Tricks to avoid spending too much.

I’m “stuff” person…always have been. It’s not that I want to acquire stuff for the purpose of just acquiring it; I’m the kind of person who gets exciting by something, and then has to have all the requisite items and accessories to support whatever phase I’m going through.

For example, I got the wild urge to learn how to make a really good cup of coffee. I start researching everything that’s been say on the subject, and decided I needed to buy a bean roaster, a super-duper 18-bar coffee maker, and a special grinder for the fresh coffee beans I would have to purchase online. Cha-ching! Making a cuppa-joe just got expensive.

And not to long ago I would have had all that stuff in my shopping cart at Amazon or some other e-tailer and have been well on my way to checking out before I even paused to think about the money I was spending.

And because of that, I have spent a lot of money on a lot of dumb stuff. I had to come up with a way to temper temptation and stop spending money on things I didn’t really need.

So what works?

I’ve found that - for me - the single best thing that keeps me from making as many “not-thought-out” purchases is reviewing how I’m spending my money. And that means keeping track of every single penny I spend.

I’ve tried both at various times throughout my life, and taken individually they don’t work.

When I tracked my spending to the penny, but didn’t review where the money was going I still overspent on temptation items. When I keep reports, but didn’t track my spending to the penny I would eventually get behind updating my records and overspend. I needed both.

I know other people use different tactics like writing down the item that’s holding their infatuation and then reviewing it a week or a month longer and only buying if the temptation is still there. That doesn’t work for me. I would write down what it was I wanted, and I would wait a few days, and invariably I would end up somewhere - item and credit card in hand - breaking my vow to wait for the purchase. The thrill of giving in to temptation would overwhelm me and lead to yet another dumb and unnecessary purchase.

For me accurate records AND regular review are necessary to avoid temptation, financially speaking.

I use Quicken for both the record keeping and the reporting, but the software alone won’t be your salvation. You have to work the system and make it a habit, that’s hard. There’s no easy way to do this other than doing it. I was lucky enough that my bank worked out-of-the-box and was able to get started by loading some data.

Trick 1:

To keep on top of it I make sure to put all my receipts in my wallet and key them into the software each and every day. That’s important because you can make a lot of dumb mistakes in a week’s time. If you’re entering and reviewing your spending once a week you’re probably not doing it often enough.

I know what you’re thinking; that you don’t have time to enter your receipts daily; just trust me and do it. It won’t take nearly as long as you think. I found I was spending literally three minutes a day entering my receipts.

Trick 2:

Run reports every day when you first start to get a really good idea where your money is going. It’s really nice if your bank lets you download the last few month’s transactions; you’ll be way ahead of the curve. Having a few months of transactions lets you immediately get an idea of how and where you’re spending your money.

But even if you have to start by entering the receipts you have, run spending reports every day. I like the fact that Quicken shows me a pie-chart of my spending and I can drill into the details. Regardless of what software you use, watch your spending daily!

When you start to see your “hobbies & leisure” spending heading toward the stratosphere, and you’re looking at it each and every day, it makes it a lot harder to rationalize spending you’d rather avoid.

Trick 3:

Be brutally honest with yourself. You’re not keeping all this detail and reviewing it daily for anyone else’s benefit. If you make a stupid purchase make a note of it. Put it in the memo field, make it a category, whatever it takes. Quicken lets you create category tags which are separate from spending categories. If I buy a video game, I can categorize it “hobbies & leisure” but I can tag it as “stupid”.

The category tags I use are: Essential, Non-essential, Unnecessary, and Stupid.

Paying my mortgage is essential, dining out is non-essential, buying a used video game is unnecessary, and buying a coffee bean roaster is stupid!

You’re only fooling (and hurting) yourself if you’re not honest in how you tag and categorize your expenses, so tell the truth!

So, does it work?

For me the answer is, yes, this works. I’ve been tracking and reporting my spending (every penny) for seven months now and - while my wife might disagree - my “foolish” spending is down a lot.

Sure, I still review my reports and have moments where I wonder what the heck I was thinking, but those moments are much fewer and farther apart these days.

To share an example, I’ve become hooked on Guitar Hero III and want to get the other Guitar Hero games. Since we’re just now out of the holidays, and our non-essential spending was already higher than normal, I’ve been able to keep myself from running out and buying the games. The old me would have looked at his checking account, seen plenty of “extra” money, and run off to the store without a second thought.

I still want the games, and I’ll buy them once my budget has room for it. For once I’m controlling my money rather than the other way around.

Getting started:

If you’re not using some kind of personal financial management software today, it’s time to start! There are so many choices available there’s no excuse to not be using something.

You can use Wesabe, Mint, Microsoft Money, Yodlee, or Quicken to name a few.

I’m partial to Quicken because it runs locally on my computer and I like the bill-pay features.

With the specials on tax software this time of year you can usually get Quicken or MS Money free. Since it’s likely you have to file taxes anyway, it’s a great way to get started using personal finance software if you’re not currently.

The most important thing is to just get started. Keep at it and you’ll find it easier and easier to put off those spending temptations. Your bank account will thank you!

* * * * * If you enjoyed this article, will you please consider bookmarking it on del.icio.us?

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• Pay-time vs. no-pay-time.
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• Being comfortable is no excuse for getting stuck in a rut.
• The power of a habit.

January 17th, 2008

Entry Filed under: Tools, Money, Habits