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Avoiding the Downside of Saving

Finance, Life

Like all good silver linings, saving often comes with a storm cloud. Too often, people fall into the trap of forgetting to live while they are digging out of debt. Once you get into the habit of spending every spare cent to pay down debt, retirement, or a college fund, it gets easy to ignore the present in favor of the future. The downside–or potential downside–to saving, debt repayment, and frugality is a deferred life. Whether it’s deferred fun, deferred education, or deferred personal development, it can be detrimental to you and your relationships.

Changing Reality
Changing Reality

My wife and I have had this conversation. We’re in the groove on our debt repayment. We are making excellent progress right now. Since we’ve got it all automated, it leaves us time to plan, dream and consider our options. We’ve been looking at converting a hobby into a business venture. Doing so will involve a $1-2000 investment. If we can make it work, my wife will be able to quit her tolerable, comfortable, soul-sucking job within a couple of years. If we can’t, she will still have moved her hobby into an advanced–and more fun–level. That’s a win either way, but our initial reaction is to postpone. We already know we’ll have to postpone the purchases until we’ve saved for it, because we refuse debt in all forms. Our initial reaction has been to postpone saving, effectively deferring development with long-term potential to improve our lives until our debt is completely gone.

We’ve been discussing this, off and on, for months. We have finally decided to start saving, but only when we have money that is purely extra and we’ve tucked money into all of our other savings goals. It’s not a perfect solution, but it seems to be an acceptable compromise given our situation and values.

Regardless of your situation, it is important to remember not to defer your life while you tackle your debt or savings goals.

Update:  This post has been included in the Carnival of Personal Finance.

Delayed Gratification

Finance, Parenting

I work daily to raise my kids to be more financially responsible than I have been.  One of the most difficult pieces has been to explain the benefits of delayed gratification to my children. It’s hard enough, as an adult, to take delayed gratification to heart.  For a child?   It seems to be almost impossible.

My son wants an XBox 360 Elite.   Good for him.  He wants to renegotiate the terms of his allowance to get it faster.  Currently, every other time he gets an allowance paid out, it goes into his bank account, to be mostly untouched.  The other times he can do as he pleases with his money.   We are enforcing a 50% long term savings plan. Now, with a medium-term goal in mind, he wants to keep all of his money, and only put gift money into the bank account.

Should we let him tap his bank account for a shiny new bauble?  It’s been building for a while, so it’s delayed, right?   I don’t think that would accomplish much. Like any other 10-year-old, his interests change often.

Should we let him change the terms of our agreement, speeding a medium-term goal at the expense of his long-term savings?  My wife and I haven’t had a chance to discuss this, but my initial reaction is not to allow it.   His savings has the potential to turn into a decent car in a few years, if he wants.  That would be a car he knows he earned.

Last week, when we were at the store, he asked if he could borrow some money to buy a game.   I don’t expect him to carry his money around everywhere, so I would have allowed it, if he would have had the money at home.   He didn’t.   His plan was to pay me what he did have as soon as we got home, then work his butt off for a few days to earn enough extra to pay it back.   I won’t be a credit agency for my kids, so I said no.  He was disappointed, but, by the time he had earned the money, he no longer wanted the game.   I consider that a win, but I don’t know that he learned any lesson other than “Dad’s a jerk.”

Someday, when his life launch is smooth due to a lack of debt-dependence, he’ll look back on these lessons and smile.

I hope.

The Virtues of Blow Money

Finance

When we initially developed our budget, we built it tight.  Every penny was accounted for and had a place to go.  I was so proud.

Money, money
Money, money

Unfortunately, there were some problems with habitual–even compulsive–shopping in our house.   The change from “whatever we wanted” to “it’s not budgeted” was too much, too fast.

After a few months of arguments, we agreed to set up a “blow money” line item in the budget.   That’s money that is absolutely unaccountable. When a purchase comes out of that fund, no questions are allowed.   Whether it’s a new pair of shoes for her, or a new book for me, nobody gets to fight over it.   Sometimes, it’s a nice dinner out, other times it’s another gadget for the entertainment center.   It’s never a problem.

This provides two major benefits.

First, it balances the feeling of sacrifice.   If my wife never gets to buy anything, while at the same time, she’s watching our friends and neighbors flaunt their rampant consumerism, it makes her feel like she is giving up the good life.   We aren’t lacking for anything, but the trappings of middle-class “success” can be expensive.    Having an opportunity to participate in that horrible rat-race lessens the feeling that we are missing out.    Rationally, we know that the right thing is not to spend that money, but emotionally, it’s a necessity.

Second, it’s a safety valve.   Our finances are under tight control, which can cause pressure.   Finances are, after all, one of the leading causes of divorce.   Having a way to release that pressure makes everyone happier.    Habitual shoppers experience shopping the same way drug addicts experience their “high”.  That includes withdrawal.   The safety valve turns this from a “cold turkey” method of quitting to a weaning of the addiction.

Another minor benefit is that the blow money can serve as an opportunity fund to bridge the gap between the discretionary budget and a desired purchase. Last week, we ran across a curio cabinet that exactly matches our living room, but we didn’t have it budgeted.   Out comes the blow money, which, combined a portion of the discretionary budget and some negotiating, made the new cabinet affordable, without busting the budget.

This isn’t a system that works for everybody, but it keeps us on track.

How do you handle the stresses of a household budget?

Meal Plans

Finance

Image by Getty Images via @daylife

When we don’t have a meal plan, food costs more.

Our regular plan is to build a menu for the week and go to the grocery store on Sunday.  This allows planning, instead of scrambling for a a meal after work each night.   It also give us a chance to plan for leftovers so we have something to eat for lunch at work.

We work until about 5 every weekday.   When we don’t have the meal planned, it’s usually chicken nuggets or hamburger helper for dinner.   Not only is that repetitive, but it’s not terribly healthy.  It is, however, convenient.   If we plan for it, we can get the ingredients ready the night before and know what we are doing when we get home, instead of trying to think about it after a long day of work.

If we don’t plan for leftovers, we tend to make the right amount of food for the family.   When this happens, there’s nothing to bring to work the next day, which means I’ll be hungry about lunchtime with nothing I can do about it except buy something. Buying lunch is never cheaper than making it.   I can get a sandwich at Subway for $5, but I could make a sandwich just as tasty and filling for less than half of that, using money that is meant to be used for food.   All during wrestling season, we make 30-inch sandwiches on meet nights for a cost of about $5, feeding ourselves and at least a couple of others who didn’t have time to make their dinner before the 5:30 meet.

No leftovers also means no Free Soup, which is a wonderful low-maintenance meal that leaves everybody full.  Nobody ever gets bored of Free Soup.  (Hint:  Don’t ever put a piece of fish in the Free Soup, or the flavor will take over the entire meal.)

Unhealthy, repetitive food for dinner.  Over-priced, low-to-middle-quality food for lunch.

OR

We plan our meals right and have inexpensive, healthy food that doesn’t get boring for every meal.

It seems to be a no-brainer.   Except, I don’t have lunch today because we didn’t plan our meals and used the last of the leftover hamburger helper for dinner last night.

Update:  This post has been included in the Carnival of Personal Finance.

Twitter Weekly Updates for 2010-05-29

Misc