Most people have some form of debt, from a lot of consumer debt to a mortgage, its become an accepted fact that everyone had some. Typically we make an effort to pay this debt down and keep moving forward. Take for example my situation I’ve got about 12K in credit card debt which I can slowly pay down over the next few years without altering my lifestyle at all. I don’t have to make any sacrifice to keep everything going the way that it is and I believe that a lot of people fall into this category.

A couple days ago I read a post over at Money Crush about Getting out of ‘Survival Mode’ and this got me thinking about this so called Survival Mode. For me being in survival mode means you do anything and everything you can in order to save money, presumably to survive. Thankfully I haven’t been that situation for a while now but I have been there before and I know that you act totally differently towards money when it really matters. The thought that came to mind was how quickly would I be able to get rid of my debts if I were able to get into survival mode and stay there until EVERYTHING was paid off?

As much as I like to muse about questions like this the reality is I probably wouldn’t be able to stay there very long. I enjoy my lifestyle even if it means that I’m going to carry debt for a while. Each day I spend money on things that I don’t really need like a candy bar or coffee and I could easily do without these little temptations. Even if I didn’t enter a true survival mode I think it might be possible to enter a pseudo survival mode where you question each purchase with: do I need this purchase to survive. I think that by questioning each purchase like this and really focusing on survival elements you can save yourself a great deal of money.

Being in the situation where you have to stretch every dollar just to survive not a fun situation to be in but it does give you an appreciation for what you do and don’t have and what really matters. In the grand scheme of things if you’re floating credit card debt because you like your $5 a day latte it equates to being pretty dumb and not something that you should be complaining about.

Every now and then you have to treat yourself to something nice or all the money in the world isn’t really worth collecting. I commute a fair amount and although I do have a work laptop I am not going to use it for my personal stuff so when the idea of these mini laptops started to gain popularity I have to say I was rather intrigued. That was close to a year ago and since then they’ve become all the rage which is great for me because the price has gone down. I purchased this little item from a big box store for $399+ taxes which might seem high but it came in a custom color and with a 6 cell battery. The net result is I would have paid a similar price directly from Dell.

While some people will lament the fact that I spent that much money on a luxury item this wasn’t a purchase made overnight or on a whim. It also wasn’t a purchase that was made on credit. I have learnt my lesson when it comes to spending my money on the geek toys; save up, wait and if you still want it then purchase it. I waited over a year and I saved up the money for this so there won’t be any credit card bills coming in the mail  nor will this weeks groceries be on the lighter side.

The one thing that made me second guess this purchase is the fact that I could have paid down my debt a bit more rather than paying minimums. But as I mentioned earlier you have to be able to treat yourself every now and then. I haven’t purchased anything that was specifically for me and me only in… probably close to two years, maybe longer. There is a couple benefits to this purchase other than the geek factor and that is that I’ll have a bit more portability with my computing life (thankfully I’m not a facebook user or I might have to update my profile everytime I find a new hotspot), there are a couple projects that i would like to work on and this might remove any additional excuses that I have for not doing them.

Now a question for my readers – have you ever treated yourself, and I’m not talking about the latte that you’re sipping while browsing through your daily reads, I’m talking about a purchase that you wanted but could have lived without that was more significant. Did you wait? Did you save up for it? Did you feel any type of remorse or regret?

In some respects things have been great, my daughter turned one at the beginning of the month and she’s been doing awesome. She’s been bringing joy into my life every day since her birth. Yes some days are tougher than others, lets be realistic its parenthood not every day will be perfect. The magic is the fact that when I see her face when I pick her up the smile she gives me and the excitement I get is enough to make it all worth while. Being a parent really has taught me a lot from resposibility to seeing the simplicity and joy in life.

On the financial front things have improved and stayed the same at the same time. Yes I’m still carrying debt (close to three months of quiet isn’t going to erase that much debt), but I have managed to start building my savings. The debt is being maintained and slowly lowered while at the same time I’ve managed to save up a small amount of money (about $1,000). While my successes and general status quo in the financial arena have not been stellar there hasn’t been any regression which is a good sign by itself.

