8 Habits for Reclaiming Your Finances and Your Life

I used to want everything that I could rest my eyes on. I chased after the sports car, the stereo, the big TV, the ultimate computer, and the spacious apartment in the city. I saw myself as successful and ambitious when I managed to acquire these things, but they never stopped me from wanting more. I battled anxiety from constantly expanding expectations of myself along with the stress of stretching my money as far as it could go without any room for error. Through it all, I did not see it as a bad way to live; I accepted myself as a driven perfectionist, classically tormented by the crux of symbolic martyrdom. In short, I was an idiot. I purposefully disregarded common sense because I felt that it made me look like a misunderstood genius. All it took was losing the job I hated in the first place to shove reality in my face.

In the months following my firing, I depleted my immediate savings and my retirement plan. As I struggled to downsize my life before all of my money ran out, I gradually conditioned myself to do without all the extra goodies that I been accustomed to. Before long, the nature of my previous ambitions revealed itself to me. The hardship that my shallowness was causing helped me realize what my priorities should have been. Then, just as I was about to completely hit the bottom of my finances, I was offered my old job back. While my slide down the muddy slope of vanity was halted by this sudden lucky turn, my view of money had already changed considerably. As I got back on my feet, I developed a few habits to better take care of the money that I earned. To my surprise, the daunting inward look at my spending practices has not only resulted in a more secure future for myself, but it has also contributed to a much healthier self image. These are the practices I used to escape 2009 with not only more money in my pocket than ever before, but also more confidence and maturity:

1) Use a tool to monitor your income and spending closely.
The first step to getting your finances back on track is to take stock of everything that is going on with your money. I've found that the easiest and most honest way to do this is through Mint.com. It is a site which aggregates all of your financial account information into one interface and presents you with easy to understand numbers and graphs. You'll be able to see in plain visual language that you spent more than you earned last month and it will motivate you to be vigilant in preventing this in the future. Numbers don't lie and if you are really interested in improving your spending practices, this step is imperative in understanding where you are and where you need to be.

Before I started using Mint.com, I had simply been doing the equivalent of dropping stones in a well to measure the water level. Frankly, I was afraid that if I looked too closely, I couldn't cope with the truth. Like every problem, a hole in your pocket doesn't go away if you pretend it isn't there. The tension of living paycheck to paycheck was like frantically laying rail road tracks before a speeding steam engine. As any old-timer will tell you: stress can kill. I resolved to finally take responsibility for the leaks in my spending by acknowledging them. The rest was easy. Once you see in plain sight all the things that detract from your wealth, I promise that you will act quickly to shore them up.

2) Set budgets for your extra expenses.
This sounds elementary, but its simplicity is the root of its deception. Many people figure that a little treat here and there won't hurt their budget. They also figure that if they go over budget by a few dollars, it won't have much of an impact in the long run. Once in a while, this is not that big of a problem, but there are two aspects of human nature that exacerbate these allowances. First, we always conveniently forget about the last time we allowed ourselves a little reprieve, even if it was the previous afternoon. This makes us prone to repeating our mistake over and over because we don't regard it as a mistake. Second, we gradually desensitize ourselves to the budgets we intentionally betray. The first month could be a couple bucks over budget, but since that didn't break the bank, we figure we can push it even further the next month. All of this must stop.

I have measured out all of my expenses, including the ones that are necessary every month (rent, mobile and internet). About three times a week, I check my spending in various categories: entertainment, food, purchased goods, etc. If I am beyond the point I should be for the month (for instance, on the 15th of the month, you should be below half of the budget), then I set a hard mental block to remind myself that I cannot spend any more money for those things until next month. This might sound like I'm purposefully torturing myself, but the less you consume, the more you realize how little consumption is necessary. More on that later.

