How do you spend less than you make?

[jackmiller]

It is all about creating a budget and sticking to it. You will be saying "no" to things more than "yes" if you are doing it right.

[corn18]

I have a question. When people are spending more than they make, how do you explain to them how to spend less than you make? What exactly do they need to be able to move from spending more to spending less than they make? Is there a 10 step process out there, or if there isn't, what process would you put together to help someone move from one place to the other?

Here was my process:

Join Savings Advice Forums
Ask a question about how to reduce monthly spending
Get irritated by the arrogant responses
Fight and argue on the forum
At some point it sinks in that I am the stupid, arrogant one and I started listening vs. talking
Built a budget
Read the book The Millionaire Next Door
Started cutting costs

Big spending moves:

1. Sold the BMW Z4M (play car)
2. Sold the horse
3. Sold the horse trailer
4. Paid off all cars vs. buying an Audi R8
5. Sold the travel trailer

Smaller spending moves:

1. Reduced DTV service from Platinum everything package to just what we needed
2. Cancelled home phone
3. Reduced cell service to just what we needed
4. Cancelled yard service
5. Many others I can't remember

The end result of this 8 month process was I went from overspending $3,500 / month to underspending $3,400 / month (that is all going to savings). That's a big swing. But we are so much happier now.

The point of all this is none of it works until the over spender wants help. If they want help, then send them here. Many, many wonderful people on here that can help them kick butt and save money.

Tom

[jackmiller]

Get irritated by the arrogant responses
Fight and argue on the forum
At some point it sinks in that I am the stupid, arrogant one and I started listening vs. talking
Built a budget
Read the book The Millionaire Next Door
Started cutting costs

I laughed when I read Tom's response here but it is so true. You need to be honest and willing to change your behaviors in this process. It will hurt, it will feel weird and your friends will think you are strange and cheap. Tom I wish you well on your trip to financial independence, from the looks of your response you are right on track - well done!

Jack

[Gailete]

Join Savings Advice Forums
Ask a question about how to reduce monthly spending
Get irritated by the arrogant responses
Fight and argue on the forum
At some point it sinks in that I am the stupid, arrogant one and I started listening vs. talking
Built a budget
Read the book The Millionaire Next Door
Started cutting costs

I just reread some of the responses here to remember what was going on in this thread and realized that the above response would work for other areas in our lives, especially new on-line sellers!

-Join the seller forum
-Ask a question about why you aren't getting any traffic or sales
-Get irritated by responses especially the ones telling you to pay attention to your spelling and grammar since, of course, spelling and grammar have nothing to do with selling!
-fight and argue and claim no one is helping, call old time members of the forum names even though all have been trying to help you
-hopefully at some point it sinks in that you are the stupid, arrogant one and start listening to what successful sellers say, especially including about paying attention to spelling and grammar (most of which can be improved with the spell check on your computer.)
-Follow their advice
-Start seeing your bank balance go up as you become successful as well

It always amazes me how some one can be willing to ask for help at on line forums but have every excuse in the book for why they can't take any of the advice offered! And then when that is pointed out to them, they fight and argue even more. When a person is drowning they shouldn't argue with the lifeguard. While not all advice given on on-line forums is beneficial, much can be helpful, useful advice.

[disneysteve]

Join Savings Advice Forums
Ask a question about how to reduce monthly spending
Get irritated by the arrogant responses
Fight and argue on the forum
At some point it sinks in that I am the stupid, arrogant one and I started listening vs. talking
Built a budget
Read the book The Millionaire Next Door
Started cutting costs

The point of all this is none of it works until the over spender wants help. If they want help, then send them here. Many, many wonderful people on here that can help them kick butt and save money.

Tom

I love it! Thanks for posting this Tom.

I often wonder how many of the people who come here looking for advice actually take the advice we've given and how many think, "Those people are all arrogant SOBs. They don't understand what I'm dealing with." and continue to do what they've been doing.

Congrats to you for actually letting the message sink in.

[Gailete]

And yet again I was reminded tonight of how it translates to other forums! Yet another new seller offended that someone told them to they needed to fix poor spelling and grammar at their new store and the seller took offense as that shouldn't have anything to do with selling HA! Everything was just about totally unreadable, who would buy something from someone when they can't make out what is written in a listing?

Many years on line in different forums and Tom nailed it completely. I've read saving forums for people pretty much destitute and when they were suggested to cancel cable they would say that it was their hubbies only entertainment. What about playing games with the kids, doing yard work, helping wife with the house, use rabbit ears to get what signal what you can (something we do and get 7 free channels!) take up reading, take up a cheap hobby, lots of ways entertain yourself when you don't have enough money to buy groceries when paying $100 a month for cable.

You need to frame this TOM or write a book!

[Mdarius]

Short answer:
Jeffrey M. Hiatt on change-management.com uses an ADKAR model to drive change:
Build AWARENESS
Create DESIRE
Facilitate KNOWLEDGE
Develop ABILITY
Positively REINFORCE the change

How do you help someone else?
Awareness:
Be a good example.
Demonstrate restraint.
Discuss your wise financial decisions, and mistakes, openly.
Build knowledge:
If they are close to you and see them slipping, mention it and ask if you can help them get organized.
Books, videos, formulas, realistic tools THEY can use and be comfortable with...etc.
Ability:
Keep goals realistic for their financial maturity level.
Help them learn and develop tools that meet their needs
Help them increase their earning potential if it becomes apparent they can't decrease their costs any further
Help them eliminate expenses where possible
Reinforce:
Stick with them.
Follow up
Support them, remind them, give them a boost
Expect failure, backsliding, resistance and help them expect it so it's not a surprise and reason to give up.