For a while I was torn about the site, I didn’t have anything I wanted to say, and I contemplated shutting it down. But I do like writing about personal finance and my finances. If I can somehow convince one kid or one person not to make the mistakes I made then all the writing would have been a success. So I would like to start writing again, it might take a little while to get topics flowing again but I want to write so I will just like I will continue to make the small steps to improve my financial situation – even a small step in the right direction is a good one.

In addition to these small baby steps in repaying my debt I’ve also managed to set aside a little over $500 in a mutual fund account. Again this isn’t quite enough in case something came up and I needed the money it is a baby step in the right direction. For years I’ve managed to save absolutely nothing and now I’ve got a few hundred dollars invested in a mutual fund and this will continue to grow.

Seeing the results of these baby steps over time can be really motiviating (at least it is for me). Less than two months ago I had nothing saved and had more consumer debt than I do now. Just seeing these small successes and seeing them add up makes me realize that yes the debt is fairly large but it can and will be tackled. The best part of these successes is that I didn’t make any huge adjustments to my lifestyle or any sacrifices just a few small changes. Now I’m confident I can make a few more changes to continue the baby steps and speed up the process of saving and debt reduction.

_{Photo by San Diego Shooter}

For me failure or setbacks aren’t always a bad thing, as long as you learn from them. Because I have encountered issues with keeping my motivation high while trying to achieve a goal I know what to look for when making a second attempt. One of the really big things that I notice that I tend to do is to try doing everything at once. Unfortunately the only thing this accomplishes is to overwhelm me so when tackling a new goal I try to start slow even though I know I can handle more. By noticing the small warning signs that come up you can take steps to push through to eventual success.

Maintaining focus – small steps

Have you ever noticed how many people sign up for gyms only to stop going after a few months? They don’t ease themselves into their routines and when they don’t see results right away they give up. Most of the time they go into denial for a few months until they realize how much they’re paying a month for the gym membership that they never use at which point they quit. Maintaining focus on your debts and your finances isn’t any different. You have to start with small steps and goals.

Just as you see your motivation waning you can stop and realize how many of your small steps you’ve accomplished. This week marks my 2nd month of weekly budgeting and although I was late a few times and I missed a week I have managed to keep my updates going. It’s a small step and I haven’t really done too much but its progress and just seeing this makes me want to take the next small step. Another great small step I took was to start paying myself first and setting aside money – again only a small step at $50 per pay but I’m seeing some small results.

A thousand mile journey starts with the first step.

Whenever I see someone incredibly successful I am amazed by what they have accomplished. What I often forget is all of the small steps that they took to get to where they were. Take Bill Gates, he’s one of the richest men in the world and he was one of the founders of Microsoft. He didn’t wake up one day a billionaire; he fought tooth and nail to make that company a success. A series of small steps. When you’re having trouble staying focused on repaying your debt or growing your investments remember all the successful people around you didn’t have any more than you did (some probably less) they took small steps each one forward until they got to where they were going.

Now whenever I feel that I am starting to loose my motivation and focus I will take small steps but keep taking these steps. Because every step forward is just that a step forward no matter how small it is. Babies learn to walk slowly and one step at a time; sometimes you just need to go back to that mentality.

I have to say that the wedding did make me reflect on life in general; we put so much effort into things that don’t matter yet not nearly enough time into the things that do. I thought about my own wedding a couple years back and realized that I myself am a fairly laid back person but even I get caught up in the craziness of it all. I also thought more about the rat race that I am a member of and how much I would enjoy not being entirely reliant on the ‘daily grind’ to pay for everything.

The whole concept of the rat race is tied to the fact that we need to have the constant flow of money in order to keep everything moving along, in order to pay our debts, pay our mortgage and essentially pay to live. I’ve also been re-reading Timothy Ferriss’ book The 4-Hour Work Week which has rekindled my desire to not be forced to work. Although I’ve never reviewed the book or gone through the exercises in detail it is one the books that has made the biggest impact on me in recent years. I think it might be time to investigate what Tim accomplished and wrote about in a bit more detail.

