Smart SpendingSmart Spending

4 simple rules for money management

You have the power to make changes in your life.

By Donna_Freedman Nov 2, 2009 1:15AM

Want to drop a bad habit or develop a good one? You need a plan. Specifically, you need a list. Lists make us feel confident and in charge. They make us feel we're already halfway to achieving our goals.

We love our lists. We especially love short lists. "Three easy ways to … (lose weight, stop smoking, become a millionaire)" is a guaranteed attention-getter. 

Life is never really that simple, of course. If all it took were three steps, everybody would be thin and rich, with unstained fingers.

We can all use a little change
But these lists do serve a purpose: They remind us that we can make changes. 

They don't even have to be big changes. For example, some readers who took the Brown-Bag Challenge found themselves with an extra $100 or more each month to throw at consumer debt or mortgages.

What could you do with an extra $100 a month?

I decided to make my own list of rules for money management. Shorter is better, except when it comes to things like massages and vacations, so I narrowed it down to just four.

Dollars and days
Spend as though every dollar matters. That's because every dollar does matter. A few bucks for coffee, a dollar in the pop machine, a bag of chips when you pay for your gas -- it adds up pretty quickly. 

Please note: This does not mean that you should never spend money. It means that you should be mindful of how you spend it compared with your long-term goals. 

That $100 a month you save by brown-bagging, for example, becomes $1,200 a year added to investments, or to a down payment on your own home.

Live like there is a tomorrow. A surprisingly common reader refrain, both here and on the Smart Spending message board, is something like, "Who knows what tomorrow will bring? Spend your money now! Live a little!" 

What tomorrow usually brings is … another tomorrow, with the usual obligations and opportunities. You better be ready. 

Again, this does not mean you can never have any fun. It simply means that a bit of prudence now -- creating an emergency fund, taking advantage of a 401(k), doing even basic retirement planning -- will come in mighty handy if you do survive past age 30. (It happens.)

Giving, and dreaming

Don't keep it all. Tied up in knots over what you want but can't afford? Here's an idea: Give some of your money away. Really. It will get you out of your own head and provide some much-needed perspective about what's going right in your life.

What if you truly can't afford to part with even a dollar? Offer a couple of hours a month to a cause, or donate a few rarely used possessions to Goodwill or the Salvation Army. 

One recent study indicated that people who make $20,000 or less a year give away more, as a share of income, than the wealthy do. Join them. Compassion will enrich your life.

Dream as though there were no limits -- but plan as though there are. You want to get married. You want to start your own business. You want to travel the world.

Swell! How are you going to pay for all of this?

Dreams are terrific, but they exist only while we're sleeping or woolgathering. The reality is that the things we want most don't just happen. We make them happen. That takes creativity, planning and work.

Don't dismiss your dreams out of hand. There probably is a way for you to become an entrepreneur or to roam the globe with a backpack. But leaping in and hoping for the best probably isn't it. 

The late Col. Norman Vaughan used to say, "Dream big and dare to fail." I say, "Dream big and plan to succeed." 

That goes for a lot more than money management, by the way. It could also help you lose weight and quit smoking.

Published Feb. 13, 2008


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