There Is A 'Softer' Way To Budget Yourself
MICHEL MARTIN, HOST:
I'm Michel Martin, and this is TELL ME MORE from NPR News. Coming up, we'll talk about holiday parties - specifically, how to handle your business, whether you are with family, friends or colleagues; and equally important, how to handle people who might not know how to handle their own business. That's in just a few minutes.
But first, we are in the thick of the holiday season and even if you're in the spirit of giving, some experts say your mind should also be on your wallet. 2014 is coming up fast and according to our money coach, now is the perfect time to start reviewing your finances from this year so you can cut out what you did wrong, and double down on what you did right. Our money coach, Alvin Hall, is with us now to tell us where to start. Welcome back, Alvin Hall. Happy holidays to you.
ALVIN HALL: Happy holidays to you. This is my favorite time of year.
HALL: Because it's time for everyone to think about their money and look back over what you did well, and what you did badly, over 2013.
MARTIN: So how do you start?
HALL: I think you start by getting out your credit card statements, getting out your bank account - anything where you spent money this year - and just go over them. Sit there one evening at home, and just go over them. And you will discover, often, that there's some things you did very, very well - like maybe you increased the amount of money in your 401(k) plan, you saved more money in your child's education, or you simply put more money in your savings account or paid down your debt. But then there are other things that you did; like, compulsively buy shoes, buy too many shirts, take a holiday you couldn't afford. So I tell everybody: Sit down during this time of year, look back to see what are the three things you did well and what are the three things you did poorly. And then choose one to improve, and one to continue doing.
MARTIN: You said - you're really clear about this. You said, look at the three things you did well, three things you did poorly; but pick one thing to really focus on.
MARTIN: And you're saying that people really should limit how many financial goals they take on. Why is that? And how many - you know, just why that?
HALL: I think if you can limit it, you can remember it. But also, if you think back about human psychology - if people try to change jobs, lose weight and stop smoking at the same time, something invariably goes wrong. You can't work on all those fronts, so choose one, one that you can put a message on your phone or your smartphone so it will pop up. Put a message on your computer so you can be reminded of yourself. I think keeping it simple keeps it in the front of your mind.
MARTIN: Now, what if you are a person who, you know, works - is in partnership with someone? You're married or you're partnered with somebody else - I mean, is this something that you should do together - ideally you should do together? And what if you disagree about what a priority is or is not? I mean, for example, you were saying - I know you were using the example of, you know, maybe you're, you know, wasting money on shoes or something like that, but this is something that people often disagree on with maybe kid's clothes, for example.
MARTIN: That's kind of a common area. You know, some people - maybe they had childhood memories of being, you know, teased over their pants being too short or having to wear secondhand clothes. So they think it's a really big deal that their kids be, you know, kidded out a certain way.
MARTIN: And other people think that's ridiculous, you know. So what if you - you know what, if you cannot see the floor through the shoes, then you're fine. What would you - how do you handle things like that?
HALL: I think couples need to sit down, and this is where I encourage them to actually write down separately what they did well and what they did badly with money. And then come together and have an honest, frank discussion about it. But do not become accusatory - there's no benefit in sitting there and saying, you did this and I did this. I always think vengeful spending and vengeful reactions get couples nowhere. But if they can work out something that they can own together and move forward with together, and then meet periodically at regular intervals throughout the year to make sure they're staying on course and have honest conversations about it, I think that's the way couples can do this.
MARTIN: You are a strong believer in having a regular check-in...
MARTIN: ...Like a daily or a weekly - some sort of daily or weekly check-in about finances. I mean, one of the things that you've talked about is that people, you know, spend more time, you know, making coffee or whatever than they do checking-in on their finances.
MARTIN: You know, I have to ask you about that 'cause some people find it incredibly stressful thinking about money. And they feel that the more they can automate and not think about it, the better off they are. And there is some psychology behind that.
MARTIN: I mean, that's one reason why a lot of people are fans of kind of those automatic payroll deductions or automatic deductions to the savings account or to the 401(k) or something like that.
