Rules of money engagement
November 4, 2009
The guest post on Money Tips from Poker at Bargaineering gave me a different perspective on the conversation we’re having at Fabulously Broke about personal spending limits.
As a once and former overachieving student, I like rules. Not because they’re limiting and I like to obey, but because they offer a benchmark to measure performance and the opportunity to go you one better, much like the Stretch goal is to the SMART goal. You’ve got to set the original goal first before you can beat it. [Note: I like my rules best. Who doesn’t?]
That’s why I kept moving my savings goals up as soon as I reached them – it’s boring not to have something to reach for. That’s not to say my rules don’t know how to limbo, they totally do. And have. And probably will again. It’s ok, as long as I don’t completely shatter the major ones.
When talking about the upper spending limits we set and why, it seems we all have a personal comfort level up to which we can spend. Spend more than that and we’re big squirmy excuse-making babies trying to justify the price tags. Or maybe that’s just me ……
But I don’t know anyone who has a mathematical reason for why this can cost up to $100, but that can only cost $15. The general levels rise and fall according to the feeling that one set of pricing is ok and the other is not, but why not set rules with a basis in fact? Mathematical rules? Ones that are rational? I’m talking about the bankroll management from the article.
I love the idea of setting your levels of spending by multiples of your available cash. In the article, the example is between 30-50 multiples of the bankroll. I’d like to steal that formula as is, but it doesn’t quite work out because my expense budget is vastly smaller than my entire bankroll. I’m protective of my savings, the multiple would be something insane like 300.
In our cases, that formula could translate into a percentage of the clothing budget. If you’re planning to save $100/month for clothing, perhaps each season gets 25%, or a weighted percentage because coats on sale tend to cost much more than bathing suits on sale. By a ratio of 5 to 1, in fact. If I were doing this, Winter would get 40%, and the other 3 seasons get 20%. That’s not precisely fair, but it’s probably more true to shopping reality than people realize. Breaking that down:
Winter: $480
Spring: $240
Summer: $240
Fall: $240
Right off the bat that tells you not to spend $400 before tax on a winter coat unless that’s the only thing you’re going to buy.
Of course, seasonality is only one way to break that down. You could just take that whole annual budget of $1200 and allocate 80% for staples like jeans, daily wear shoes, accessories, etc.; 20% for specialty items.
Truthfully much of this is hypothetical for me because I don’t yet have a clothing budget. I’m definitely still just saying “$100 is too much for jeans, I’ll pay up to $40 for them” and “No summer dress can cost more than $20.” As soon as my budget changes, though, I think it’d be great to implement a set of rational rules that I didn’t just make up as I encounter sales.
I fond it way more frugal to have a floor on clothing than a ceiling. With a few notable exceptions (mostly jeans, T-shirts, and the like), all of which I buy for 75 cents – $3.00 at the thrift store, anything I buy that costs less than about $30 for shirts and $75 for pants and dresses barely lasts the season and looks ugly after the first few washings. I’d rather buy more expensive stuff a few pieces at a time and wear it for years than a ton of cheap stuff that looks bad on me and gets donated in a few months. But, of course, I like my rules best too:)
OH!
That’s awesome. I never even thought about that.
I should review my purchases at the end of this year, and allocate accordingly to a set of rules instead of evaluating on the spot with 50% off signs staring at me
I don’t have a budget for each season, but I would say I’m definitely more of a sucker for winter clothing. It’s more flattering! 🙂
Bonnie
Wait, we’re supposed to stick to our rules?! Ugh, I knew I was missing something!
But seriously, I think however you slice it, rules are necessary. Even if you don’t always end up living by them — this week with Tim and I, for instance, was a bit of a reversal on our ability to buy only absolute necessities.
I do think, though, that my rules could use some real world tweaking… once I have the money to tweak with. Like you, I just have these random price ceilings. I don’t really know where they came from, just that it’s hard to get around them. Perhaps some standardization will be in order, once we get closer to ridding ourselves of some of this debt.
Lady, you are too smart 😛 but perhaps a tad too organised for me. I tend to operate on heart rather than head. I like Lost Goat’s comment on setting a floor – I tend to be dazzled by big discounts even if it’s due to low quality.
The Lost Goat & eemusings: You both have a very good point about floor prices … I still struggle with that quality v. quantity v. low price debate with just about every purchase.
FB: Pretty much the scenario I had in mind 😉
Bonnie: Ditto! Winter coats are a terrible weakness of mine. As are formal dresses that I have no reason to wear…
Abigail: Well, HAVE rules, anyway. Sticking to them (or not) is mostly party line. 😉
I’d love to see what you decide to set for your rules when you do work on them.