I’m not one for resolutions or perfunctory new year’s promises. Instead, I reflect and come up with a somewhat gentle, honest assessment of months gone by, and I then become determined to do better. Reflecting means I can see a trajectory from A to B. It also means I can justify spending hours putting together an action plan. Resolutions, in my opinion, lack the required level of accountability to compel me to do something. An action plan, however, with it’s labeled tables and assigned due dates, is how I achieve my goals. But earlier this year, it occurred to me that I had been lying to myself for a long time. In spite of the copious amounts of money apps on my phone and the fancy budget I had come up with, I was not in control of my finances. It’s funny how we manage to pull the wool over our very own eyes.
The solution? For me, the solution is to reflect, assess, and correct. Rather than continue to deny that my spending was out of control, I thought it might be interesting to fully understand where my money went. For the whole of March, I tracked my discretionary spend, and after rent, phone, and all the other life stuff I have to pay for, I grouped every last penny under nine headings:
- Cash withdrawal
- Eating out (includes takeout)
- Unplanned purchases
- Services (eye tests, dentist etc.)
- Credit card
I wasn’t so much interested in the amount itself (although that’s also very important), as I was interested in seeing what categories had the highest numbers. When the month ended, there it was, staring me right in the face: a summary of my life’s priorities. I learned three important things:
- I spend a lot on stuff I don’t need. I often justify the purchase and then try not to let the regret I already feel show. Validation at the point of sale always helps: “This will look lovely on you, Madame” works on me.
- I withdraw cash, quite a lot of it, without tracking what that money gets spent on.
- I don’t have much of a social life and I have the dress sense of a teenage boy.
After I made these discoveries, I decided that, starting from now (well, a few week ago, but bear with me), I would follow a five-point plan to get me back in control of my finances.
Here’s my plan of action:
1. Fully understand my spending habits.
I need to know what I have coming in (that number is the same every month), and what I have going out (that number changes). If ever I needed an impetus to change, looking at my findings from what I spent money on in March was enough of a wake-up call. Aside from my discretionary expenses, I also took a look at my fixed costs. Between the two of them, I had spent 100% of my month’s salary, and then some. At the rate I was going in March, May’s salary was already spoken for! I knew I needed to change something immediately.
2. Review and reduce spending wherever possible.
I’m not trying to take any drastic or radical steps here. I started with my fixed costs and walked my way down the list. For every fixed cost, I asked myself two simple questions: do I use this? can I do without it? For example, I can cut back on utilities, subscriptions, or bills that are higher than they need to be. Managing my discretionary costs is going to be a bigger challenge, because it requires a balance between discipline and flexibility. If I make my rules about discretionary spending too restrictive, I’ll set myself up for failure. If I make it too easy, then I am back where I started: kidding myself.
3. Have a goal.
As many professionals know, having a SMART (specific, measurable, achievable, realistic, timely) goal makes us more likely to achieve it. But John Kay wrote an insightful book called Obliquity in which he makes a case for the indirect approach to achieving a goal. For example, rather than say, “I want to lose weight,” you’d say, “I want to be healthier.” SMART Goals and Oblique Goals may seem to contradict each other but I think a balance between the two works quite well. With this in mind, I have set myself a goal, which we will call THE GOAL.
My goal is SMART in that it is has a target date of December to early January of next year and has specific tasks that need to be completed to bring it to fruition. It may not necessarily be “realistic,” but I love a challenge. My goal is “oblique” in the sense that rather than have a specific focus, it is written out as a broad statement to allow for opportunities that I have yet to discover.
If you’re wondering what THE GOAL is, I made myself a savings goal, with a specific cost attached to it, which will require that I be very disciplined with my discretionary spending. To achieve this goal, I need to hit a monthly savings target each month. Of course, every month will be different. There will be times that call for a good old splurge, and I am planning for that as well. For the small splurges, I am making an “envelope fund”: basically, I save a small amount of hard cash (and loose change) by tucking the money into tiny envelopes. I’ve got £12.78 so far, and it feels great.
4. Hold myself accountable.
I think it is important to identify the things that motivate us the most. To add a fun element to THE GOAL and because I am competitive, my friend and I have started a savings challenge between the two of us. The rules are simple: at the start of each month, we set our monthly savings goal, and then we report on how we’ve done against said target, with a full explanation using graphs, etc. Admittedly, the shame-factor does help as motivation for me. You don’t want to be the one constantly falling short. I have saved £2.47 more than my goal this month (April), and I’m feeling very proud.
With time, I know I’ll come to realize that there are things about my approach that work and things that don’t. Perhaps my goal will prove to be too ambitious, or my methods too restrictive. I now know that I have to at least be honest with myself. Part of having a plan is being able to understand when the plan is working, and when you need to step back and make changes, in order to move forward.
Constance is 27 and work as an Operations Engineer in middle England while dreaming of living on a farm in wet Wales. She loves excel/numbers and think charts make even the dullest of things seem interesting. Her other passions are food, straight lines and Swedish Dance Metal. Her claim to fame is meeting Martha Reeves.
Image via Unsplash