Fill in any blanks in the change model that better fit your situation.

Long story:
I've been in both places. The problem for me was that I didn't know how to budget when my income was entry level and I acquired debt. It was all worthwhile debt: medical bills, car payments, an important trip to see family that I couldn't really afford...all justifiable if you aren't committed to saving. Cutting things out of your budget only goes so far when you are shackled by debt. You become upside down in life, not just your car or house. There is no way to cut far enough.

I'm now on the other end and have disposable income to figure out how to maximize. It took being out of work and really broke to realize just how much of my money went to debt payments before I committed to break the shackles of debt. When you have a family and need to feed them and don't know where the next dollar will come from, it becomes sacred. Then you have to make that "minimum payment" to the debt Gods, and the things that seemed important when I went into debt didn't seem so important. Techniques are useless without commitment.

So, I worked harder, sought higher paying jobs, obtained some credentials that added value to my resume, sold my house and chose to rent (in spite of being driven to it due to being self employed for the first time - can't get a mortgage), and prioritized paying off debt. We still have fun, and are building savings, but the howling hounds of debt are fainter than they have ever been, and it feels great!

[cyreneq]

My mom raised 2 kids, in private schools, with an income of less than 15k.

Secret: Don't be jealous of your neighbors, learn to be happy of what you can afford.

I think people can live normal lives with very little income, it's just many want to live the American Dream - live like a rich person, but in debt. But it's hard to enjoy all the shiny new toys with debt looming above your head.

Sometimes to get ahead, you may need to put your pride down, live in a smaller apartment, and save up for that dream house.

[Patrick_OG]

One of the things that people do that they don't realize is that they watch their cash through the eyes of their bank statement. They see a big number and think that they have more cash then they actually do. What i mean by that is that is when it comes time to make a spending decision, they use the amount on the statement and try to "figure" how much they have after all expenses are paid. This almost always leads to error. its not really the budget, because they do in fact make one, its that they rely on the bank and not their budgetary figure to determine how much cash they can actually spend.

If you are interested in that consider my app Easy Money. You can find it on the app store, or by viewing my profile and checking my webpage. Its simple to use and doe this for you.

[Gailete]

One of the things that people do that they don't realize is that they watch their cash through the eyes of their bank statement

Even worse, it seems especially wealthier people do this, they base what they have to spend on their yearly gross pay. We see it here many times when they say things like we make $220,000 a year but can't make ends meet for us and our two kids. Well right off the bat, they have forgotten that the $220K they earn is reduced greatly by taxes and SS, 401K, health insurance, all those things that get pulled out before you even see your money, probably somewhere near ~$50K a year, so instead of thinking they make $170K a year, they are spending that $50K twice, once out of payroll deductions, and once for the nanny, extra vacations, expensive toys, etc. I would be completely embarrassed by myself if I couldn't more than adequately make $170K a year meet our needs and some wants. I think the most yearly income I have ever had in my life was around $60K once!

Whatever, to spend less than you make, you need to know what you make net and budget off of that, including setting aside savings. While some may think that their kids need private schools (not talking parochial here), don't other people's kids deserve that as well? Yet if poorer parents can't afford to send their kids to private schools because they can't afford it, then maybe you need to think about whether you can afford it or not as well. If you can afford to and want to, of course, send your kids to a private school as long as it isn't breaking the bank. And if they rub shoulders with millionaires kids, be prepared to explain to them why they can't have what their classmates do.

[krantcents]

I have a question. When people are spending more than they make, how do you explain to them how to spend less than you make? What exactly do they need to be able to move from spending more to spending less than they make? Is there a 10 step process out there, or if there isn't, what process would you put together to help someone move from one place to the other?

The simple answer is to budget! You need to know where you spend your money and how much of what you spend is discretionary. The best way to do that is to create a budget.

[UnknownXV]

Lack of budgetary awareness is a critical flaw in our high school education system. For the life of me I cannot understand why we aren't teaching our kids how to structure a basic (income - expenses) budget.

If everyone starts out life thinking about money, income, etc.. in the right fashion, it becomes ridiculously easy to stay within the line. All that is left is will power. Being able to control yourself.

Credit cards are the killer in that respect.

[Gailete]

Lack of budgetary awareness is a critical flaw in our high school education system. For the life of me I cannot understand why we aren't teaching our kids how to structure a basic (income - expenses) budget.

So right about that and I also include lack of home ec classes, woodshop, atuo shop, ec. Guys used to know how to take care of their cars before leaving high school and now apparently no one can work with them since just about everything is computerized. Kids don't know how to cook or even sew on a button so when a button is lost they throw out a perfectly good garment. They aren't learning it in school and with most parents working these days, there is no one at home to teach them either. One of the ways a wife used to help stretch the family budget was making many of the clothes, mending them when needed, cutting them down as needed for a younger child and using scraps for other sewing needs like quilts or even cleaning rags so that they aren't spending $100+ a year on paper towels. They also learned to cook so that frequent runs to restaurants aren't necessary. And many many other things that kids today don't learn and they are all budget killers.

[krantcents]

Change is difficult! People will only change if there is a compelling reason for change. Just look at the obesity problem in the U.S. and the proliferation of fast food ad prepared foods available. I think the first step is to have the person keep a spending diary so they become aware of where they spend their money. The next logical step is to create a budget. Part of the budgeting process is determining financial goals. I make saving a priority and everything has to fit after that is achieved.

[rajeshdaiz01]

By cutting unnecessary expenses.
Allocating expense on different items and for period on the basis of actual income.
OR by earning more