MARTIN: Talk a little bit about - if you would, about why you think it's important to do kind of a regular check-in, and if you have some thoughts about managing that anxiety for people who have that.
HALL: Yes. I think there's some things that people should have on direct debit - contributions into your savings, contributions into your 401(k), contributions into your child's education fund. Those things should be automatic. But I think other things - for example, how much money you write to pay for a service that you provide. Those things you need to sit down and review every single week. One of the things I strongly encourage people to do who use debit cards and credit cards is to sit down - maybe Friday or Saturday, Saturday is always a good time before you go out food shopping - to look at all the receipts you've accumulated over that period of time. And then add them up to see how much money you've spent.
That will help you gauge how much money you can spend when you go out shopping on Saturday. And for those people who have anxiety about money - keep it simple. It's looking at how much you've spent, giving yourself a target every week and trying to stay within that target. I think what really undermines most people, Michel, is that they simply spend. They never have a number in their head about how much they can really afford to spend during the week. If you say to yourself, all I can spend this week is $40, for some reason, as you are using your debit card and your credit card, you'll be keeping track of that in a softer way rather than sitting down at the end of the week and being surprised.
MARTIN: One of the things you've also encouraged people to do over the years is to have a - take - pick one month. Is it a month...
HALL: Yes, a month.
MARTIN: ...Where you write down every single thing that you spent?
HALL: A 30-day diary.
MARTIN: A 30-day diary.
MARTIN: Well, I'm a fan of February because it's the shortest month, but that's another story. But why do you think that that's important? And should it be January?
HALL: It can be January. It can be your birthday month. I always tell people - also, September is a good month for many people because they're coming off the summer. And that's when they start to spend crazily, especially on their children. I think a 30-day diary gives you a sense of where your money is going and how you're using it. It also alerts you to any craziness-es - as I like to call them - that may be coming up or creeping up in your finances.
Are you suddenly buying more shirts? Are you buying more magazines? Are you having your nails done more than you should during the course of that month? All of that starts to show up. And you can start making adjustments. One of the most important things that happened out of this diary - when people start to keep it, Michel - is that as the weeks go along, you watch them start to cut back. And then they start to self-monitor much more closely when they're not keeping the diary.
MARTIN: OK, Alvin, this is always my favorite part...
MARTIN: ...Of the conversation because you are really good at telling on yourself. Is there anything - which I think we appreciate.
HALL: Yes. I'll tell on myself.
MARTIN: ...Since you seem to have pointed out a number of problems areas for some - like shoes...
MARTIN: Donuts, for example.
MARTIN: Just speaking hypothetically, of course.
HALL: Of course.
MARTIN: Is there one thing you are going to focus on in this coming year?
HALL: I have to really focus on shirts. I love shirts - I just do. In fact, I was in Brooks Brothers yesterday and they had a markdown on the black fleece shirt that I had been looking for. It was 40 percent off. And I really didn't need another shirt. But I loved the shirt. So this year, I'm going to tell myself I can only buy one shirt every quarter. That's all I can do because...
MARTIN: One shirt every quarter?
HALL: Every quarter.
HALL: Because I have enough shirts.
MARTIN: And no sneaking...
HALL: I have enough shirts. I have enough shirts. It's ridiculous.
MARTIN: No hiring an elf to sneak into your closet and cut them up. Oh, my goodness, I have to go shopping, oops.
MARTIN: OK, all right.
HALL: That's one of my craziness. And the other thing that used to be my craziness are pots and pans because I cook a lot, I have pots and pans in the kitchen. But I've gotten that under control.
MARTIN: All right, well, glad to hear. Well, happy holidays to you, Alvin Hall.
HALL: Happy holidays to you.
MARTIN: Alvin Hall is an author and financial educator. He was with us from our studios in New York. Thanks again, Alvin.
HALL: Thank you. Transcript provided by NPR, Copyright NPR.