Learning how to tell a luxury from a necessity.

One of the things we read all the time in the FI/RE space is that one of the most important ways to turbocharge our path to financial independence is to learn how to distinguish a want from a need. I was about 13 when I learned this lesson, in a way that I’ll never forget.

Mum and Dad, my brother, sister and I lived in a comfortable middle-class suburb in Melbourne. We were by no means wealthy, but my parents earned enough that we had all of the necessities of life and quite a few comforts as well.

When I was about 12 or 13 I discovered an English magazine for teens called ‘Pink’. I absolutely loved it. God knows why – I was looking at covers for it while thinking about writing this post and it looks AWFUL. Everything that a feminist would despise. But at the time they were certainly pitching to the right audience. Every week I’d take my money up to the local newsagent and get my ‘fix’, bring it home, read it and add it to the pile of previous issues. It was a staple part of my regular routine and I didn’t ever imagine that routine changing.

Then one day Dad lost his job.

Mum and Dad were a bit upset about it, but in my sublimely selfish teenage way I didn’t let the news cause a blip on my radar, until the day Mum came out into the backyard where I was playing with the dog and said that she wanted to have a talk to me.

She explained that with Dad being the main breadwinner and with them not knowing when he was going to be employed again, they’d decided to make some cutbacks in expenses. So I wouldn’t be going on the year 8 school camp. I was a little upset about that, but I figured that it was only for 3 days and they’d pass quickly. They were pausing my sister’s dance classes and doing a few other things that I don’t remember about now. But then she dropped the bombshell – the one you already guessed was going to be dropped.

Yep. No more ‘Pink’ magazine until Dad found another job.

I was devastated. I cried. Mum said, “This is incredible. I thought you’d be more upset about missing the camp!” On my side, I couldn’t believe that they’d stop paying for something that only cost a couple of dollars a week. How was I going to keep up with the serial stories? There were HEAPS of them. What about the gossip columns and agony aunt pages? How was I going to keep up with the fashions and who and where and what the rock stars were doing? Remember, this was long before the internet. I was truly going to be stranded.

I thought they were so unreasonable. If there was an emoji for a 13-year-old girl having a tantrum I’d put it here. I begged and pleaded. But Mum and Dad wouldn’t be budged. They were tightening the reins on the family finances while we were in this tight spot and that was that.

So my life was ruined.

Six weeks after that, Dad found another, better job. Mum came to me on his first payday with a couple of dollars in her hand.

“Darling, you can go to the newsagent and start the subscription up again.” She was so happy to be able to make me happy.

I remember so clearly looking at the money, then thinking about the magazine. Was it worth getting it again? Yeah sure, at first I’d missed it dreadfully, but as the weeks went on I lost track of the serial stories – I knew that if I bought the latest edition I’d have no idea of what had gone on in the meantime. The pop groups? They were mainly British and most of them weren’t really big out here anyway. The fashion was 6 months ahead of us anyway and I didn’t even wear makeup yet. I couldn’t believe what I knew was going to come out of my mouth.

“Thanks, Mum, but I don’t want it anymore. I’m not missing it so you might as well save the money.”

It was a revelation to me that something that I once prized so highly took only a few short weeks to fade into insignificance. Mum and Dad were right to cut back when times were tough. Very few things are truly necessary, while most other things, though being nice to have, can easily be sacrificed if need be.  I learned a few very important lessons from giving up that silly magazine that stood me in very good stead when I was bringing up my boys on a shoestring budget and I had to cut deep.

They say that the things you learn in childhood stay with you, both good and bad. One of the best things my parents did for us was to demonstrate their absolute determination to not live beyond their means. It would have been so difficult, if not humiliating, to take pleasures away from their children and see their distress. But they kept the bigger picture in view and made their decisions for the overall financial stability of the family.

“Monkey see; monkey do.” It’s true; kids observe everything their parents do. I was lucky that mine showed me a valuable lesson, with the sting from the loss of the magazine probably flagging that memory so I’d never forget it.

 

 

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We all have to spend – just make it intentional.

 

I firmly believe that one of the cornerstones of Financial Independence is frugality. But ‘frugality’ is a funny concept. One man’s latte is another man’s wild extravagance. I’ll come clean right now and confess that I consider myself to be an extremely frugal person. After all, any single person who’s brought up 4 kids and paid off a mortgage on their own hasn’t exactly been throwing the avocados on toast around. However, my frugality has certain limits. There’s a fine line between frugal and stingy. The annoying thing about any discussion about frugality is that every person seems to draw the line in the sand between the two concepts in a different place.

