The single most helpful idea I’ve come up with — instead of monthly budgeting, which I found useless — is thinking about my cash flow one day at a time. It’s surprisingly easy to calculate.
First I see what amount of income I can basically count on, as a minimum every month. Last year, that was $3,000 before taxes. I made that much every month except one, which means I averaged more, but $3,000 was the amount I could spend in any calendar month without having to worry about it.
Next, I sum up the expenses that I’m going to have consistently: rent, phone, internet, subway card, and now I’ve got an electric bill and health club. I add all those into one number, my monthly overhead—before food. Of course food is even more necessary, but it’s not a particular amount of money, nor is it like a bill that’s going to be due. You can spend a lot on food—eating in restaurants or ordering in—or you can live on just a few dollars a day, buying ramen and fruit.
Therefore I treat food along with other spending that is too much trouble to keep separate track of, yet easy to control if I use only cash.
I had learned to put aside $450 a month for the estimated taxes I had to pay every quarter, because I was self employed. And my regular monthly bills at that time, rent and so forth, came to almost $1,500. So the income of $3,000, minus $450, minus $1,500 left me $1,050 a month that I could spend in cash or debit card without having to keep track of where it went, and without losing the roof over my head or having my phone or internet canceled.
That works out to $35 a day. You have to figure out what’s the best time interval for you, the way your mind and your life works. We’re talking about skills, in this book, that have to be learned in the simplest personal way. It’s not as much about math as it is about your own bizarre nature. For me, it was per day. I knew that any day I spent no more than my allowed average of $35, I wouldn’t have to think about it.
The goal is to spend zero: eat the groceries you bought yesterday, let your Mom take you out to lunch. But if you buy something like a pair of jeans or some CDs that are going to take you over that cash limit, or if you go on a trip and spend $500, make sure you have previously accumulated that money in your bank account. You can say, I made $600 extra last month, so that’s money I can spend over and above my $35 a day.
Similarly, if I got $35 from the ATM yesterday and still have some money in my pocket, I can take another $35 today and spend the total. It doesn’t matter what I spend that amount of cash on.
I could get in trouble with cash very fast if I didn’t know how much margin I had between my income and my overhead, but I didn’t get in trouble as long as I knew how much that came out to per day, and never went above it. Anything I wanted that I couldn’t afford with my daily cash, I could only buy if I had the money from previously spending less, or I had a good month and got paid more, or my grandmother sent me a check for my birthday.
Hopefully your overhead is always less than your income, or you’ll starve. But when I figured out how much rent I could afford, I made sure I could meet my other monthly obligations with enough left over to eat.
I’ve progressed to taking my cash weekly, at the same time my earnings have risen faster than my overhead. So as long as I’m making my proven minimum monthly earnings, I have this marginal cash that I don’t have to budget in categories. But if I started overspending again, I wouldn’t hesitate to go back to the so-much-a-day method. People like me can’t just go all month and then look back, “Let’s see how much I have left over.” We’re not that type of person, as you know. The day that we are, we don’t need this book. And it would make me crazy to keep track of where every dollar goes. What matters is not to go broke. This method prevents that; at least, until some unavoidable medical expense comes along: which is one reason to gradually build up a savings account.
If your income permits, you can make “savings account deposit” one of your regular monthly obligations. I haven’t managed to reach that point yet, probably because I live in New York City.
The shorter period of time you monitor yourself for, the faster you can detect when you’re going out of control. This technique was a life saver for me because I only had to think about that one number, how much have I spent today? It allowed me to stay under my maximum every single day, and to let any remainder build up in my bank account. Bigger purchases have to be paid for by extra earnings or savings, rather than running over the daily max on routine stuff. Sure, if you plan to have a blowout weekend, you can set some cash aside in advance; but you can’t do the opposite, spending next week’s cash in advance. Keeping that mentality over time provides a cushion for someone who has my particular set of problems.
It’s up to every individual person to know their own weakness. Everyone’s going to have things that are and aren’t a problem for them, mentally. It must come down to people’s hard wiring. Some people have no trouble shopping for groceries and making their own meals, because they’re extremely health conscious. As a matter of fact, when I stopped eating meat and learned to cook fish, eggs, and veggie dishes, I was amazed at how much I saved by cutting restaurant meals down to two or three a week.
To figure out where the leaks in your bucket are, keep it simple: You know what you’re most susceptible to as a consumer, because everyone knows. You don’t need to keep track of every different category. You only need to know how much disposable cash you have.
