Monday, September 15, 2008

Set up your plan of attack

Sav·er \ˈsāver\: A person who regularly saves money through a recognized scheme.
bud·get \ˈbə-jət\: A plan for the coordination of resources and expenditures.

You say you're a saver, but every savvy financier should have a "recognized scheme" ... a plan of attack, so to speak. Do you? From what I've gathered speaking with various self-proclaimed "savers" lately is that they have no preconceived method to their spending habits. More often than not, when I ask whether they have any budget (stringent or lax) that they adhere to, I get the token "It's all up here" response, as they point to their head. Is it really all up there? Because last time I checked, you were complaining that your latest shopping spree left you on the light side to pay for groceries. Not that there is anything wrong with a shopping spree -- they're one of my guilty pleasures (along with slathering my face every night with uber-moisturizing lotion in the vain hope of looking young forever, and watching those addictive Hill's marathons. Did I just admit that out loud? Oops...) -- but you need to have a plan to frame your shopping sprees within.

This plan is more often than not referred to as a "budget," but I know that the very sound of the "b"-word can make guys and dolls who are new to the game cringe ... possibly because it conjures up visions of someone who is pedantic and cheap with their money. But having a plan does not make you pedantic or cheap. The idea is not to squeeze all the fun out of spending and shopping, it's simply to make you more aware of your everyday/week/year purchases. So, heretofore (well, at least in this post anyway), in the interest of erasing any stigma associated with the term "budget," I'll refer to it as your "plan of attack."

Why is a plan needed, you may ask, especially if you seem to get along fine day to day with your money? Sure, you may do fine in the short term, but has it been a struggle to achieve the longer-term goals in your life? Those may be buying a car or saving for a home, but also include the lesser-yet-expensive goals, such as being able to pay your pet's expensive vet bills that are bound to occur as he or she ages, getting new tires for your car of SUV, or a two-week-long wedding anniversary cruise on the Mediterranean. If you've found that you often have failure to launch with the bigger goals in your life, you can probably thank having no plan of attack as a culprit.

Setting up a budget ... er, I mean plan ... doesn't mean you have to wade through faded, crinkled receipts at the bottom of your purse and excel spreadsheets awash in numbers dating back to your 2 a.m. pizza-runs in college. If the fear of treading through an intimidating amount of numbers has been a factor in not setting up a plan in the first place, then I have fabulous news! There is a no-muss, no-fuss way of creating your very own plan of attack.

The ubiquitous "they" say that the golden rule to follow with saving is to "spend less money than you make." Duh. This is probably one of the most cliche and obvious statements in the saving sphere, and yet does not guide newbies to the trough of financial success. That takes your plan, which is probably already laid out for you if you do most of purchases with plastic versus paper.

If you conduct most purchases using a credit card (ahem) or debit card, print out your bank statements from the last month or two, grab four different-colored highlighters and have a seat on your couch (preferably with a raspberry Italian soda). If you pay for everything with cash (I'm impressed!) then write down your expenses for a week or two beforehand. No, this isn't coloring time. Color code three to four categories that you know you can cut down on and mark each with a corresponding highlighter color throughout your statements. It'll probably look something like this:
  • Entertainment (pink highlighter): Includes going out to the movies; popcorn/soda bought at the theater; magazines; DVD/CD purchases; your cable bill (do you really need 500 channels?); flat-screen TVs; your 8-at-a-time Netflix DVD subscription (can't you just watch one at a time?); your roller-coaster-riding addiction at your nearest Six Flags ... you get the picture.
  • Food (green highlighter): Includes snacks bought on the go at 7-Eleven/CVS/Rite-Aid; coffee bought at Starbucks or other caffeine joint; cookies/sandwiches bought at said coffee shop; work lunches; dinners out (these needn't be "fancy" dinners, even Baja Fresh counts, grasshopper!); happy hours and groceries.
  • Clothing and other vanity items (blue highlighter): Includes, well, clothing; shoes; impulsive bikini buys for any unscheduled surprise pool parties or exotic vacations; beauty items like lotions, make-up and hair products (curse you, Target!); accessories; dry-cleaning/laundry, etc.
  • Housing and transportation (orange highlighter): Includes monthly rent, house payments, upkeep costs with house, car payments, car insurance, car maintenance, phone bill, furniture/decor for house, appliances, etc.

Now add up the total for each of the four categories, and Voila! You've just created your very own plan of attack! Aww, my little budgeter is growing up (Sniff, sniff). Highlighting these categories doesn't mean to stop eating or buying what you love, it's merely a snapshot to make you more aware of how much you buy, where you buy it and whether you could substitute certain areas with cheaper options (i.e., sneaking in your own popcorn and soda to the theater versus buying theater fare, brown-bagging it at lunchtime versus your daily Quizno's visit, toting your own coffee around in a cute pink tumbler perhaps versus running to your nearest Starbucks for a pick-me-up, etc.). Can you downgrade on any insurance contracts or cable TV packages you're signed up for? Can you get by with one car versus the two you have parked in your driveway? It's not about cutting out, it's about cutting down on the extraneous. In essence, it's budgeting.

Now grab a new piece of paper (and another Italian soda, if you're running low). This next part of the plan of attack is to list out important financial goals you foresee in the next six months to five years. These could be taking that honeymoon you couldn't afford to go on, buying plane tickets to visit your parents for the holidays, paying off your credit card in full, taking that somewhat expensive yoga class or (gasp!) saving enough for a solid down payment on a house. The list should include the practical and impractical expenditures, just make sure to write them all down, however frivolous you think they are. Divide the cost of each item with the amount of time (in months) it will take until you hope to attain it. Now write this number down next to each goal -- this gives you the monthly "cost" of each.

Finally, keep this list with you in one of those out-of-the-way pockets in your purse, and if you're married, make a copy for your Love to keep in his wallet. It'll serve as a great reminder for you and yours to reference in case the onset of an impulse buy sets in, or if you think you really, reeeeally need something you can't possibly live without, such as a deluxe complete series box-set of "24." Hmm ... Jack Bauer ... or a three-day wine-tasting trip in the country? You decide.


ryanmcallister said...

Having a plan is a very smart thing to do. I know that most people with a good plan can accomplish wonderful things. I found a way to make that plan work even better and accomplish more of the financial freedom I have been looking for. For me the plan and save for the future just became a much shorter process.

Anonymous said...

I tried the "its all up here" method and found that I year later I had made almost no progress at all! My "plan of attack" involves tracking EVERYTHING and its really helping me to see where my money goes! If only I could be watching a hills marathon right now...

Emilita said...

Today must have been a fun day at work for you...for me, I'm feeling extra happy to have recently landed a job and not have too many personal expenses. Evaluating spending by breaking it into those three categories really is relatively easy "plan of attack," and something I'm definitely going to set a goal to do (once I finish moving in and can live like a normal person, lol). Thanks for the post. weren't referencing MTV's "The Hills" at the top of the post, were you? Um, as in my favorite secret guilty pleasure show too! That admission really put a smile on my face. I always watch the show online and generally wait a few days into the week (so I theoretically won't have to wait as long for the next episode) but I think I'll have to watch it tonight. Things are *finally* getting good again. I want to see what happens when Heidi's sis and Lauren meet-up, which I think MTV had on its promos.

And if you weren't talking about that show...well, I resign myself to sounding silly.

Crystal said...

Haha, glad to see I'm not the only one who is secretly addicted to The Hills (ahem savingcent and emilita)...drats, I just admitted it out loud again! So mindless, yet so amusing. I guess that's why they call them guilty pleasures. (P.S. Of course I'll be watching tonight! Shhh, don't tell anyone).

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