Humans have not evolved to handle modern currency for two reasons:

1. The paper that currency is based on has zero inherent value. When you are gambling at a casino you tend to make bets you would not have made with paper money because you don’t have a strong attachment to decorative pieces of clay. But as we get older, the attachment we have to paper money lessens and we get desensitized to its value. Spending money becomes easier. Price tags would have more meaning if it listed how many hours of labor it would take you to buy it. That iPod now costs 13 hours of labor the HDTV is 2 weeks of labor. That $7 slice of cheesecake took you 15 minutes of labor. You may buy these things anyway but its real value is clear because you know exactly how much of your time and energy it takes to obtain it.

2. There are too many streams of income and expenditures to keep track off. We are not designed to make daily purchases, pay bills, deal with emergencies, spoil ourselves, and then be able to have a balanced budget each month. If you were to ask people how much they spend on food, a necessity, each month, they can only give you an estimate which I guarantee is a lot less than they actually spend. Humans need extra help to keep track of multiple streams of data.

I’m sure you know someone whose life is consumed by huge credit card debt. It’s even possible that they are much bigger debt than you even though your living situations aren’t that different. Why are some people just bad with money and others are not? The answer lies in a person’s belief system. Some people believe in things that make going into serious debt an inevitability.



“I know I’m spending more than I make now, but I will be making more money soon.” This is counting your chickens before they hatch. Unfortunately, there is absolutely no guarantee that you will be making more money in a year or two. There is no way to predict if you will even have a job. In case you do make more money a year from now, this belief ensures you keep increasing your spending anyway, preventing you from having the extra cash you planned on using to pay off debt obligations. Spending money you don’t yet have is an assumption that keeps you in perpetual debt.



“I know I’m in credit card debt, but these are things I need and they are making me happy.” There is not a documented case of human fulfillment coming from items manufactured in China. Fact is, other than a quick rush when purchasing something new, your mind quickly gets accustomed to the new possession and your happiness level remains constant. And now you have this consumer good that you need to maintain until you throw it in storage. The ability to increase the amount of happiness you can generate only comes with committed changes on how you view the world and yourself.

I know many girls who own very expensive handbags, and when I ask them why they bought these bags they usually make a reference to the quality and not the image the brand represents. But those expensive handbags are not handmade and come off the same factory lines as those that cost significantly less. And then I have the friends who insists on buying luxury automobiles because living without soothing German engineering would be uncomfortable. Now I don’t know if they are telling me the truth and they are really buying these things for the status, but I do know that the idea of turning these needs into wants is a basic marketing principle that drives the sale of these products. If you can afford these items without going into debt then great, but otherwise you should resort to the free alternative of fantasizing about the objects instead.



“I want other people to know that I am very successful.” This stems from insecurity. You are concerned that you are less worthy as a person because someone else is displaying material possessions — probably bought on credit — that is worth much more than yours. So you catch up so this person by going into debt. Problem with this strategy is not that there is no end — there will always be someone who has more than you. So your life is a pattern of trying to keep up, going into more debt, but never really getting there. You sit at home, with all your stuff, still upset and wondering if you can pay more than the minimum payment on your credit card statements. Most advertising put out by marketing agencies aim to make you feel insecure and inadequate, and this is financial death for those that are already insecure. Unless you are on top of the latest rotating style, it’s assumed, you are a loser and the girl with the latest pair of boots will show her disgust with dirty looks.

I once read a question on some Dear Abby column by someone who asked how she can get her girlfriends to stop picking expensive restaurants for girls night out without having to tell them she is broke. But your friends should have no problem knowing you can’t afford something and if they do maybe it’s time to get friends who don’t judge you or make as much as you do. (I’m not saying to go hang out in the ghetto but having friends that are poor will save you an incredible amount of money.) By not caring what other people think, you immediately start living a more simple life that allows you to focus on things that make you happy instead of things that other people approve of. There is nothing wrong with not having enough money.

Having correct beliefs makes it very easy stay on top of your finances because you do the right things without having to consciously think about it, in a way that fits your own unique situation. I don’t read finance sites or lists of 1,000 ways to save money, but I’m able to put save a large percentage of my income each month because I have internalized the right beliefs.

