Commandments of a Cheapskate 6

There is a scene in the fifth season of the political drama The West Wing where US president Jed Bartlet meets with his core staff to discuss the slowdown in the economy.

This follows after press secretary CJ Cregg had to sidestep journalists’ questions about the economy heading for recession.

“Sir,” she tells the president, “I’m worried that at some point avoidance starts to look like maybe we just haven’t noticed. We run the risk of appearing out of touch, like one of those presidents who doesn’t know the price of milk.

“Sir, do you know the price of milk?”

“Not precisely,” Bartlet admits.

“Neither do I. Do any of us?” Cregg asks.

Silence dawns on the room.

“Okay, let’s get on coming up with a language plan for talking more realistically about the economy,” the president says.

The subtext is clear. Here are some of the smartest people in the world’s largest economy, setting policy and making decisions impacting millions of people, but they don’t know the price of milk. (At least in real-life the US president seems to be well acquainted with the local milk people.)

But what has that got to do with the price of eggs, you ask? This is a personal finance column after all?

Besides the fact that investors aren’t exactly falling over their feet to subscribe to my Inge bunds, government accounts are not that different from a household budget. If you spend more than you earn, and use debt to finance the difference, a “language plan” might fool your neighbour, but it won’t bluff the ratings agencies (i.e. your wife). Managing your finances in a sensible way starts with knowing exactly what the actual numbers look like: your income, what you really pay for goods and services and your debt situation. Of course, vegan readers in particular need to know the price of eggs and milk, since this would be future savings in their book, albeit at the present cost of gastronomic happiness.

The McKinsey Maxim – what you can measure you can manage – is often cited in management circles to emphasise the importance of having quantifiable goals and tracking progress along the way to measure success.

While the mantra has some limitations (apparently there was a typo on a memo to a state-owned enterprise, and it was mistakenly changed to “what you can’t measure you can damage”) it is a valuable principle, particularly when it comes to financial planning.

Unfortunately, a “measured” approach to finances is not something that comes naturally to most people. Carefully logging all spending to my mind is not only the money equivalent of a kale chips diet, it also creates the possibility that your BMI – Bargain Measurement Index – will be out of whack. While I have had a spreadsheet budget for as long as I can remember, I must confess that I have only once tried to track my spending cent for cent. It lasted a whopping two days before admin allergies set in.

But tracking one’s spending is not meant to be an on-going administrative burden – it is merely an effort to come to terms with how you spend your money and to identify areas for improvement. It is also helpful in identifying any kale chip addictions before there is lasting damage.

During a recent visit to South Africa, US financial planner and Sketch Guy columnist Carl Richards said the reason retirement numbers were so bad in many parts of the world, is because the savings numbers are so bad. He argued that it is no good scaring people into believing that they can’t retire, if they don’t have money to save. (What is slightly concerning is that after writing several Cheapskate columns, the latest credit data suggest that my attempts at entertaining people into sobriety have produced even worse results….)

But the journey starts with some basic mindfulness around spending.

Richards recommends that you write down what you spend in a spiral notebook or on an index card for just 30 days as a tool to create awareness, without any judgment or shame about the results. Following this process, you can identify areas for improvement, figure out how to pay down debt, and once the debt burden lessens, redirect payments towards saving.

A friend tells me that he started tracking his expenses using the app Expensify, after realising that money was “disappearing” from his bank account. (No, he is not married!) He soon had a reasonable amount of “additional” money available every month, just because of the awareness the exercise created. If you want to save money on the stuff you buy regularly, consciousness around pricing also helps a lot. I have bought discounted items on more than one occasion recently only to find the items mistakenly charged at full price at checkout.

The idea with tracked spending is not to fuel an obsession around every cent that leaves your wallet or to become so tight-fisted that you use your friends’ tips to subsidise your restaurant bill (a former date can attest that this approach doesn’t lead to lasting relationship bliss), but to familiarise yourself with the hard facts of your finances and to take active steps to eliminate unnecessary or wasteful spending, reduce debt, and start saving and investing towards your goals. No language policy required.

In a later scene in the same episode of The West Wing, the president asks his personal aide, Charlie Young, to go research the price of a gallon of milk.

“$2.69 cents. $2.89 in Georgetown and $2.54 with a coupon from the paper,” Young answers without hesitation.

“Will you make sure everybody knows that tomorrow?”

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