Thoughts on finances and how I keep my spending in check

Thursday, September 15, 2011


This post is created upon request by the community.

It will be a long one, in part because I want to take a deep dive into my past experiences and how they affect my current attitude towards finances. I encourage any and all of you to share your experiences, advice and questions in the comments to make this more than a one-sided conversation. This community is full of smart people, many of whom are probably better with their finances then me.

This post is written to be relative to my shopping habits only and should not be thought of as a general assertion of how I manage my finances or live my life. Yes there is much more to life than shopping. This post however is about the shopping portion only.

I think it's important to discuss where I came from first. I'm going to speak mostly relative to shopping habits. I grew up in a middle-class family in Connecticut. We were comfortable for most of my life, with some struggles in my teenage years brought on by a weak economy. My parents always made an effort to make sure I had what I wanted, within reason of course. In clothing terms this meant I could usually buy one or two trendy brand-name item per season and the rest came from stores like Macy's, G. Fox, Caldors, Bradlees, Contempo Casual, 5-7-9, Rave and other 90s relics that are mostly long-dead.


SOME PERSONAL BACKGROUND
I started working at age 14 (at the local YMCA!) and held part-time jobs all through high school and college. I helped pay for my first car (a 1992 Saturn SC with pop-up headlights in cherry red!). My parents made me save part of my income for college and part I kept as my allowance. At this point I started shopping at stores like J.Crew, Nordstrom, Banana Republic, Gap, and the like. My cousins in NYC also took me on a semi-annual trip to Bloomingdales, Saks and Bergdorfs. When it was time for college, I decided against any local schools (even though they were offering scholarships in some cases) and took on large loans to attend college at Colorado State University so I could experience more of the country. I graduated with about $45,000 in loans and about $1,500 in credit card debt.

I moved back in with my parents for about 2 months after college and started working 3 months after graduating. I worked 2 jobs -- a full-time day job and a full-time night job -- to start aggressively paying down my loans. After a couple of years I found a full-time job that didn't pay as much as the 2 jobs but was enough to live on. In 2005 I had a medical issue that caused me to incur about $15,000 in expenses. To pay that off, I moved from a solo apartment to a roommate situation. I lived in Connecticut for 3 years until I'd saved up enough to move down to New York City.

In 2007 I began running up credit card debt as a result of job stress. I was working in Flatiron at the time and was spending my lunch break buying tons and tons of clothing I didn't need. (This is before I started Effortless Anthropologie.) I ran up about 20% of my annual income in debt before I realized I'd gotten out of control. Within two months I also realized I needed to leave my job for the sake of my sanity. I was able to find new employment (which is my current job, which I love) and put my cards in the freezer to stop myself from spending outside of my means. I am pretty sure I got that idea from Reading Confessions of a Shopaholic. My boyfriend was key in helping me settle down, putting me in touch with a financial planning professional, and lending moral support.

I'm still paying off my debts today. Next week I'll finish paying off my college loans which is a momentous occasion for me. My parents helped me finish off the loans with a generous contribution. I'm still working on the credit card debt though and will continue to do so for the next few years. My credit score falls into the "good" category but not the great one.

I mention all of this because my personal experiences have shaped the way I currently handle money.


CURRENT FINANCIAL BREAKDOWN
Here's how my monthly income is split:
50% goes right to rent/living expenses
20% goes to my credit card companies (this includes three store cards)
10% goes to food
8% gets saved
12% is disposable income, which means fun with friends, dates with the BF, and shopping

Any bonuses or such I get are usually saved. Not always.

My personal income includes my full time jobs and freelance jobs. It does not include the blog, which is broken down in a separate section below.

There are of course some personal choices here. I choose to live on Manhattan island because of the convenience factors. I could easily move to Brooklyn, Astoria or way uptown and reduce my living expenses by 10-15%. However I don't think I'd be happy anywhere but my current place. Since my income allows me to live here, I plan to continue here unless I'm forced to save.

I could also lower my disposable income allocation and focus on paying off my credit cards. And really that's what a smart person would do. The mental block for me really is one of entitlement. I would rather take longer to pay them down and live a lifestyle I enjoy. I know how dumb that sounds and there's really no defending it. This is embarrassing for me to admit but here goes: I always told myself that I would spend my 20s being stupid and carefree, and then settle down once I hit 30. And I guess I really meant it! I think I handle many aspects of my life well but finances are not one of them.


BLOG FINANCIAL BREAKDOWN
As you all know, I use both blog sponsorship and affiliate links to support Effortless Anthropologie. Here's how the monthly income from the blog is split:
35% is immediately set aside for taxes (unlike my full-time job, there is no option to get taxes withheld by my sponsors or affiliates)
25% is set aside for a quarterly contest (I always end up kicking in some personal money too for contests)
20% goes towards paying designers, coders and friends who help me with upkeep for the blog
10% offsets expenses like buying stock art, templates or creative elements
10% is fun money that I add to my personal disposable income pool. Consider this my blog 'salary' if you like.

I know that there are a lot of bloggers out there who don't use sponsorship or affiliate links. God bless them. For the amount of time I spend on this blog (which is about 35 hours a week, except during the summer when I ratchet it down to about 15-20 hours) I want to be compensated. If you feel differently we'll just have to agree to disagree. I pay a higher tax rate on everything associated with the blog because it's considered part of a different taxable income bracket.


