How To (Effectively) Save Money and Pay for Christmas

Christmas is just around the corner, and most people probably find themselves in somewhat of a panic. One group doesn't know how it will pay for Christmas, and the other group will quickly realize that they have overspent on Christmas. 

Both groups will be tempted to whip out a credit card in order to split the difference.

Don't be among them.

Instead, I would like to propose a simple method of paying for Christmas.  But you cannot embrace this method unless you realize the fundamental problem at the heart of it all:

You are your own worst enemy!!!

You are not as good with money as you think you are. If you've ever closely tracked your spending and made a budget, then you know what I am talking about.  The moment you start ignoring the constraints of your budget because you think you are "fine," is the very moment you will start to overspend, and will ultimately start coming up short financially.

The first thing you need to do is to make a budget.

Decide ahead of time how much money you are going to spend on Christmas every year.  As Dave Ramsey says, "Tell every dollar where to go instead of wondering where every dollar went!"  Your money needs to have a name. Assign it one on a spreadsheet, and use it to track your monthly spending.

The second thing you need to do is automatically save.

You will need to start saving a small amount of your monthly budget and setting aside funds for Christmas.  If you are going to drop a grand or two on Christmas this year for you and your entire family, it's a lot easier to figure out where to come up with the money for Christmas if you've been setting aside $100 or $200 a month throughout the year, than wondering where the money is going to come from five or six weeks out.

Christmas comes every year.  It's not an emergency, so don't treat it as one.  Plan for it through monthly budgeting. 

The third thing you need to do is to setup a separate checking account with a bank that is not your primary bank. 

Sure, such seems like a hassle, but ever since discovering that I am my own worst enemy when it comes to money, I've found another truth: 

You need to hide money from yourself!

In realizing I am my own worst enemy, I've also discovered if I mix my Christmas money with the same bank account I use to pay the bills with, or my "rainy day" emergency funds account, I've discovered that I either don't have as much money going into Christmas as I thought I did, or after Christmas, I've discovered that I've spent more than I intended on spending,  and now have less savings for other things that I was also saving for. 

So the best solution I've discovered is to automatically hide my monthly Christmas savings in another checking account at another bank.  That way I won't accidentally spend Christmas funds on other things, and likewise, I won't be able to easily spend more than what is in that account.  When the funds in that account hit zero, Christmas shopping is officially over. 

And since this Christmas account is at another bank, you don't have to worry about auto-drafting your account and taking money from other accounts you've already earmarked for other things.  The only way to spend more money at this point would be to fall into the temptation of using another card, or you would have to add more funds into your already depleted Christmas account. 

Of course, it is still possible to still fall into this temptation.  However, I've discovered that by having a separate Christmas account, you provide a "check" to yourself that hopefully keeps your spending under control.  If you over spend, your overspending will at least be slowed down by the slight trouble of having to get money from another account.  You won't be able to spend money on other things without thinking about it first.  You will be forced to recognize that you've reached your maximum spending budget. 

And even if you do decide you can afford to spend more money on Christmas than you originally budgeted for in your Christmas account, at least you will be forced to account instead of just wondering where all the money went.  Either way, this will help you keep your spending under control, and Christmas won't become an annual financial disaster.

Finally, this idea can be applied to multiple spending areas.

Don't just limit this idea to Christmas.  Apply it to birthdays, vacations, or saving money for a car or a new house.  Whatever your major financial goals are, I highly recommend opening an account for each one.  And in doing such, I believe over time you will discover that you are better off financially than you were when you had all your eggs in one basket.

And while it might be a little too late to start saving for Christmas this year, if you start today, you can start to plan for Christmas next year.   By removing the financial stress Christmas creates by simply budgeting every month and moving a little money into an account earmarked specifically for Christmas, just wait and see how much more enjoyment you will get out of the Christmas season when you know how it's all going to be paid for!

Ho, ho, ho. Merry Christmas!

The Power of "Mad Money"

Do you notice your monthly checking and savings account balance trending downward month after month?

If so, you probably have a spending problem.

