In 2004 I was part of a computer business which was suffering from excessive financial bleeding.  The dot com bubble had affected us dramatically and we failed to make the adjustments we needed to make far enough in advance to survive.  We entered a state of financial crisis as we were spending far more than we were making, and we immediately cut our most expensive cost, labor.  In one day, I had to let 4 people know that we would no longer have the money to pay for their services.  I capped the bleeding, albeit painfully.  Unfortunately in a business, changes like this affect people’s lives who are depending upon you to provide them with an income.  It’s a very emotional process for both the business owner and the employees, however, when a business is failing, it would be irresponsible not to let the employees know in advance that things are changing.

Starbucks Is Not Invested In You

…but that doesn’t seem to make it easier to stop paying them.  You see, when we’re talking about cutting costs by spending less on things that don’t have emotions or families to support, it seems as though we have a harder time doing so because nobody is depending upon us.  Why after all would you feel obligated to tell your cup of coffee that you can no longer afford it.  Your expense goes unseen by most and you may even enter into denial about how much you’re spending every day on it.  Make your coffee at home, or cut your consumption in half if not eliminate it completely.

There’s A Hole In The Bucket Dear Liza, Dear Liza

I look at finances like a Hole in the Bucket, dear Liza. Money comes in and money goes out.  The amount of money that goes out is directly proportionate to your expectations of lifestyle and the habits you have developed, which are all subject to change according to your priorities.  In this economy, your priorities may be to cut costs and spending as much as possible to make it through.

I get a kick out of the song that we’re all familiar with from Sesame Street because one thing is overlooked.  There’s not just one hole in the bucket.  There are two holes.  One with which to fill, and one with which to drain.  Liza never thought of asking Henry one important question.  “Is the bucket draining faster than it is filling?”  If it is, fix the hole.  If it isn’t, then you might not be in as much financial trouble as you thought.

When you become comfortable with a routine, it becomes very difficult, sometimes impossible it seems, to break the pattern.  But, when you do break that pattern, it will allow you to take control of your money and follow a few simple healthy behaviors that will surely set you on the right track.

A Spending Plan

When we look at our spending in terms of percentage of income, it gives us a stronger boundary by which we can live.  If we look at our spending in terms of dollars without knowing what percent of our income we’re spending on each obligation or indulgence, we lose perspective of how much we’re hurting our financial future.  We also find ourselves saying things like, “I’ll start giving when I can afford to.”

Affording something is a matter of perspective, and prioritizing what we love to do.  One may say that they cannot afford something when in fact, they can, but they’ve misappropriated funds to something else that they believe they can afford but in fact cannot.

It’s critical that you design a set of basic rules, rules that can bend and change according to your situations, but that can be consistently applied to any income situation you are experiencing.  This builds a foundation that can be applied whether you make $10.00 per hour or $500.00 per hour.  One percent is one percent no matter what.  Over all, we need consistency in both income and spending in order to reach our life long financial goals.