The third part of a Personal Spending Plan is to make the all-important lifestyle and spending decisions based on the facts you have gathered. You want to determine how you can alter the way you spend money so that you can indeed accomplish your goals—without deprivation.
The reason you determine your top goals prior to making any changes in your spending habits is that without this data, your efforts are doomed to fail. I’ve never seen people stop spending money simply because they thought they should, or because someone told them to do so. It takes dedication to a deeply held desire to achieve lasting change in your spending habits, and this focus requires a clear definition of what’s important to you—your goals.
One of my favorite examples of this kind of dedication is Jeff.
I was leading a seminar for a group of hair salon stylists. One thing about hair stylists is that a lot of cash goes through their hands in the form of tips. For most of them, it’s easy come, easy go. They usually don’t know how much they get in tips, and they don’t keep track of where they spend it. I took them through the entire Personal Spending Plan process. I had them do a fact sheet on their current spending, identify their deeper passions and goals, and reassess how they were spending their money in light of those goals.
Three months later, we had a follow-up session. Before I could start, a young guy in the front row was waving his hand for me to call on him. It was Jeff.
“Um, is there something you would like to share with the group?” I asked.
“Yes,” he said. “From the goal-setting exercise you had us do, I got very clear about my goals. And I committed to them. I established two goals. I wanted to go to Hawaii or someplace else where it’s sunny once every year. . . .”
“That’s not a bad goal for someone living in Seattle,” I interjected.
He laughed. “Actually, for me it’s a necessity,” he said, “and I wanted a red Mazda Miata convertible. Those were my goals.”
“Sounds reasonable,” I said.
“I added up how much I spent on lattés and eating out in restaurants. In the three months since we were last here, my Hawaii trip is paid for . . . and you passed my red Mazda Miata when you walked in.”
I wasn’t the only person in the room who was visibly shocked. “How could this be?” I asked. “How could you do that in three months?”
“For three months, I went cold turkey on lattés and I learned to make my lunch and take it to work. I didn’t go out for snacks whenever I felt like it, and I ate dinners at home—or let other people take me out and pick up the tab!”
“I counted up how many lattés I consumed during the day. Six! Six lattés with tips is $24 a day. I spent an average of $5 a day on snacks. I went out to lunch everyday and spent about $8 every time. So far, that’s $37 a day. I work six days a week. That adds up to $888 a month. Cutting a few dinners eating out, I ended up saving nearly $3,000 over a three-month period. My Hawaii trip will cost me $1,100, and the remaining $1,900 was enough for the down payment on the car. I can now afford the monthly payments from the amount I won’t be spending on lattés and lunch everyday.”
People in the seminar applauded.
“I’d say you are a pretty committed fellow,” I said.“Congratulations.”
“Yeah, but here’s the thing,” he said. “If you had asked me at the last session how many lattés I drank a day, I would have said six. And if you had told me that I was wasting a lot of money, that I was spending too much—and that all that coffee was bad for me, I would have told you that you had no idea how much energy it takes to cut people’s hair everyday. It’s not only the haircutting and being on your feet, but also having to keep up the conversation. I would have told you that I couldn’t have gotten through my job, talking to those people all day long, if I didn’t have my lattés. I would have told you not to tell me how many lattés I should drink. And I would have told you that I don’t have the time to make my lunch every day. I barely make it to work on time, work long hours, and go home dead at the end of the day. That’s what I would have said to you. Instead, when I saw for myself that the lattés, lunches and snacks were costing me almost $900 a month, I realized I can more than adequately make a car payment and have plenty left over to go someplace sunny and warm every year. I instantly stopped drinking lattés. I got through the caffeine withdrawal—it wasn’t a big deal. And I’m getting up early each day to make my lunch.
“It’s like, once I realized that I could actually have these things, nothing could stop me!”
Jeff exemplifies a great truism about financial planning. When you clearly determine what you are committed to, and when you clearly understand the facts, you are likely to change your behavior.
With a Personal Spending Plan, you know what is really important to you, and you gain the motivation to alter, sometimes dramatically, how you spend money.
This plan is not about deprivation—quite the opposite. In Jeff ’s case, the result was abundance—attainment of the things he wanted most, and in a very short period of time. It also gave him a sense of pride, confidence, and personal power.
If I had told Jeff not to spend money, he would have felt as if I was trying to deprive him. It would have generated resistance: “Don’t preach to me about spending. You can’t possibly know what it’s like to be in my shoes.” But when he clearly understood that he could go to Hawaii and have his new dream car, simply by changing his spending habits, he altered his behavior immediately. He became self-motivated.
Just like dieting, financial deprivation doesn’t work. However, setting your sight on a positive goal aligns your energy toward achieving it. The negative activity just falls away.
That is the reason a Personal Spending Plan works. You first gain an understanding of where your money is going, and then you figure out what it is that you really want. With these two pieces of information, you can easily determine the areas where adjustments in your spending are possible and realistic. In no time at all, your goals become reality—without feeling deprived!
First, become clear about your spending habits; then become clear about your goals. Finally, determine the areas where changes in spending habits could be made.