MY MONTHLY BUDGET
So, how do I stay on my disposable income budget? Again as a reminder that's 12% of my monthly job income (let's call it work here forward) and 10% of my blog income, which are not equal in proportion.

The biggest change I made was creating a separate spending checking account for myself with a debit card attached. Each paycheck from work I have 12% of the post-tax income moved to this account. Then I deposit 10% of my monthly blog income there. The great thing about this tactic is that once the account is empty, my spending for the month is done. The good news is that most months I don't come close to emptying the account. And when I do empty it, I don't feel good about it.

For me, the separate account works because it is something concrete. It would be too easy to spend if all my money was together. I have found keeping things separated triggers a mental strength in me to be able to say "no" as needed.

In the average month, I spend about 1/2 my disposable income. But I haven't always been able to follow these guidelines. For example, last December as many stores ran incredible sales I found myself going over my monthly budget by nearly 200%. I wasn't in any overall financial danger but it was the kind of spree that was unhealthy. I ended up returning about half of what I bought.

Another temptation is limited run sales. I find myself drawn in when stores have 40% off sales, or when an item I want gets included in a markdown. Again, I've found the disposable income account has really helped me manage these impulses. Shopping makes me happy, I've learned, but spending really does not. I just like trying things on and making mental outfits and imagining a life I will never live.

There are many variations of the disposable income separate account. For example, I know many people use mint.com to diligently track their finances. I'm too lazy for this. Others use methods like a joint account with their spouse or partner, with a side personal account from which they buy things like clothing. My boyfriend and I do not combine finances.


HOW TO TURN IT OFF WHEN YOU JUST FEEL LIKE BUYING
Ever have that day when all you want to do is spend, spend, spend? How do you make the cookie monster go away? For me, it's a few things.

1. I stop reading blogs/visiting store websites.
I want you here! Don't think any other way. But if you feel like your spending is getting out of hand, I respectfully suggest you take a break from these alluring blogs and the message of "want, want, want!" And while yes you may miss the most perfect pencil skirt or that dress everyone will talk about for years to come, if your money is tight it's a good idea to take a break from your favorite store and its website. I'd go a step further and suggest not looking at any store website. You can't want what you don't see.

2. I make a list of everything I've bought in the past 3 months.
This helps me to realize that: a) I might not even have worn some of those items yet, so do I really need to be buying more? and b) wow I bought a lot of crap I didn't need recently or c) I am getting way out of control.

My lifestyle is such that being on-trend helps me advance in my career. I am constantly updating my wardrobe. So for me buying a lot isn't necessarily a warning sign. It's more buying stuff I'll never wear; buying too much of the same thing (20 white tees anyone?); or not having hangers in my closet to put stuff on.

Which brings me to one of my rules: I never buy more clothing than I have hangers for. And I limit myself to a specific number of hangers. Over the past year or so I've lowered my total number of hangers.

3. I refresh my wardrobe with the help of my friends.
I am very lucky to have an awesome friend, J, who is the same size and almost the same shape as me. This helps in two ways: first, when we both want an item one of us can buy it instead of both and second it helps expand our closets without spending twice the money. It calls for a lot of trust and you have to be prepared to lose an item. Once I borrowed a beautiful yellow dress from J and ruined it with red wine. She was understandably upset but it wasn't a friendship breaker. To make it up to her, I bought a similar dress of the same value to replace the one I'd ruined. Likewise, she borrowed one of my favorite band tees to go to a concert. The shirt ended up getting ripped while she was in the general admission area. I still miss that tee but understood it happens. And like I'd done J got me an item of similar value to replace it.

4. I use the common sense argument.
Sometimes you just have to be frank with yourself. And if you can't be honest with yourself get someone else to help you. Do I really need this? Will my life be better for having this? Etc. I'm being overdramatic here but for a reason: impulses are just that. Short-term, powerful things that can lead us to mistakes and regrets if we're not careful. When I see a dress on another blogger that looks awesome, I probably want it. But is it awesome because they make it look great, or is it awesome because it would look good on me? Maybe they look amazing in it and it will look like crap on me.


STAYING ON BUDGET IN THE STORE/ON THE WEBSITE
Sometimes I'll try on items for the blog that I'd never touch otherwise. Inevitably I like some of those items and it can mess with my budget. It's tempting to bring something home that looks good on you! To avoid this, before every reviews trip I'll have a list of specific items I'm looking for. (Often that list is "nothing" but sometimes I'm looking for an item.) I do the same thing on a seasonal basis -- after rotating out the items I no longer want through sales or donations, I make a list of items to replenish my closet and stick to it. Mostly. If the item I tried on and liked isn't on the list, I don't buy it. It gets added to my wishlist instead to wait for sale.

Which is another tip I have: if you're afraid of impulse shopping promise yourself to wishlist everything instead. Commit to buying nothing. That way once the impulse has calmed down you can decide whether you really need/want the item or not.


THE BEST ADVICE
Let's end my part on this: make yourself a realistic budget and stick to it. Commit to spending the money you have and not creating debt for yourself. By the time I pay off my credit cards, I will have paid back almost 300% of what I borrowed. It's dumb!

Don't get caught up in the hype of popular items. I can't tell you how many times I see the "it" item from 6 months ago listed on the Trade Market because people realize it doesn't fit in with their style. No matter how awesome a dress is today I promise you there will be an equally alluring dress in the future.

One final note: it is very hard to share this much information. Everyone's circumstances are different and I hope we can be respectful of each other during this discussion.