costs of not following a budget. Focus on the cool things you’ll be able to afford later if you don’t blow all your money today. Concentrate on the other person’s dreams. If you work in marketing, this should come naturally to you. I’ll touch on it more in a future article for my readers who still have their souls.

If you’re currently spending more than you earn, living on a budget will feel like a lifestyle constriction for the first few months. It’s worth it. I’ll save the gory details for another article, but let it suffice to say that through compound interest – a black voodoo full of beauty and unholy power – you’ll need an even bigger raise later to attain the standard of living you pretend to today. You’ll still be able to get away with a little strategic cheating, but it’s very important to choose your battles wisely.

Your budget doesn’t have to be rendered in Michneresque detail, with entries for shoelaces and found change; a simple rent/bills/food schematic will suffice. The more specific you get, however, the more control you’ll have. And the more control you have, the more you’ll be able to do with your money.
Don’t be afraid to adjust your budget as circumstances change. You might get into gourmet cooking, decide that it’d be worth it go out less often and spend that money raiding Dean and DeLuca and upgrading your kitchen equipment. Or cancel the Folio Society membership and spend the difference on latex body paint. It’s your call.

You will be one of the few who actually has a budget; most people, in fact, don’t. But that’s okay – most people have the same relationship with their money that a 13-year-old groupie has with Jimmy Page.

Your budget is your ticket to economic freedom. Sound hyperbolic? It’s not. It’s what allows you to spend money on the things you actually want to spend it on. And doing so means you’ve taken the biggest step toward getting what you want out of life – be it global domination, a well-cut suit or getting shitty, shitty drunk.

I’m partial to all three.
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