Overall this weekend was just a small reminder of why its important for me to keep at the finances and debt reduction and that although I am still not 100% clear on what I want other than being in the rat race I do know I don’t want to be in it anymore.

A perfect example of this occured for me a couple years ago when my friend was moving out of town. He was never big on cell phones and didn’t have his own. Because of the move he was contemplating getting one. When he told me this I offered to give him an old cell phone of mine. I had purchased it as part of a pay as you go package. I changed packages and cell phone carriers a couple months after making the purchase and had kept the phone. In the end I gave my friend the phone and he’s still using it. We were able to reuse an item that would otherwise have cost him a bunch of money.

Opportunities to reuse items are all around us and it doesn’t have to be for big ticket items only. We have jars of rice at home that were once salsa jars; this keeps the rice protected and from spilling. I could have purchased special jars or containers for this but why when I had some perfectly good containers available. Printed pieces of paper have been turned into little scraps for notes so they can be reused before they are recycled. Getting into the mindset of reusing items isn’t always easy because we are so used to buy use and throw out that we don’t even realize that something might have a second use or could be useful for someone else..

Saving ideas are posted on Fridays as suggestions on how you could save yourself some money. If you have a saving idea send it along to matt@onemillionandbeyond.com.

This past week I recieved a comment from a reader that indicated that once you reach the budgeted amount of money spent on something that’s it you can’t spend more. This user challenged my budget creation process and I wanted to pause and think about it. My initial reaction was to get a bit defensive but after a moments pause I started questioning my budgeting process and approach. The reality is that when you create your budget this is your planned or ideal spending for the week and not the reality.

A budget can’t be static

If you did the same things every week and absolutely nothing changed from week to week then you could simply create a budget and stick to it exactly. But in that situation there would be little need for a budget because once you created one budget you would never need to do another one. Life is a series of changes and no two days or weeks are the same so when you create your budget you have a set of expenses in mind there will be circumstances that force you to sepnd differently than initially planned.

The perfect example of this would be the food budget for the week; if you plan on spending lets say $100 but when you get to the store it turns out that your groceries cost you $105. Do you put something back to make the amount exactly correct? If you’re trying to save money and be very concious of your spending then you might. But on the other hand if you need all $105 of food in order to feed yourself would you put something back and go hungry? Personally I would spend the extra money because I don’t want to go hungry and if necessary I can find the extra $5 from a different category.

Circumstances will dictate what you need to spend your money on and those will in all likelihood be different at the time you make your purchase than when you were coming up with your budget. There has to be a certain amount of flexibility in your budget in order to account for the changing circumstances of life.

Changing your behaviour to meet your budget

For me the goal of budgeting is to help me change my behaviour in orderr to not overspend and to know where my money is going. The commenter challenged the fact that I overspent on a vice (alcohol); he was 100% right to challenge my overspending. If I say I’m going to spend $65 on alcohol then I should do everything I can to stick to that amount rather than spend double even if it means I should change my behaviour to accomplish this.

If you intend to stay on budget you need to make concious choices to remain within what you were planning to spend. So going back to the grocery example if you intend to spend $100 on groceries for the week and the cashier rings up $105 and there is $10 in items that you want but don’t really need (say chocholate bars and chips) then you should take those items out to remain on budget. Adjust your behaviour to stay on budget.

In my particular case the month of July was more for understanding how and what I spend my money on in order to create an accurate budget. Do I need to spend as much money on unnecessary items such as alcohol and smokes? No I don’t but I am also not in a situation where hurt my financial situation by spending the money (though I don’t improve it either). This week I am actually making a concious effort to remain within what I’ve allocated for each category; but even then in my opinion a budget needs to have some flexibility.