3) Plan your shopping trips.
The key to staying within your budget is to plan your shopping trips; do not just stumble into a store because the window display was calling to you. Measure your spending at home before you swipe your card. Beside emergency expenses, impulse buying is the number one destroyer of financial discipline. Now, when I use the word discipline, I don't want you to imagine leather whips and dog collars. Rather, think of a skilled martial artist who understands that the key to his success is simplicity and self-control. If keeping up with the latest fashion is one of the pillars of your existence, don't feel like these tips can never work for you. Instead, take this as an opportunity to refine your ritual of shopping. Then, the next time someone compliments you on your new top, you can be proud of your purchase instead of feeling guilty about the financial burden it represents.

When it comes to fashion, I am about as hip as a Hasid. That doesn't mean that I don't like nice clothes. Before I go shopping, I measure out what I need (2 shirts, 3 pairs of pants, one packet of underwear, no single item to exceed $60, total budget of $200) and I stick to it. So far, I've been very proud of the results: I make purchases that I am more confident with and my closet represents me, not some habit. Taking control of your finances is not about living like a hobo on middle class wages, it is about understanding the role of materialism in your life and assigning it an appropriate priority.

4) Put aside 10-20% of your income in savings or investments.
When my parents first told me that I should be saving 20% of my paycheck, I defiantly proclaimed that I would have to shutter myself in my apartment, never go out and eat rice three times a day. I denounced their advice, complaining that I would have to give up my youth if I ever wanted to adapt to this so-called responsible living. Years after my tantrum, I currently save 40% of my paycheck every month. Did I mention that I am also a lot happier and more secure than I've ever been? There is no real secret, I've just built my budget around this saving strategy. In fact, aside from the standard monthly expenses that I incur as a function of living, my 40% is the only untouchable budget that I have. 10 or 20% should not be a problem for the average person.

What is there to do with all this extra money? Most people will tell you to invest it, to "make your money work for you," or to put it away for retirement. This concept may be a bit too abstract or risky for some people, as it is with me, so I'll tell you what I do with my extra money. In this volatile economy, my savings account represents freedom. In a time when people are scared to lose their job, they put up with shitty bosses, limited freedoms and insulting budget cuts. These savings are my insurance against that. After 6 months of working at my current job, I can be laid off tomorrow and still survive for another half a year before I absolutely have to find another. Or, if I stay another year at this job, I'll have enough saved up to start my own business, which I have been looking to do for 6 years. This saved up money is peace-of-mind, a de-stresser. Investments are risky, but this is my rock.

5) Do not buy things you don't really need.
This sounds like a no-brainer, but I intend to give a couple good examples. Let's begin with your TV. You don't need it. You also don't need the cable service that brings you all of your favorite shows. I used to think that I couldn't live without it, but I've managed to do just that for the last 6 months. That's right; half a year without any television. How do I get entertainment without it? I have Netflix, Hulu and, if all else fails, piracy. It doesn't kill me to watch Dexter the day after it airs. I only pay for internet service from my cable company now. Other things you simply don't need are subscriptions, a telephone land line (I just use my cell phone since I'm only home in the evenings and weekends anyways), CD's, DVD's, books, an extra car, or basically anything you find yourself not touching for months at a time. You may be keeping it around in case you need it, but this type of precautionary hoarding is just rampant consumerism designed to hinder your resourcefulness. Live with less and learn to make do.

Be aware of advertising, store displays and sales; understand what they are trying to do. Stores naturally value your money over their inventory, and they try to use your emotions to get you to agree with this. The key is to resist unplanned purchases for an hour, or even a day, to let your emotions peek over a proposed purchase and slowly decline. If you still feel like buying something after fully considering it without an emotional imperative, there must be a really good justification for it. Otherwise, I'm sure you can survive without it.