One of my most important beliefs is knowing that demand increases to fill supply. If a friend buys you a chocolate chip cookie, you are going to eat it even though you may have not been craving for a chocolate chip cookie. If your coworker brings a cake to the office, that cake will be gone even though no one was really hungry. If you just get a bonus at work, you will spend it on things you wouldn’t have bought otherwise. If you buy an extra large bottle of cologne, you will use it more often than if you bought a small bottle. If you have $100 in your pocket, two days later you will wonder where it went. If you happen upon a stash of hot porn, you will masturbate more than usual, maybe into the early dawn hours if you got a lot of sleep the night before. If your mind knows that something is there, it will find a reason to use or consume it. When people complain to me about their inability to lose weight, I simply tell them not to buy food. You can’t eat what you don’t buy, and a midnight snack craving loses its punch when you know you have to get in the car to find some Doritos instead of reaching your meaty paws in the cupboard.

Places like Costco and Sam’s Club exist because people think they are saving money when they buy things in bulk. They see the cost-per-unit price and then toss the extra large jar of mayonnaise into the cart. Without even thinking about it, they will now consume more mayonnaise because their mind knows there is a lot of it. If you look around your house right now, you have a lot of consumables that are just sitting there, inching towards their expiration dates. What this really represents is cash not earning interest. That cash is in the hands of the companies instead. There is little reason to buy more than one week’s worth of food or goods unless there is a natural disaster coming. I only buy what I need, don’t tie up my cash in things that just sit there, and don’t let anything go to waste. This ends up saving me much more money in the long run.

We are tricked into believing that buying the largest size possible makes economic sense. Flyers will advertise how much you are saving by purchasing the warehouse sized packaging of hypoallergenic ass wipes. But are they selling thousands of ass wipes because they are trying to help you save money, or because it benefits them? Companies don’t want you to save money — they want you to spend and contribute to their profits. Sizes are getting larger because it benefits corporations. If they didn’t make more money on quantity, the larger sizes would not exist. At the grocery store there is now a gigantic jar of spaghetti sauce that is so big it has a built-in ergodynamic handle. You will buy these and consume more or throw away a large amount, and then go back and buy more again because you think you’re saving money.

How about if I buy in bulk something that I use a set amount of every week? For me this applies to my Tuna Helper habit. I consume two boxes a week, no more or less, so you think I’d load up on this “food” during 2-for-1 specials. I don’t. The point of a sale should be for you to spend less. But what happens is you load up on the sale item so your weekly spending never goes down. In the short-run it may cost me a couple bucks, but in the long-run I save because I strengthen the belief to only buying what I need, cutting spending in almost everything else. Don’t turn your house into a warehouse.

The opposite of this principle also holds true: if you constrict supply, demand will lower. If at the beginning of the month you commit to saving a large amount of money and enter it into the budget, and you can see how little you have left to spend on everything else, you have no choice but to constrain your spending for that month. But if you wait until the end of month to save what is left over, you will find there is nothing left over to save.

A tool that reinforces all these correct beliefs is having a monthly budget where you monitor every dollar you spend. I believe that if people simply knew where their money was going, they would be a lot more careful with it. It’s just too hard to understand how much you are spending with credit cards and check cards until you have to manually enter your spending into a spreadsheet and see your monthly balance go down. This act tells your brain that this money you earned no longer exists.

I recently gave my budget spreadsheet to a friend. Like me he set up a line for going out, and estimated that he spends maybe $400 a month in bars and restaurant. Three weeks into December, he was already at $500. Then when he went out to the club, he spent half of the amount that he normally spends because that $500 expenditure was something he couldn’t ignore. He saved $30 that night only because he knows how much he spends when he goes out. Every dollar counts. In the long run it adds up to amounts you would leap at if you saw laying on the street.

When you use a budget, your finances become an obsession because they are in your face almost every day. Every transaction, from ATM withdrawals to buying a coffee at 7-11 with your check card, gets logged.