The kids and I have been on our own – if you can call 5 people being “on our own”! – for 20 years. When my marriage hit the skids I’d been a stay-at-home-Mum for nearly 6 years. I had 4 years to go before my youngest was due to start primary school. My goal as a parent was always to stay at home with my kids until they were all at school, so when their world turned upside-down with the divorce I vowed to stick to that plan, to give them a rock-solid foundation upon which to build their worlds. This meant tightening the belt.

I had a couple of advantages to start off with. The first was that my ex-husband was never what you’d call a wildly successful businessman, so for a fair few years I’d been watching the household finances and being reasonably careful. The other was my upbringing. My Dad watched every penny, so unbeknownst to me, I had excellent training in making every penny count. Those lessons have stood us in good stead over the last couple of decades. But the most useful tool I’ve come up with is something I only started using in the last 20 months when frugality became a necessity again.

Ever tried living on 27% of your take-home pay for month after month? That’s what we were doing while I was paying bridging finance for The Best House In Melbourne while getting all the plans and permits to develop our old property. What should have taken 6 months took 17 months, thanks to the local council and various tradies dragging their heels. That’s a long time to be living off the smell of an oily rag. I had an emergency fund in place, just in case something awful happened, but the rest of our lives was cash-flowed. I had to watch every cent that came in and out of the house.

I’ve never had a ‘budget’ as such, but I’ve always spent less than I earned. I heard someone say somewhere that “if you can’t measure it, you can’t manage it.” That made sense to me, as nit-picky as it appeared. You can’t steer a car in the right direction if you don’t know which road you’re on to start with.

So why not measure my spending? Why not rig up a basic chart on my computer that documents every amount I spend? The challenge, because you’ve got to make it fun, is obviously to spend as little as possible on non-essentials.

Have a look at the chart. I made a few rules to start with. After all, if I didn’t it would be anarchy and we simply can’t have spendings and savings running amock all over the place. That way madness lies.

I direct debit my bills, so I couldn’t choose which day of the week they’d be paid. So rule 1 was that they were excluded from the table. Imagine my agonised expression if I’d thought I earned a silver square and then Telstra took the money from my credit card on a Tuesday instead of a Friday. It just doesn’t bear thinking of.  Next rule: even one dollar is to be counted. Our money situation was so tight that I had to be conscious of everything. Third rule: no cheating the table, no matter how tempting.

But the best thing I did, a few weeks into it, was to put the last column in – where I can colour in the square if I have 3 or fewer days that I spend in a week. Now this suddenly made the whole exercise INTENTIONAL. And that’s when it really took off.

It’s crazy the way the human mind works. I really wanted to colour in a silver square at the end of each week, so I started grouping my spending together. We live around the corner from an Aldi. Before the chart, if I was getting low on one ingredient for dinner, it was too easy to send one of the boys galloping to get it. But now, the game had changed. Was this ingredient important enough to use up one of my spending squares? If so, I’d send them to Aldi with a shopping list, to avoid this happening again with other things that might be running out in the pantry. But if it was something that I could leave out of the dish altogether, or I had a substitute I could use if I thought for 2 seconds about what else I had in the pantry, then the boys stayed home and I could triumphantly colour in a square that night.

If I knew I was going to go to Costco on the weekend, I’d schedule other shopping trips at the same time. If I needed some wine, (always a staple in the Frogdancer house), I’d swing by Dan Murphy’s on the way home. Aldi doesn’t sell everything we use, so the Coles or Woolworths might also get a look-in on the same day. I always buy my petrol at Costco, so there was another stop on the same day. I would consciously try and spend only on the one day so that I wasn’t using up my squares willy-nilly.

This had another additional saving that I wasn’t consciously aiming for when I started it, but it soon became evident that I was using less petrol. The car wasn’t being dragged out for ‘one-off’ trips to the shops but was being used for multiple things. The saving was significant enough for me to notice that an extra week was being added before I had to refill the car – obviously not enough to pay for a trip to Europe or something. Still, every little bit helps.

I believe that we all have a couple of little things that we spend money on. Things that are so cheap that we buy them without really thinking about it, because “it’s only $2”, or “it’s just a coffee.” Mine isn’t coffee. It’s so stupid that I feel a bit embarrassed even writing about it. Mine is $1 Caramello Koalas/Summer Rolls/Honey Nougat logs from the staff common room when I ‘m correcting essays.