6) Do not use credit cards.
Credit cards are very tempting these days. Free vacations, chances to win prizes every time you spend, airline miles; all promotions designed to get you to essentially pay more than you have to for everything you buy. Beyond the interest that you pay, you are changing the dynamic of your expenditures. Debt is a very powerful device that can ravage your sense of security. It is best to avoid it completely. The simplest and least taxing way to pay for anything is to save up for it and buy it outright. You can even save money on some items if you pay entirely in cash. It may sound tacky to toss out the phrase, "debt is slavery," but I have stared into the abyss, and it stared back. Living with someone who constantly dragged an anchor of debt around with them has been revelatory; they could not do anything with their life that they wanted to because their debt required them to constantly make money in order to pay their bills. It was torture and I would not recommend it to anyone.

What good is credit rating anyways? It is only useful to obtain more credit. There will inevitably be times when you want to purchase things that are impossible to save up for and a decent credit rating will be necessary. This is where big ticket items come into play. My bed and TV (when I had it) were purchased using store financing. My two cars from when I lived in California were also purchased through the financing department. Paying off these types of debts has two advantages over credit cards and bank loans. First, you know how much you owe every month. This can be factored into your budget with ease. Second, you can often purchase items for no interest at all. This allows you to increase your credit rating in a disciplined manner without exposing yourself to scalping banks and credit agencies who can raise your rates on a whim. Still, the pressure to keep room in your budget for an extended period of time in order to pay off these purchases is subtly oppressive.

7) Spend your extra money on experiences, not things.
The most important lesson I've learned about self image is that the things you buy do not make you more interesting, cultured or attractive. Rather, it is the extraordinary experiences you have, the ones you can turn into stories and battle scars, that round you out. For years, I felt hollow, wondering why with all of my "success" I was still so socially inept. It is only after I've turned the corner that I now see that what was doing wrong. It was not a concerted effort that got me to where I am, but I know exactly how I got here: I stopped nesting and I started flying. I traveled to Europe, I took up hobbies, I went skydiving, I learned about the world around me. I feel like a more interesting person and it shows in the quality of interactions I have these days. Now, what does any of this have to do with gaining control of your finances?

Things get old. They break or become obsolete. You'll waste money maintaining, upgrading or replacing them, or you'll simply buy them, use them for a short amount of time, and forget them. They become part of a collection with no practical use except to remind you of the money you once had in your pocket that you no longer do. Experiences, on the other hand, live forever as valuable, fulfilling, character-building memories. On a more practical plane, you often plan these experiences; whether it is a ticket to a concert or a trip to the Caribbean. The planning process allows you to budget for your experiences and space them out enough to where they do not become a burden. In turn, living a more exciting life makes the process of saving money non-tedious. I used to feel anxious when I would spend all weekend doing nothing, as if life were passing me by. Now I enjoy those weekends as much as my busy ones. The habit of saving money has turned relaxing into a productive activity instead of a slothful one.

8) Never budget for the most you can afford, leave yourself room for error.
When they calculate a mortgage or a loan, lenders will take your total monthly income and come up with a number that represents the most you can borrow. That will determine your loan amount and pay schedule. Because this calculation is so simple, not many people stop to consider how dangerous this little dance really is. All you normally see is a hassle-free negotiation and that nice new home or car waiting for you after it is over. The detail to understand about this situation is that your financial comfort is never taken into consideration. You are going to end up with the biggest loan possible, making your payment obligation a stressful burden for the lifetime of your debt. When you combine this with the unfortunate human planning ability (we suck at it), it isn't hard to see why so many people are filing for bankruptcy these days. All it takes is one little slip-up and you can find yourself deep in debt.

When you plan your expenses, include overhead for unforeseen events. Make sure that you can easily absorb the cost of a new commitment because you cannot tell what surprises the future holds for you. This is probably the hardest habit to pick up because only you can be honest with yourself. Nobody can tell the future, not even nifty finance software, so it is up to you to tell yourself what the odds are that you could lose your job, break up with your partner, get injured or have a kid; anything that will impact your ability to pay for the things you are trying to buy. It is difficult to resist claiming the best that your money can get you, but if you've ever been stressed about being able to make a single payment, it should remind you to use temperance the next time you take the plunge.