Welcome to the site, Marketplace Money listeners!
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.
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When my PF obsession began, I was all numbers. If something made sense mathematically, then that was the optimal choice. It wasn’t until I realized that PF is more psychological that I was able to truly help people. It’s very similar to losing weight and getting in shape. Simply telling people what is healthy achieves nothing. Everyone knows this…it’s better to understand why someone eats what they eat in order to truly make a change.
You know, I was the same way. I tend to be very logical. I’m a left-brained writer, which sounds like a contradiction. 🙂 One of the earliest and most powerful personal finance lessons that I learned was how essential psychology is to money management.
Woot! Great podcast on Marketplace, Paula! I think Seth will be alright but I def couldn’t live the life of an oboist.
I will always listen to anyone who tells me I need to drink more beer! That’s a great opportunity you had to share the awesome message of Afford Anything. How did you get a chance to do that?
Also, I love the analysis of “why do you spend money on that?” Stay focused on your “Big Why,” save a bit, invest wisely, and watch magic happen.
And this is why I love this website. Paula – you rock and you ROCK HARD!
I listened to you on NPR and I enjoyed the advice. You are right about emotions leading our spending. The only way to change it is to figure out what is causing it.
This is an amazing piece!! It is not about just cutting expenses everywhere, its about finding the root problems and making the adjustments that fit into your life. Budgeting is like dieting, if you cut out everything your cravings with overcome you and you will end up splurging more than you would want. Thanks!
This is where everyone should start. EVERYONE.
“What exactly is money doing for you, and what do you want it to do for you better” should be where we spend the most time, way before we get to tinkering with budgets.
Paula – as always – a great post.
Thanks Sandi! Sometimes people get so caught up in the idea of saving money, they forget the Big Why. What lifestyle do they want? What are they willing to sacrifice — and what’s truly a must-have?
Congrats on your marketplace money appearance. I have that podcast queued up and ill listen to it this week. I like your advice about beer. A lot of times, people will splurge, and because they broke their budget, they’ll just go nuts. Stick yo cheaper drinks and you can have it all.
@CashRebel — Precisely! You CAN have it all — hang out with your friends and keep your budget intact, too. 🙂
Great job on the show! It was really fun to hear you!
Fabulous! Kudos to you Paula!
Hey Paula,
My class just listened to your show. You have a GREAT radio voice and you gave out some great advice. Keep up the great work, and we look forward to meeting you in person (spend less on renos!) when you come back to Asia.
Cheers,
Andrew
@Andrew — The whole class listened to it? That’s awesome!! 🙂
Drink more beer? That’s hilarious, but in that instance, great advice. I love crunching my budget figures, but in the long run, when I need to buckle down, it comes down to why I’m spending (or should I say, why my other half is spending. 😉 ) Once we discuss it, we are always able to save more money.
Paula you are truly an inspiration, from first discovering your blog and you replying to an e-mail.
Most often I feel my leaks are the lack of preparation with finances. Now, however I allot my savings and spending. Not at the 20%, but closer than I was yesterday.
Do you plan on starting a podcast in the future?
Paula, you are awesome! Thank you for your last two posts. I totally agree with your mindsets about how money brings choices and it is something my husband and I live each day. I have been feeling kind of down the past couple of weeks because I have had several friends (and family) make disheartening comments about our upcoming vacation and our life in general. Not necessarily on purpose sometimes it is just “You are so lucky!” We have worked super hard and have made many choices to be able to have me be a SAHM and to also allow my husband to telecommute and be home too. We also plan and have to prioritize many wants so that we can “spend lavishly” on our month long beach vacation with our kids. I guess what I am trying to say is that when I read your blog I feel like someone finally gets it! Our life has not just been handed to us and I love that you don’t downplay all the work involved in achieving your dreams.
Paula, what a great interview! And on NPR no less, awesome.
I thought the second caller’s problem was really a non-problem. But your advice to the first caller was fantastic. As a logical/rational type like yourself, I also tend to overlook the psychological component of spending. You sussed out what was really going on with her spending quickly, and on live radio to boot.
Nice work!
I’ve always wondered, when advice is give to save some % of income, is that of gross income?
Super cool! I’m an NPR fan myself!
This is my favorite part: “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.”
I am very close to canceling my cable, as Comcast just increased my monthly bill without any notice by around $30! That falls in the former category. I’m just not sure that the service is worth that much more than just relying on Netflix, Hulu, etc. Strike that — it’s NOT worth that much more.
@LeRain — Good for you for cancelling your cable! In the age of Hulu, Netflix and Amazon Prime, I don’t understand why anyone would have cable, unless you’re some type of die-hard TV aficionado with ambitions of becoming a professional producer.
I stumbled upon your site today & am thoroughly enjoying your positions & writing. Refreshing, spunky, complex yet simple truths! Fantastic.
The funny thing is I used to be addicted to Starbucks, oftentimes spending as much as $100-200 a month on the stupid drinks. The moment I decided to start buying beer to have at home (1-2 bottles at most a night), I was saving well over $100 a month! Drink more beer it is!
Haha — That’s awesome, Edwin!! 🙂 Cheers to that!!