Personal Finance Leak
Since I was in college right during the heart of the poker craze it should come to no surprise that I used to gamble. One of the things you learn while gambling and in this playing poker is how to tighten up your shortcomings. It could be a number of things including folding quality hands pre-flop, over thinking the other player’s strategy, or making large bets into a stronger hand. The leaks that I have mentioned above are more specific to playing poker, but one of the bigger leaks that can develop while being in a casino is a true gambler’s leak, I like to call this the “You Can’t Win at Everything” leak or “Stick to What You are Good At” leak.
It is very common in poker to finish up your session and leave the table wanting more. Whether you win $200 or lose $200, many of us can’t fight the feeling but to move on to a new game. When I gambled my Gambler’s Leak was Blackjack, I would finish up my session and be required to walk through about 20 blackjack tables, for me many times this was very hard to resist. It didn’t matter if I had won or loss, I had my eye on getting even or doubling up and winning big. Some of my stories lead to winning, but more probably are closer to losing my money than doubling it, because remember the house always wins.
A wise man once told me why do you think the casino’s look so nice? It’s not because everyone is winning at these tables. In most cases he said look for a really nice building and you will probably find a business that is used to winning.
The reason I bring up the Gambler’s Leak is because many of us including myself have this same Gambler’s Leak in our personal finances. Most PF bloggers at one point or another preach the use of a budget and I am no different. If you want to save more money and/or pay off debt you need to know where your money is going. We were on the right track when we knew where the money was going and then we were looking for solutions on how to save more money, here is a couple examples of what we have used and what I recommend in your financial journey. We were at a good point in our financial budget, cutting out some of the little guys and having them become big guy savings items in the budget. We took out 2 of the Big 3 with our Mortgage and Car situation, but one ever present battle with money was beginning, it was our Personal Finance Leak.
While Mrs. Even Steven and I have similar Financial Independence goals, we keep a personal account and a joint account for major expenses. This happened to be the best way for both us to feel independent and still share our common long term goal. We have decided that our grocery bill is a joint expense, I put in $200 each month and so does Mrs. ESM, for the two of us, it does not vary a great amount, not enough to make any changes financially. What we decided at the beginning was to put a small amount of money into this same joint account and have this be used for eating out. While I know it’s almost a sin in the PF world to go out and enjoy a new restaurant, me and the Mrs. love going out to a new restaurant in our neighborhood or one with great reviews that we are dying to try, I mean not many can say they had a Hot Doug. What we soon found out was this was not the answer.
Mrs. ESM before we were married had almost zero costs living with her parents, so it was pretty common to go and get a Cafe con Leche every morning, followed by an Argentinian steak for lunch, since her expenses were so low spending money on a few lunches and some coffee were not breaking the bank. This was all of course pre-Florida investment property and Chicago as well, now we have some big boy mortgage payments even if we are debt payment free. We have decided that our investment real estate will be our passive income investment of choice towards our financial independence, so extra payments are applied each month and what that does is make you want to tighten up your budget so you can pay off a house.
Back to what we were doing was wrong. We put such a small amount of money in the joint account that our eating out budget was easily exposed with a nice sit down dinner. What happened was Mrs. ESM who loves going out to eat would go back to the days before she met this hansom lad named Even Steven and pay for dinner out of her personal account, as you can see this became our Personal Finance Leak. We decided to switch things up and not contribute any money towards our joint account, but rather have our personal accounts handle any dinners or eating out. The good news was we were getting closer, Mrs. ESM the free spender that she is, let me put together a budget for her personal account. The first couple of months I just wanted her to know what she was really spending on shopping or eating out or gas, just so could decide if this was a little or a lot. This was our Phase I, we saw that she was spending a lot, and she wanted to save money so she knew something had to change. Phase II set up a budget for eating out and stick to it! Bad news Phase II didn’t work, well not at first. I would set up the preliminary budget on what amount of money we would spend for the month, ask if this worked out for her, talked more one each number, come back at the end of the month and find out we blew our budget by $500. Phase II needed some fine tuning.
We realized after some careful trial and error, reading every personal finance website on the planet, and listening to Dave Ramsey(he reminds me daily I can’t spend money on my train ride to work), that we needed 3 things to happen to get results and stop our Personal Finance Leak (PFL), feel free to use this as you please, I’m not trade marking it, i’m not going to make T-Shirts, if anything I encourage you to use it, just make sure you give me a shout out, you know something cool on Twitter like “You know your PFL? WTF, OMG, ESM has been down since Day 0!, then proceed with the remaining characters in exclamation marks. Lost in my own crazy mind for a second, hard to get out, 3 things that worked for us to stop our PFL:
We set up a preliminary budget and meant it
We took out that exact amount that we set up for our preliminary budget from the Money Spitter aka ATM
We talked about it
3.5 I knew I was going mess this up. We planned and cooked ahead. If you forget lunch you have 2 options, go hungry for 10 hours or buy lunch, we took away that option.
Let me elaborate a little more. Have you ever told yourself you are going to lose weight, exercise every day, and eat right? Then about a
month, week, day later you are eating at the pizza place on your way home from work, thinking well maybe I’ll start tomorrow. That was us, we needed the Fake “I’m going to really do this and budget for eating out” to have The REAL “I mean it this s*** is going to work because I’m making it work.”
Next up I know everyone loves credit cards for points or miles or cash or because they sell them on their website when people sign up or for whatever reason you think they are the solution to life’s problems, but if you are trying to stop your Personal Finance Leak, credit cards are not the answer, if anything they could be the problem. Put $200 cash in your hands at the beginning of the month for eating out and paying the lady at Starbucks $5 for a latte gets harder, the money comes out of your hand slower, your thought process becomes more clear on if it’s really worth it to spend $10 on a lunch, you start wanting to keep that money in your purse or wallet, it’s very difficult to replicate these actions with your credit card.
One of the greatest things about having your own website to share your thoughts is you get to talk about your money. Now if I talked about what we bought and ate for lunch each day I’m pretty sure you would all flock to something more entertaining, I know I would. Talking about what we had for lunch became a part of the normal conversation at home, I asked what she had or if she spent money, I asked what the plan was for tomorrow. Funny thing happened if you start talking about it, you pay a lot more attention to it, whatever the discussion is about.
Good old step number 3.5, really came up because of talking about it. We started making a little extra for our lunches the next day or having that big cooking day on Sunday, we planned ahead. This morning when I left the house, I knew exactly what I was having for lunch and what Mrs. ESM was having as well because we planned ahead.
Now I know you think that these steps only apply to my personal situation, but we here are trying to stop Personal Finance Leak’s around the world. These steps are for everyone’s PFL. Think you are spending to much on shopping, OK let’s see what steps we are going to take:
Set up a preliminary budget and mean it
Take out that exact amount that you have set up for your preliminary budget from the Money Spitter aka ATM
Talk about it(spouse, friends, anonymously in the comments)
3.5 Plan ahead. Know ahead of time that you are going to a department store and you plan to spend $50 on jeans or even better yet plan not to go. Here’s another idea, try this, take away an option. Take the cash you have and your license, you just eliminated from being “hungry” and needing those pants or sale item.
The steps don’t really change we all have Personal Finance Leaks, look around read a personal finance website like Wealth Within if your Australian of course , nobody has it perfect. If you follow these steps I really do think you are a step closer to stopping your PFL, I know it worked for us.