Budget.xls spreadsheet (Right click > Save as)

How To Maintain The Budget Spreadsheet

Step 1: Put in your paycheck income and other guaranteed income. If you are a freelancer, you may want to add lines to account from different sources of spending and income. Or you can create a new worksheet in the same spreadsheet and link those values to the main budget.

Step 2: Enter all known bill payment expenses (rent, gym fees, car payment, etc.). For other expenditures like going out and food, make an estimate. You will be changing that number as the months go on.

Step 3: Play with you expenditure numbers until you balance goes to zero. If this seems impossible to you, then you are not living within your means, and having a budget will probably help you most. Hint: cut back on leisure spending.

Step 4: Take note of how much money will always be in your checking account (your cushion). On the first of every month when all bills are paid, that is the value you should have in your account. My cushion is a low $200 because I don’t like tying up too much cash. But when my first paycheck doesn’t come until the second week of the month, I temporary bring in money from my savings account to cover those early expenses. The more you monitor your account activity online, the less you can leave your cushion since you are always aware of your balance and catch surprises before they overdraft your account.

Step 5: Keep track of every dollar that moves in and out of your main account (usually your checking account). If you mostly use your check card for transactions, save all receipts and pile them on one side of your desk. After you enter them every few days, move them to the other side. I don’t recommend forgoing receipts and using online banking to log spending because you will forget whether you entered items or not. Make sure you don’t miss transactions that have no receipt, like buying something from the internet or getting a lap dance at the strip club. If you mostly take out ATM withdrawals, I recommend categorizing what you can and then putting the rest in Leisure > Stuff. For instance say you take out $100 one day then spend $40 on groceries and $50 on going out. When you go home, put -$40 for groceries, -$50 for going out, and -$10 for Stuff. Or just put the whole $100 into Stuff and not worry about categorizing. Using mostly cash makes it a pain to itemize your spending unless you always get receipts.

Important: You are only keeping track of money that moves into and out of your main account. If you charge something on your credit card, it does not get reflected in the budget until you pay that bill. For instance if you charge something in late January but don’t pay the bill until February, you enter the expense in February. If you purchase an electronic gadget with a rebate, you have to enter the full cost of the item in your budget and enter the rebate separately when it comes months later.

I like to itemize my credit card bills by putting the individual items into their own category. For instance if I get a $20 credit card bill with $10 from internet hosting and $10 from Netflix, I enter two separate $10 charges in my budget and send out a $20 check. My budget does not record the fact that I just sent out a check to a credit card company. If you have a credit card balance you are paying and it is from old spending, I would just use a separate Credit Card line.

Savings is negative in the budget because it is coming out of your main account. Bringing savings money into your main account will be reflected as a positive amount. If at the end of the month you are running a deficit, you need to draw money in from somewhere. If you are running a surplus, put it into a savings account. Since you are not the federal government, you need to maintain a balanced budget every month. If you run a deficit from high spending, and you don’t have savings money to make up for it, you need an immediate reality check. Your way of living is unsustainable and will catch up to you sooner than later. It will just take one accident or layoff to send you into deep financial crisis. Plus the recent change in bankruptcy laws make it harder to wipe away unsecured debt.

The nice thing about the monthly budget if you receive a paycheck is the two months a year when you get three paychecks. Since you will not account for this third paycheck when setting up your budget, these checks are like the bonuses you wish your company would give out. Put it directly into your savings account or credit card debt, or do something fun for yourself. These two extra paychecks have gone to my travel fund for the past two years.

I first started using the budget spreadsheet after I spent $320 at French Connection in winter 2002. I felt incredibly guilty because I didn’t have that money to spare. After sacrificing on clothing and Starbucks, I started making $200 monthly payments to my debt. Then I squeezed myself even more each month until I was able to make consistent payments in the $400 range. Fourteen months later I made my final payment and was debt free. My income since then has doubled but my costs of living have actually decreased, so all that extra money is gravy. I consider credit card debt to be a form of mental slavery, and even though I have much less possessions than my peers (I don’t even own a bed), I depend on myself to generate my happiness instead of products made by companies that view me as nothing more than a FICO score. I still have the French Connection clothing that sent me over the edge, including the $120 pair of corduroy pants that I have worn about six times.