Alright kids, let’s all get comfortable on the story rug because it’s story time. Ready? Once upon a time there was a single Mom who worked very hard to provide a good life for her daughter. Each day, Mom would go to work then come home to her daughter then work more after her daughter was fast asleep in her bed. Sometimes though, Mom wouldn’t work after the child was asleep. Sometimes? She would shop. Oh how she would shop! She shopped for clothes for both her and her daughter. She shopped for pretty handbags. She shopped for kitchen gadgets and electronic whatsits until her heart was content. She had envelopes and boxes and tissue paper galore fill her home and her recycling bin. She was happy and loved all of her new found goodies. One day though, as our shop happy single Mom went to pay her bills, she noticed something that made her heart stop. Her bank account didn’t have enough money to cover her bills. In fact? She had no money in it at all! Even worse? It had negative money! $116.00 negative to be exact! Needless to say, our single Mom knew her family budget had failed and that she had to fix it.
I wish I could say that the little story above was pure fiction, but unfortunately it isn’t. I did wake up one morning back in 2011 with a checking account that was overdrawn by $116.00 and yes, it was caused by my excessive shopping. Have you ever had something like that happen to you? While it may not have been caused by shopping, I’m positive that you’ve had that heart stopping moment where you found that you had no money. It is incredibly easy to do if you’re not paying enough attention to your family budget and to your bank accounts. Most of our lives can be extremely hectic which makes it incredibly easy to do.
Family Budget: Why I Wait 3 Days Before Buying Anything
I could have done several things to make myself shop less. I could have put a ban on the consignment sites that I love or stopped shopping all together. I could have only allowed myself one purchase a week. I knew however, that doing those things wouldn’t work because at the time, I was boredom shopping and hadn’t even realized that I was shopping until shiny baubles showed up at my house. I could have went to a cash only budget (Six Dollar Family), but again, I knew that was unlikely to work since I actually spend more when I’m going cash only. I could have put parental controls on my computer and blocked the sites I shopped on, but at the time I made my living as a deal blogger so that wasn’t an option either. What I was left with were very few obvious options.
Obvious being the keyword and unfortunately I didn’t see too many obvious options. When I looked at the not quite so obvious reasons though, I found one that not only worked, but is still in place in my home today as a rule for purchasing any item more than $20.00. I will honestly tell you that I stumbled upon it literally by accident. I opened a new savings account to start because that $116.00 overdraft taught me the very hard (and expensive) lesson that I needed to get my finances under control and to do that, I needed to keep my own money out of my own hands as much as possible.
Enter this new savings account. I connected it to my checking account as an external account and made sure that I did not have a debit card for it. Having a debit card would have made it far too easy for me to spend. If I needed money for an emergency, I was always able to go down to the bank and withdraw it. The basic idea was that I would pay my bills due out of each check the day that I got paid and immediately send any extra money to my external savings account. In other words, grocery shopping got done the day that I got paid. Car gassed up? Done the day that I got paid. School expenses for Emma? Paid the day that I got paid. At the end of that payday, I would transfer all except for $200.00 into my savings account and then forget about it. The $200 was what I left in my checking account for incidentals that I might have forgotten about or small pop up expenses that I didn’t know were coming such as a flat tire on the car.
What I discovered was this: I could very quickly save money. In fact, I banked $8400.00 in only 6 weeks time while keeping my bills paid on time and my child fed and well taken care of. In fact, I had also started paying down my debt too and still saved $8400.00.
How I recovered from a spending habit
Then came the day when I needed to replace the flooring in my rental home. At the time, I had a baby puppy who, while teething, had eaten half of my carpet. Since it was my dog, I felt it was my responsibility to pay for it. Instead of carpet, my landlord had me put in laminate and we called it good. Off I went to my savings account and since this was an actual repair that needed done, I transferred the money from this external savings account to my checking account. It would take 3 days to deposit into that account and I realized something:
I could make that work for me. I could use it to force myself to stop wasting so much money.
I had unknowingly, put a waiting period in place for myself when it came to spending. Since I kept so little in my checking, anytime I wanted to spend, I needed to pull from savings. Since it was an external account, I had to wait three days. I can tell you there were many times where I withdrew money from savings, but over the course of that 3 day waiting period decided that I didn’t really need whatever item I had been planning to buy. There were plenty of times where the money would deposit in my checking account and I would immediately send it right back to that savings account. I’m 100% positive that my bank thought I was going insane at times, but considering that I was more financially stable than I had ever been.
Aside from having a family budget that works for your family and knowing how to calculate your net worth, putting a waiting period in place for a major purchase, can be one of the most important things you can do financially. Yes, I said major purchase, but keep in mind that the amount of money that makes a”major purchase” will be defined by your family and it could be vastly differently than what my amount is. For my own budget, anything that isn’t considered a necessity and costs more than $20.00 requires that 3 day waiting period.
By all means, do not pay your bills late because of a waiting period. Don’t hold off going to the grocery store. Don’t hold off paying a medical expense or a much needed car repair. Worry about how to save money on groceries and learning how to stop buying and make things to save money. Worry about how to cut your household expenses without causing yourself to be late on your bills. Keep the waiting period to only those things that you are spending (and wasting) extra money on.
When you set your waiting period, make sure that you keep it reasonable too. Initially, I set mine at 3 days because that was the time it would take for the money to transfer from my savings account to my checking. Over the years, I have kept it at 3 days because that is what works for me. For your family though it might be just one day, it might be 2, it might even be a full week. Just be sure that you do what works for your family and only your family.
Your definition of major purchase might be different than ours too. I set mine low at $20 because I don’t waste money on big purchases. Instead, my spending habits means that I nickel and dime my budget to death. It wouldn’t do me any good to set my spending limit at $500.00. I’d still be buying small things that add up very quickly. I’d still have the ability to nickel and dime myself and wouldn’t save any money.
The other thing you will need, if you’re going to do things the way that I did, is an external savings account. If you’re not sure what I mean by that, it is a savings account that is not at the same bank as your checking account. The reason for this is that waiting period. When you use the same bank that you have your checking account with, transfers are usually instant. This means that you would have the ability to flip money back and forth with no waiting and for someone like me, who was re-teaching myself not to spend, that could have been disastrous. You can do it at the same bank if you want, but I can guarantee that you will stand a better chance of succeeding if you use an external account. I personally use Discover Bank as our external savings account. It is a high yield savings account which means it earns more interest than a regular one. Another option would be to put your money into a money market account if you were looking to leave it invested for a while.
This whole thing might sound silly to you, but we live in a society that favors instant gratification for things. We know what we want and we want it now. By putting a waiting period in place for your spending, you are teaching yourself and your family that sometimes, we have to wait. That, my friends, is a lesson that we all need to learn.