Copper Beech Advisors Blog

Spending Out of Control? Build a Sandbox...

Posted by Timothy Caban on Jun 3, 2015 1:09:00 PM

I Make a Good Income

Do you make a good income but feel like your spending is out of control? Are you surprised that despite having a good job, you consistently feel like you're spending more than what's available? 

20150603_Rat_Wheel_ImageFirst, let's identify one of the problems.  Credit Cards.  Yes, in today's world of instantaneous electronic payments and impulse buying at the click of a smartphone, credit cards are a primary reason why your spending may be out of control.  But why?

Credit Cards

Credit cards are where the rubber doesn't meet the road.  That is because your credit card limit is typically higher than whatever your monthly income is.  While you may have a general idea of how much you think you can spend, it can be surprising how quickly the $100 or $200 purchases add up to thousands.  If you have a spouse who uses the same card, multiply times two.  Put two people spending indepdently into the mix and it's not hard to see how spending can grow, seemingly on it's own. 

Is there a better way?  Thankfully the answer is YES.  You establish a set amount that you can spend before hand and then spend until the money runs out and no more.  Easier said than done, right?  Here is how you do it.

 This approach is based on the concept called "Pay Yourself First".  What is means is that pay for your needs and then spend what's left on your wants.  You'll need three accounts and some debit cards.  If you do it right, you can put away your credit cards or freeze them in a block of ice with a sign that says "Break Only In Case of Emergency!"

Step 1: Income

Start with your after tax paycheck.  Total them up for the month and this is your income.  This is how most people operate on a day to day basis with after-tax money.  If you get annual bonuses or don't know if you'll have a tax bill due on April 15th, you'll need to account for those but the monthly paycheck is a good start.

Step 2: Fixed Expenses

These are all of the monthly expenses that you are obligated to pay.  If you did noting for a month, someone would send you a bill or give you a call.  These are paid from your normal checking account and include auto bill pay arrangements   For most people this is your regular checking account.  Leave it as is.  Then total up all bills that you pay every month.  These are your fixed expenses.  Subtract them from your income.

Step 3: Big Bill Expenses

These are things you know you will have to pay for at some point during the year, but they don't occur monthly.  These are typically things like summer vacations and holiday gifts.  This can also include savings or spending goals and even estimated tax payments.  Write them down as annual numbers.  Then total them up and divide by 12.  Take this number and transfer it to a separate checking or savings account.  When the bill comes due, pay it out of this account.  This is your Big Bill account.  Subtract the monthly number from your income.

Step 4: Your Sandbox!

At this point, you've taken your montly income and subtracted out your obligations.  Now you can spend what's left!  But wait.  How can you do this without going over the limit?  Once you've subtracted out your Fixed Expenses and Big Bill expenses, you will be left with a number, for example, say it's $2,000.  Divide this by 4 and transfer $500 per week into a separate checking account.  Get a debit card for this account and get one for your spouse as well if you're married.  Then spend this $500 over the course of the week.  When it's done, stop spending.  Next week, transfer a new $500 into this account and start the process over. This is your Sandbox. 

You can spend from this account on whatever you want, but it should include things like gas and groceries that you have control over.  You can also have confidence that as long as you stay within the limit, you are living with your means.  The actual dollar amount doesn't matter, nor does your income.  It could be $500 per week or $5,000 per week and the process works the same.


Don't over complicate things.  The goal is for the above plan to fit onto one sheet of paper where you can take stock of your financial life.  Then ask yourself if your money is being spent on the things or people who are most important to you.  If the answer is no, then change it!  Having the ability to know where you stand and make changes if you want to is the definition of Taking Conrol of Your Spending.  If it all sounds good, but you don't have the time or the inclination to do it, then give us a call. We'll get you on the right road.


Topics: Spending Control, Cash Flow