The Fluid budget

My personal take on the buget is that it needs to be fluid. If you intend to spend a total amount of $1000 for the week then you should not go above that amount, but if you spend more or less than you planned in each specific category is not nearly as important. You need to adjust your spending to make sure that overall the budget is maintained so an extra $5 spent on food should translate to $5 less spent in another category. This type of flexibility allows you to deal with situations without any added stress. You might forget that the baby will need diapers in a given week but spending less on gas, food and miscelaneous items can let you cover the cost without any negative impact.

As long as you are living within your means having fluidity in your buget makes perfect sense and in my opinion helps you keep the stress that’s often associated with money down.

I haven’t really felt any significant change in my lifestyle or other spending as a result of this $100 per month. While I’m still living a bit beyond my means it also doesn’t mean I’m forced to eat macaroni and cheese for my meals to make it work. I have been using my weekly budgets to get an understanding of my spending habits to get them under control in order to live within my means while paying my debts down. This isn’t going to be a quick and easy fix but as part of this whole mix is my need to set aside some savings even if meager.

At the end of June I had no savings and as of today I’ve got $211.11 in that account (there will be another $50 going into the account later this week). I know that this is a paltry amount and wouldn’t really matter in the grand scheme of things but I am Paying myself first. By the end of the year I should have close to $750 (or more) in that account and while this isn’t quite enough to retire on it is enough money to cover a few emergency expenses if they come up.

Why Pay yourself first?

For years now I had intended to set aside money in some basic investments and always planned to do so with budgeted money. Unfortunately I always planned to make the contribution at the end of my budgeting period. Regardless of if it was two weeks or a month I always thought that I would put money in just before I got paid. My logic was always that this would give me some money to work with just in case. This is a load of horse shit and a big stinking one at that. By paying yourself first you force yourself into making the rest of your budget work.

I am not advocating that you set aside 50% of your budget to investments or savings when you get paid (though if you could do that then you’re doing something right). What I am suggesting is that if you want to build up some form of savings account put the money into the account the moment you get paid. This will force you to make the rest of your money last till you get paid again. I am currently tight for cash and setting aside a few hundred dollars per pay would probably make my day to day life a bit tougher, but I know I could afford $50 so thats what I put in. It doesn’t affect my quality of life nor any bills (I am capable of missing those with or without the $50).

It adds up!

That small amount that I’m setting aside translates to $1200 a year and I’m not really making any changes in my life to get that. The best part is that this money is already starting to grow. While I’m not a financial advisor nor a junior Warren Buffet I will suggest that if you’re going to do this speak to a professional. If you’re only investing a small amount there might be perfect investment vehicles for you to get the best return on your money. I am using a couple mutual funds for my investing purposes and until I have more funds to invest with this will be my vehicle of choice. If you don’t know much about investing it shouldn’t stop you from building your savings, even an ING account will add up to $1200 a year with my contributions.

The moral of the story is that even if you’re tight for cash by paying yourself first you can start a small savings or investment account. Remember even a small savings account is better than no savings account.

Its been a few weeks since I started my weekly budgeting back up again and I am starting to understand where my money is going far better. I know there are a few of you out there ready to throttle me because its rather obvious. For as much as you are correct I wanted to take the slower approach to getting to the bigger picture. I knew I spent too much on smoking and drinking and watching my spending has pointed out just how much. I didn’t try changing my lifestyle in some vain attempt to get everything under control. Convince a hard core smoker or coffee drinker to quit cold turkey without any preparation – my only comment is good luck if you have to live with them.

My goal with this month was not to dramatically alter my spending but to get a strong understanding of where I was spending my money and for the most part it was going where I thought it was. I didn’t think I spent over 16% of my total expenses on the car or some form of transportation; that was a bit of a surprise. The food and housing costs were where I was expecting them – give or take. Now that I really have the bigger picture in August I will start curbing some of the unnecessary spending; in order to get under my budget from week to week. This won’t be perfect by any stretch of the imagination but I think it would be nice to cut back on some of the smoking and drinking spending and put that either onto the credit cards or into investments.

Speaking of investments although I might have had limited success this month with the budgeting I did suceed in one thing and that is to start setting aside some money even if a tiny portion. I’m paying myself first – even if its very little. One has to start somewhere.