It’s no surprise to read in today’s Times that New York City’s economy has been hit hard by recession-reduced subsidy checks from parents to 20-somethings.
Parents whose money helped fuel one of the city’s most radical gentrifications in recent years have stopped buying their children new luxury condos, subsidizing rents and providing cash to spend at Bedford Avenue’s boutiques and coffee houses.
Like most of my friends, I survived on parental gifts and loans for my first six years living in New York, as a student and then a Jack-of-all-digital-media.
The single most helpful idea I came up with—instead of monthly budgeting, which I found useless—was thinking about my cash flow one day at a time. It’s the only way I couldn’t deceive myself.
First, I had to be realistic about the income I could count on, as a minimum every month. Not long ago, that was $3,000 before taxes—allowance included. 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. 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 you can only buy something like a pair of jeans or some CDs that take you over that cash limit, or go on a $300 road trip, after you have previously accumulated the money by earning more than your base or spending less than those daily allotments. 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.
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.
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. 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.
