Don’t buy stuff you cannot afford

Chanpory Rith — Tue, 27 Jun 2006 15:00:41 +0000

Some people get money and know how to keep it. I’m not one of them. After four years of design school and three years of working since graduation, I’ve racked up a debt of over $33,000. This has gone out of control, and it’s clear I need other guidance for managing my money than the “track everything, make a budget, and stick to it” plan (it never worked for me). The two most useful things I’ve found so far includes “The 60% Solution” and a video called “Don’t buy stuff you cannot afford:”

1. The 60% Solution

Richard Jenkins of MSN MoneyCentral suggests dividing your income like this:

60% (Committed Expenses: food, clothes, ALL bills and taxes) 10% (Retirement savings: IRA, 401k) 10% (Long-term savings: stocks, mutual funds) 10% (Stort-term savings: general savings account) 10% (Fun money: movies, books, Star Trek memorabilia, etc.)

With this simple framework, you don’t have to track every single type of expense. Just keep your committed expenses to 60%, or you’ll be screwed later on. Richard explains:

It rarely matters what you’re overspending on — dining out, entertainment, clothes. Who cares? It’s still debt, right?… it wasn’t the little luxuries here and there that got me in trouble. It was the large, irregular expenses, like vacations, major repairs and the holidays that did all the damage. To avoid overspending, I had to do a better job of planning for those.

2. Don’t buy stuff you cannot afford

SNL hasn’t been very funny lately. But last month, they aired a brilliant fake TV commercial for a debt management book called, Dont Buy Stuff You Cannot Afford. A simple rule, but difficult for the easily tempted like me. For example, I’d hide credit cards, and swear to use them only in emergencies. It worked until I made excuses for turning non-emergencies into “emergencies.” So as a first step, I’ve take the big plunge and literally cut up ALL my credit cards. It’s now virtually impossible for me to spend money I don’t have.

Check out the transcript of the SNL sketch here and the video clip here.

It’s a long road ahead, but these two pieces have given me motivation and actually make the process seem less daunting. I promise a progress report in a month or so. Wish me luck!

LifeClever ;-) » Budgeting

Don’t buy stuff you cannot afford