What They Don’t Teach in School
Most people get very poor training in money management. Schools once had “Life Skills” class that touched on it. Parents sometimes teach it and sometimes don’t. From my experience, maybe 20% of people reach adulthood knowing how things work. I knew of one woman who in college got her first checking account, as many students do at the campus bank branch. She was soon hanging paper all over town! When someone finally mentioned she had to have money in her account to write a check, her reply was, “But then why did they give me all these blank checks?” She later in life became a regional V.P. for one of the largest banks in the nation! One college roommate honestly bounced a check in error. I walked in on his call with the bank. He has to go to class. Can I give the pizza shop a message if they call. Sure. Says the money for the pizza is in the bank, and he paid the NSF charge so don’t hit him for that. “Huh?” I discuss it with him and get the picture. I explain he paid the *bank* NSF. The pizza shop has another NSF fee! He paid $50 for a pizza! When he was probably making $5 per hour! Almost two days work for a pizza, after taxes!
Think Hours or Days, Not Dollars
His first failure was not having money to pay for something simple, a pizza. (Nobody used credit or debit cards to pay for food delivery in those days.) His second was not knowing the penalties for such a small error. I once heard a comedian say, “College is great, the only time in your life you will write a check for $1.50……………..and bounce it!” Today students get loaded with credit cards. So much so some campuses are limiting credit card advertising on campus, though you can bet the school gets a cut of “approved” vendors. Instead of a bounced check, they load up on debt, 18% plus interest. Instead of bouncing a check for a pizza, they pay for the pizza 2-3 times with carrying a balance for months or years.
Money management books will talk about setting a budget. Few people make one, fewer stick to one. They may try, but in the end it is a matter of thinking a few dollars here or there doesn’t matter. At the end of the month, you are short. If you are lucky, you are short for an extra beer and have to skip the bar. If you are unlucky, you pay a bill or two late and pay a late fee. If you are really unlucky, you end up at the Payday Loan Store or pawn shop, paying mafia rates of interest. Ever wonder why some neighborhoods have them on every corner? Some people end up having payday loans at several stores, buried in short term debt. If you haven’t figured it out yet, this is an extremely dangerous way to live.
Becoming a smart BPB shopper is easy. We will talk about money stretching strategies later, first lets just focus on what we can spend. Most people think better in short-term as long-term is easy to ignore. One day to one month is short by anyone’s standards. Start following this formula to get your spending under control without going to the hassle of a budget. In the end, you should get better results.
First Figure Your Hour and Day Rate
Most people get paid an hourly rate, a salary, or some kind of commission system. It does not matter which you are on, as long as you are realistic about it. If you are salary it is easy, just divide your monthly salary by 20 working days per month. Yes, there are more, but this gives round numbers and is how businesses do it. If hourly, be able to figure per hour and day. If you are on a commission, life is harder since you have no guarantee. But most people on commission tend to know over time what they make, though only a minority keep some in reserve for the slow times.
Next Find Your Fixed Costs
Fixed costs are the same or near the same every month. Rent is a fixed cost, no matter if you are renting a room to paying a mortgage. It is most people’s biggest cost. Then there are utilities, ISP, cable, and anything else related to your domicile. For each, figure how many hours and days pay they take from your after-tax earnings. Lets say you make $15 per hour. After tax that is around $13. Rent alone is $500. 500/13 is 38.5.
That is almost 5 days out of 20 just for rent! Do you have cable because you love sports? $70 per month? 70/13 = 5.5 hours per month! Over half a day’s pay. Why do you think I tell any BPB to cut the cord?
Now See How Many Days You Have To Spend
What is left after the fixed costs have taken their bite from the month? I have worked in the mortgage industry, and there they use what is called a Debt to Income Ratio, or DTI. 45% was the cutoff for getting financed in most cases. In most cases, I never saw anyone below 30%. Most of the USA is walking around with a 38-45% DTI. Think of that in terms of the 20 day month. First 7 days spoken for. Of course, if you rent that DTI is just a RTI. This is why I tell a BPB to get their housing cost down and house paid for as soon in life as possible.
No matter what, after the fixed costs, how many days do you have left? Maybe it is 13. So now, each purchase, add it up and figure how many days or hours you have to work to pay for it. When you think this way, you start to make fewer and fewer purchases of silly doodads that suck money. You become more careful with money. Tickets to the big game taking a whole day’s pay? That is a big thing.
MAKE IT A HABIT!
As you can see, thinking this way makes you think about what stuff really costs. It is not $50, it is three hours of your life. If you take a loan for new furniture, how many days of your life does it take each month and for how long? Trust me, within a year it will be so second nature people will wonder about how you think. Let them think you are weird. You are a comfortable BPB!