If you turned on NPR this past weekend, you might have heard me tell a musician to drink more beer. Weirdest personal finance advice ever.
But what do you expect from me? I don’t give boilerplate advice. I talk about mindset. And strategy. And beer.
Here’s how it happened:
Marketplace Money, a radio show/podcast by American Public Media, invited me to answer some questions from listeners who are trying to plug the leaks in their spending. (You can listen at that link). My advice went a little something like this:
Yank the Weed from its Roots
I often write about figuring out WHY you spend. It’s too simplistic to write a tactical list that says “Don’t Go to Restaurants.” That advice does nothing to address why you’d drop a hard-earned $20 at a restaurant. Are you terrified of cooking? Do you want social interaction? Are you trying to flirt with a particular server?
Money is about emotions, not laws or logic. So when Kari the musician called into Marketplace Money to say that she spends too much money at bars, the natural question became WHY?
She rehearses alone all day, so by 5 p.m. she’s starved for human interaction. She goes to bars to socialize.
Awesome. Now we know the root cause.
That’s when I gave her the weirdest personal finance advice in the world: Keep hitting the bars. (Really, who says that?)
But while you’re there, remember: you don’t want a $14 martini. You want friendship. Hang out with your friends — while nursing a cheap domestic beer.
Don’t be so Tough on Yourself
Another caller, Seth, worried he spends too much money watching movies. Of course, he also saves 70 percent of his income.
Dear Seth: If you’re saving 70 percent of your income, you rock. So I said something unexpected: maybe you don’t need to save more.
I’m not trying to be contrarian for it’s own sake. But a person with a 70 percent savings rate doesn’t need to be nit-picking at the fringes. I advocate the two-step budget — skim your savings off the top, freely spend the rest. Save a minimum of 20 percent, but ratchet it upward as you see fit. A savings rate of 50-70 percent will bring you unimaginable freedom and options.
That said, there’s a difference between spending lavishly on something you love vs. frittering cash away on junk. And unless you know your Big Why, any money in your pocket is at risk of getting lost.
Plug the Leaks
Most people are unaware of the leaks in their spending. They think it’s “normal” to buy a luxury car. They think it’s “normal” to spend $100 on a haircut. They think it’s “normal” to throw away clothes that aren’t crisp and new.
Who cares if it’s normal? It’s not good! Normal people are broke. Normal people are drowning in debt. Normal people sit in bumper-to-bumper traffic to get to a job they despise, while daydreaming about the lower-paying but higher-satisfaction career move they’d love to make … if only they could afford it.
We don’t question spending money on electricity, running water and fresh fruit in the middle of winter, because we value those things. We value them enough to call them “needs,” despite the fact that the majority of mankind hasn’t had those luxuries. When we start questioning an expense, its for one of two reasons: 1) the price is beyond our means, or 2) we don’t love it enough.
If your gut says you spend too much money something you can easily afford — it’s a leak. That’s not because you can’t afford it. It’s because you don’t love it enough.
If your gut says you spend too much on something you love, and your budget feels stretched tight — it’s a leak, but for a different reason. You’re not saving enough.
Most leaks in our budget boil down to one of these two issues. Money management is the art of aligning our spending with our values. It sounds simple. But the practice is messy.
That’s what makes it fun.