"But where does it go?" you may ask. After all, like a lot of people these days, you probably pay most, if not all of your bills online. And apart from some seasonal fluctuations in your utilities, your monthly expenses are pretty much the same.

So why doesn't the balance in your bank account increase?

If you are like me (or most people), you probably don't carry around a check ledger and record every single transaction. You spend pretty freely, guessing how much money you have in the bank on any given day, and primarily rely on periodic balance updates or warnings that get sent electronically to your e-mail or phone to alert you of any extreme transgressions.

And as a result, it is only towards the end of the month when you realize that you overspent.

The truth is (of which there is a lot of research to back up), if you use your ATM/debit card to make all of your purchases, you will tend to underestimate how much you actually spend compared to how much you truly spend. Using your ATM/debit card, you feel wealthier than you actually are, and you tend to spend more freely.

If you are trying to live off a budget (as we all should), then this is a REALLY bad method of controlling your personal finances. For example, let's say that you allow yourself $300 a month in "discretionary spending" on things such as shopping, eating out, going to Starbucks, date money, and entertainment. The chances are, if you rely on your ATM/debit card for the bulk of these purchases, you are probably going to blow your discretionary spending fund.

Don't feel bad, such is simply how human nature responds to plastic bank cards.

Being recently married, I found out that two people jointly using this method of personal finance tends to have a "multiplier effect," and it makes it all the more clear that this is a really bad way to manage finances. For example, on Friday I might go out to lunch with the guys at work, and on my wife's way home, she might swing by Target for an item or two. Then I might swing by Redbox, pick up a movie, order a pizza, and settle in for a lazy Friday evening.

But, before you know it, we've spent $100! Yet, each of us feels like we have only spent half of that. And we are only talking about how we handled our finances for one Friday out of the month. We still have the rest of the month ahead of us, in which we will likely repeat a similar pattern of destructive financial behavior!

Just imagine how well that plays out in the long run. It's a great way to become broke... and fast!

But, imagine how it could be better. Putting our heads together, my wife and I implemented a new strategy for controlling our monthly expenses.

Now, instead of using our ATM/debit card for our discretionary spending, we take out some cash at the start of every month, divide it between the two of us, and we call that our "MAD MONEY."

Under our new system, we take our monthly "mad money" and use it for all of our discretionary spending. Once we run out of the cash we took out, that's it... no more mad money to spend. When my wallet is empty, my hands are tied and I no longer have anything to freely spend. If I want to buy anything else, I need to ask my wife to borrower some of her "mad money," and vice versa.

The end result of our little experiment has been that since we've implemented our "mad money" system, every single month we've seen our bank balance increase.

And while we have not completely eliminated using our ATM/debit card in our discretionary spending category, that's ok. We've made significant progress in this arena, our behaviors are changing, our savings are growing, and we are going in the right direction.

Remember: Personal finance is a journey, not a destination.

I believe that simply keeping cash on hand will change not only the way you spend your money, but how much you spend, and help you grow your bank account balance in the process! Try it out, and let me know how it works. See if it won't make a difference.

Budget to Give

I think a lot of God's people would admit that they enjoy giving, and that they want to give more.

But many feel hindered, because they feel their financial situation doesn't afford them the ability to give as much as they'd like.  Thus, the idea of giving more seems a bit frightening, because they fear they simply cannot afford to give more than they presently do. Maybe you are one of those people.

Let me ask you a simple question...

How much money do you make on a monthly basis?

It's really a simple question.  But it's a question that I believe a lot of people cannot accurately answer.  My guess is that you probably don't really know either.

For a living, I work as a mortgage underwriter on the foreclosure side of a really big bank.  As a result, I've had the opportunity to review the personal financial statements of a lot of different people.  In the standard paperwork my bank asks people to fill out, people are asked to disclose their monthly income.  When I compare what people write down as their monthly income, to what I actually calculate after reviewing their last several paychecks, I usually discover what a person thinks they make on a monthly basis is very different than what they actually make on a monthly basis.

Having reviewed thousands of personal financial statements, I am of the opinion that most people in America simply do not know how much money they make!