The school I teach at is incredibly popular. We’re one of the top non-selective government schools in the state, which basically means that if any child lives in our zone, we have to take them, regardless of gender, religious views, sexual orientation or intelligence. The kid could be a certified genius or a dribbling idiot and if they live in our designated area, we have to take them. Our VCE results each year are so high that people literally pay thousands more per house or apartment to move into our area, which leads to a lot of kids lining up to be taught each year.

Our school currently has over 2,000 students.  Our 3 youngest levels have around 14 classes of 28 students each. With 4 or 5 classes in a regular teaching allotment, that’s a lot of essays to mark. Sadly, once the chart was in operation for a while, it became clear that I’d become dependent upon the sweet sweet taste of chocolate and caramel to get me through the hard yards.

The really good essays are easy. No problem. You zoom through them, scattering ticks and the occasional minor suggestion or correction here and there. No need for chocolate here… in fact you almost feel like doing a lap of honour around the staffroom because you clearly taught these kids so well. But then you get to the strugglers and the lazy ones. The kids who are genuinely trying hard aren’t so bad. You want to knuckle down and help them. But their essays take a lot more time to mark because there are so many grammatical errors, spelling mistakes and flaws in the structure of the essays. But then you get the doozies – the ones who couldn’t be bothered reading the novel. They watched the movie instead. Some of them even absent-mindedly write “the movie” instead of “the novel”. One boy in year 12 a few years ago was meant to be writing about Shakespeare’s play “Richard III” and he began his essay talking about the tank that crashed through into the bunker of the Lancasters and how the gas mask made Richard seem evil. I agree, it was a wonderful movie adaptation of Shakespeare’s play but it wasn’t what we’d actually studied. Shakespeare isn’t terribly well-known for his twentieth-century modes of warfare and transport in his plays. To his credit, the student and I both had a good laugh when I tackled him over it. But when things like that happen… it’s a blow to a teacher’s fortitude. These essays are definitely not a pleasure to read and there seems to be a lot more of them than the excellent ones. Unfortunately, it’s unprofessional to turn to hard liquor. For some reason, the school frowns upon alcohol being consumed while correcting. The next resort is chocolate.

Having the chart definitely cut down on that mindless spending of, “Dammit, I’m working hard and I deserve it!” I’m not saying that it stopped it altogether… there’s a square that is clearly marked “$4 marking”. I must have had 2 classes worth of essays to mark at the same time, which is a stupid move on my part. Or else I had a class of remarkably stupid kids! However, the chart tended to make me stop and think.

When I first started using the chart, I tried to push on through, but that sugar rush was hard to ignore. Then I had a brilliant idea. What if I substituted nuts and dried fruit for the chocolate bars? I started buying the ingredients for trail mix from Aldi, then making up bags of it and making sure I had some in my desk, particularly at the end of term, always a peak marking time. I was still able to have the sugar rush from the dried fruit, while the nuts and seeds satisfied the ‘junk food’ comfort nibbling. It’s probably cheaper, but the main advantage is that the ingredients are bought during normal grocery shopping and I don’t have to make the dash to the common room and wilfully squander a square.

It’s stupid, but the chart works. You get to Thursday and you could pop into the supermarket on the way home, but you only have one square left. Better leave off going till Friday in case something comes up… or even Saturday. It stops a lot of impulse buys, because you’ve got Rule 3… don’t cheat the table… and you really want the reward of that silver square. It’s totally individual, with no-one but yourself accounting for what you spend. Which is brilliant, because then you can then tailor your week to when you need or want to spend money.

I’ve been doing this for nearly 18 months now. I have control over what I spend my income on. It takes less than 2 minutes a day to do, and if you’re like me and use a credit or debit card for all your spending, it’s so easy to jot things down on the chart because you have the record there. For me, the secret sauce to this is obvious.

It’s the final column that has made me stick with it because my spending is now totally deliberate and INTENTIONAL. I consciously choose what I want to buy and what I choose to avoid. That accelerates my progress towards the things I truly value.

At the end of the day, I’m a valuist. I put my money towards things I think are important and I bypass the things that aren’t. And these are the things that are different for everyone – the line in the sand that we all have with frugality. When you measure this, you can absolutely manage it and get to where you really want to go.