Over the weekend, I went down to a friends house to hang out with a couple of my guy friends. While I was there another friend asked me for some tips on calling and getting one of his credit card interest rates reduced. He opened a credit card statement he had brought and showed me the balance. As my eyes drifted down the page I saw a frightening sight…
Yikes… Luckily, this is one of the only remaining debts my friend has. Not so luckily, the balance he has on it would take him well over a year of focused action to completely knock out. We discussed how he should approach calling customer service to get his interest rate lowered. I pointed out he was the perfect customer! He had missed a payment or two a while back, but had since gotten current and had consistently been paying the minimum payments for way too long at that rate. We talked about leveraging his long customer history with his recent string of on-time payments to negotiate a rate decrease. If all else failed we would threaten to transfer the balance and close the account. Customer Retention is one of the best departments in the whole company, especially when you’re as good as a customer as my friend.
After talking over some of his options I asked him, “Do you realize that, until we get this fixed, every purchase you make is actually costing you 25% more?”
Friend: “I guess… you mean because I could use it to pay down the card… I never really thought of it that way…”
To be completely honest, neither had I. I pondered the concept for a moment and shoved it into the back of my brain as the three of us jumped into the car to go find something to eat. As we drove through town we came upon the very difficult choice every vegetarian has to occasionally make… Subway or Taco Bell?
My friend chimed in…
Friend: “I’m definitely going to Subway… You just can’t beat the $5 dollar footlongs!”
… I tried to fight the urge, but I couldn’t resist…
Baker: “More like $6.25… $6.25…. $6.25 Footloooooooooong!”
…without missing a beat my friend replied…
Friend: “You know, you should really change your blog to www.ManVsFun.com!”
Ouch… Score – My Friend 1 – Baker 0
Although we were obviously joking back and forth, my friend does bring up a great point about having some balance. Although this technique can certainly help keep you on track by slowing impulsive purchases, I’d be a moron to suggest you should view every single daily purchase through a microscope. What’s the point of being debt-free if you are miserable and alone?
Here’s the best of both worlds. In your budget, include categories that allow you to have a little breathing room. Make sure you budget at least some for eating out, some for “blow money”, and even some to buy your spouse flowers, etc… As long as you plan it out “on paper, on purpose, at the beginning of the month”, I wouldn’t view it as a frivolous purchase (at least for that month).
However, if something’s not in your budget, go ahead and pull out all the stops to keep yourself on track. I’m all for leveraging your highest interest rate debt to remind yourself of the real cost of spending outside your written goals! Look, I know the math is a little fuzzy (i.e. the % assumes it would take you exactly one year to pay off your highest interest rate debt), but that’s not really the point anyway. You could also consider Sleeving Your Credit/Debit Cards to constantly remind you of your long-term financial goals before pulling the trigger!
While none of these suggestions could be considered “life-changing” personal finance advice, I know from my own experience that every little bit counts.
For example, I really, really want a Kindle 2 (no I’m not going to link it… what are you trying to do to me?). Most days, the urge is rather subdued, but every time I see a video or article on one I start to drift. I know, however, that the words Baker, Kindle, and Budget don’t really get along right now. In order to impulsively make this purchase one day, I would have to reach into my wallet and pull out my debit card. I would have to remove my debit card from the sleeve that says WARNING: USING THIS CARD MAY BE HAZARDOUS TO YOUR FINANCIAL HEALTH! I would then not only have to justify the $359 price tag, but I would recognize that I could be using that money to pay down our highest interest student loan at just under 10%. On a good day I’m not willing to pay $359… Even on a bad day, $395 hurts a lot more!
In summary, the War on Debt is a long and hard one. When you are sitting down to do your budget be honest by giving yourself some breathing room, especially in categories with which you struggle. After you agree on a budget though, it’s time to utilize every weapon in your arsenal for staying on track. Put as many hurdles between yourself and frivolous spending as you can!
What tips and tricks do you use to help minimize spending outside of the budget? After reading this post are you convinced a random child could make more sense than me? Join in on the discussion by commenting below!