cash flow

We originally published this article on February 20, 2010, and it remains one of our most popular blog posts to date. In the spirit of ongoing financial wellness, we thought we’d give it a refresh for 2021 as many of us adjust to new habits—including how we shop.

I’m a financial advisor. But I’m also a normal person just like you. I know how difficult it is to be an American and somehow not feel it’s our duty to shop.

Our economic and social systems are based on capitalism. Consequently, economists watch consumer spending like hawks, and no wonder—it fuels about two-thirds of total economic output in the United States. Talk about pressure!

This also puts a lot of pressure on you, the consumer. If no one buys our goods and services, then what happens to our economy?

Advertising Only Fuels Your Shopping Habit

The advertising industry is the perfect agent for promoting consumption. According to the ANA, advertising is linked to the bedrock principles that shaped our nation—free speech, competition, and individual choice—and is a driving force in fueling economic activity.

As such, advertisers have one role: to make us want us to consume. Their mission is to make products and services seem as enticing as possible, so we buy them whether we need them or not. Just watch a few episodes of Mad Men to learn the tricks of the trade.

And it’s almost impossible to escape from the influence of advertising unless you live like a hermit. Watch TV, drive down the freeway, listen to the radio, log on to a website, and you’re bombarded with advertising messages. No wonder we feel like we were born to shop!

Only You Are in Control of Your Shopping Habit

The problem is, economists and advertisers aren’t concerned about your personal bottom line. Just like you, they’re concerned about their jobs, their families, their standard of living, and their ability to retire comfortably.

Therefore, you need to adopt a “me vs. them” mentality when it comes to kicking your shopping habit. In other words, before you open your wallet to buy something, stop and think: Do I want “them” to have my money, or do I want “me” to have my money? The person on the other side of the cash register certainly doesn’t know if you can afford the item you are about to purchase—nor do they care.

Think of shopping as a psychological battleground—that’s how advertisers think of it.  Do you want to be the victor or the vanquished? Remember: you were not born to shop!

Don’t Be the Vanquished When It Comes to Your Personal Finances

Feeling vanquished about your personal finances isn’t a good thing.  It probably means you’re in debt, or you’re anxious about your future and feel stuck. Is all the “stuff” worth it? Probably not.

Excess stuff also clutters your environment. Coupled with your excess debt, this can ruin your credit score and your relationships.

Like anything psychological or emotional, it isn’t easy to change. But there are things you can do to take control of your spending. It’s time to denounce popular opinion, admit you were not born to shop, stop spending more than you earn, and live within your means.

First, Balance Your Budget

Using an excel spreadsheet, list all of your expenses categorized as follows:

• Fixed and necessary expenses. These expenses are the same every month and/or are necessary to keep you housed, clothed, groomed, healthy, fed, and mobile.
• Other committed expenses. These may include child-related expenses, pet care, fees to professionals, adult education, gym membership, insurance premiums, and debt payments.
• Discretionary expenses. Includes vacations, dining out, entertainment, hobbies, electronics, gifts, home improvements, furnishings.
• Auto-savings. Includes your retirement contributions and other savings.

Next, total the subtotals for each category to come up with your total monthly expenses. Then subtract this amount from your total monthly income. The outcome will either be a positive or a negative number.

If it’s a positive number, congratulations. You are living within your means. If you know you’re saving enough for retirement and other financial goals and have no debt to pay off, then you have some discretion as to how you use your money. However, if the outcome is negative, go back and rework your expenses until it comes out even or positive. Once your cash flow is neutral or positive, you now have a working budget.

Hint: You will have the most flexibility to adjust your discretionary spending, but you can also try and negotiate savings with service providers or increase deductibles on insurance policies to save on premiums. In addition, you should try to eliminate any high-interest credit card debt before adding to your discretionary spending account.  

Some Tips for Staying the Course

1. Print out a copy of your budget. Post it somewhere that is visible to you regularly, so it stays top-of-mind.
2. Track your spending. Mint.com is a free online tool that tracks all of your expenses, income, and savings. You can enter your budget, and Mint will send you an email any time you overspend on a budget item.
3. Try the envelope system. Place your budgeted amount for discretionary items like clothing and food in an envelope in cash. When the cash is gone, you can’t spend on those items again until the next month.
4. Leave your credit cards at home. Become more conscious that the money you spend is from a finite source. Try paying cash or using your ATM card whenever possible.
5. Walk away. If you’re tempted to buy an item that you don’t really need, leave the store, walk around the block, and think about it. Nine times out of ten you won’t buy the item. Remember: It’s “me vs. them.” Who gets your money?
6. Reward Yourself. Each month that you stay within budget, reward yourself in some small but significant way. For example, indulge in a nice lunch out, get a pedicure, or order a nice glass of wine with a meal.

Maybe You Were Not Born to Shop, But You Still Want To

After completing the budgeting exercise, you may find it’s impossible to balance your cash flow. Even though you realize you were not born to shop, you don’t want to live frugally, either. If this is the case for you, look at the income side instead. Can you ask for a raise at work? Find a higher-paying job?  Freelance?  Start a small business? Rent a room out? Sell belongings to raise cash?

Explore all avenues. Exercise your capitalist gene by thinking about all the ways you can produce goods and services for profit—for yourself!

Feel Happier While Spending Less

If you want to think differently about the relationship between your spending, your values, and your happiness, download The Happiness Spreadsheet. In addition to giving you a more inspiring approach to budgeting, our free eBook includes a number of resources you can use to get your shopping habit and spending under control.