And if people don't know how much money they make on a monthly basis, I think it is fairly safe to assume that they don't know what their monthly expenses are either.

Honestly, I believe that most people simply hope to have money left over at the end of every month.  And usually, they are right, and that is enough for them.  But many people learn the hard way, and eventually find out that they were guessing wrong, and don't have enough money to cover all their expenses.

Don't be one of those people.  As much as I enjoy being employed at the bank, I don't want to see your loan application on my desk asking for help so that you can avoid foreclosure.

Instead of being a person who thinks they make enough money to cover their monthly expenses, become the type of person who knows exactly what they make on a monthly basis, and who knows exactly what their monthly expenses are.

But the only way you can do that is if you take charge of your personal finances and make a monthly budget.

I know... not exactly fun stuff.  Some people would rather go to the dentist than make a budget.

But if you are to be a responsible steward of the financial blessings God has provided you in your life, making a budget is the only way you can get on top of your personal finances.  And if you are looking to be a "cheerful giver" as the Bible teaches, there is no way you can find joy in writing checks that you fear may possibly bounce, or cause you to get behind on your other bills.

Making a budget requires that you first analyze your personal finances by going line by line through your bank statements, and find out exactly how much money you take home on a monthly basis, and exactly how much you spend.  Of course, since expenses vary month to month, it is best to analyze a full year worth of bank statements so that you can get a general average.

In this process, you will likely discover that you are spending far more in certain categories on a monthly basis than you were previously aware.  I think most people discover that they spend far more on eating out, shopping, and home repair/maintenance than they thought they did.

I remember analyzing the bank statements of one person at work, and discovered that they spent about $1,000 eating out on a monthly basis.  Such was almost the amount of their monthly mortgage payment, which they had fallen behind on.

I didn't have the opportunity to talk to this man about his personal monthly expenses, but I bet if I were to have asked him if he ate out that much, he would deny spending as much as he does at restaurants.  And a lot of people are like that, in denial about what they spend and where they spend it.

But that's what is so amazing about a budget.

A budget forces you to be honest about your spending habits.  A budget forces you to deal with reality, and not simply what you think is going on.  In making a budget, you do as personal finance guru Dave Ramsey says, and "name every dollar, instead of wondering where every dollar went."  A budget helps you take control of your spending habits, so you can better direct where your money goes.  Instead of doing this...

A lot of Christians write checks "in faith."

That is, they write a check hoping that it clears before other checks do, and that they will get paid before all the other checks have a chance to clear.  They do this with everything from tithe checks to mortgage payments.

God doesn't want you to have that kind of faith.  When it comes to "tithing" or making your mortgage payment on time, God is much more interested in your being "faithful" than He is whether or not if you can write a check not knowing where the money is going to come from to pay the bills this month.

Being faithful means not writing a bad check that has the potential to bounce.  And if you are living off a budget, you will never need such "faith."

Some Christians like to tell stories about how they tithed, not knowing where the money was going to come from in order to pay their mortgage or other bills, and that God miraculously provided for them in the end.

I'm not going to say such never happens.  But let's be real.

Churches process bounced tithe checks on a weekly basis.  And banks regularly foreclose on homes owned by Christians who practice such check writing habits.

If you can't afford to tithe AND pay your bills this month, pay your bills first and learn to make a budget so that you can actually afford to give.  Write your tithe check later, it's ok, God won't curse you if He doesn't get it this week.

The point of developing a budget as a Christian is so that you and I don't have to live by such "faith."  Rather, we develop a budget so that we can be the faithful, and show that we are faithful by our ability to follow through.

As Christians, we live in the belief that God has already provided for all of our needs, and we adjust our lifestyle in accordance with what God has actually supplied.

When we track our monthly income and expenses, and create a budget, we do so in order that we can take control of our personal finances.  Such a process is something that actually honors God.  And we do this so that we can afford to live a lifestyle that not only honors God, but so that we can be liberal and generous in our giving habits.  We do this so that others may enjoy the grace that God has given us.