November can be a rough time for personal budgets. By this time of year, many folks have already blown the financial goals they set for themselves in January.
Life happens. Car breakdowns happen. Layoffs happen. And then the looming end-of-year splurges arrive. Time to buy the insanely expensive plane ticket home for the holidays, or to keep up with the cousins who give rich gifts. Add to that the arrival of cold, dark weather, and November can really get you down.
Some folks are taking this malaise and turning it on its head, taking up a new trend called “No-Spend November.” It’s like a crash diet for your finances. Come up with a very limited budget for 30 days — no eating out, for example — and you’ll at least reset your checking account for the holidays.
As I learned recently from Chicagoan Nicole DiVito, there’s an even bigger benefit to No-Spend Novembers. Unlike crash diets, which often fail and see eaters regain their weight, No-Spend November can permanently alter your outlook on money and budgeting.
Last year, DiVito allowed me to come along for the ride as she tried No-Spend November. Single with roommates in an exciting city, she was concerned that her spending had gotten out of control, and realized that at age 27, after five years with a good job, she hadn’t managed to save any money.
So she decided that she would try to spend only $100 per week (excluding rent and transportation costs).
“Why am I doing this? The short answer is to substantially save while still paying down my credit cards,” she said last year. “Although I don’t have a history of overspending, I definitely overspent in 2013. By Aug. 1, I was up to $4,000 in credit card debt, and I knew something had to change.”
At the time, DiVito’s take-home pay was about $3,500 every month. She wasn’t living a lavish life: Her rent was a manageable $766 monthly. But her other bills added up, including: Cellphone ($140), car payment ($235), utilities ($100), and mass transit ($80) ate up a big chunk of her earnings. Essentially, she was spending more than two-thirds of her income on bills, before food.
November 2013 was the first month she kept close track of every penny she spent, and it was a real eye-opener. She spent $224 on food, for example, even after cutting all the spontaneous Tuesday happy hours out of her schedule. And her weekend entertainment budget was “shattered” because of two trips that came up. Still, she stayed within spitting distance of that $100 weekly goal, which set her on a great path.
“I successfully paid off two of my three credit cards, and my credit score jumped 25 points. In addition, one of my credit cards extended my credit line another $2,000. This is all great, and I couldn’t have done it without budgeting,” she said.
The real test of No-Spend November, however, is this: Did Nicole break bad habits and make new ones?
“One year out, I’d say No-Spend November practically saved my finances,” she said. “I’m debt-free … and have five savings accounts for various goals. Ultimately, No-spend November got me to take budgeting much more seriously, and it kick-started a more realistic – and thus more effective – budget.”
Taking inventory, without even committing to any adjustments, is often the most effective first step toward spending (and eating!) healthier. Many folks with money problems have lost track of where things go. Think of No-Spend November as a stress test, with a huge side benefit of revealing where the biggest budget leaks are.
For DiVito, the leak was pretty typical for a 20-something in an exciting city. Last year, nearly all of her leftover income was frittered away on fun.
“I think it was just concerts, shows, etc., and not budgeting so not realizing how much I was spending,” she said. “Now I budget every paycheck — allocating all of the money to savings or otherwise.”
No-Spend November had another, even more profound, impact on her life, however. She realized that if she wanted to remain in Chicago and have a secure financial future, she simply had to make more money. After looking hard at the numbers, she worked hard to secure a better gig that came with a nice pay raise.
“Ultimately, I realized that to really save and live in Chicago, I needed a higher salary. Hence why I started a new job two months after,” she said. “Getting the new job was definitely key. It was a little more than a 20 percent raise. But the difference all went to my retirement plan.”
Save More Tomorrow
DiVito deployed a technique sometimes called “Save More Tomorrow,” a favorite of behavioral economists. With Save More Tomorrow, workers promise to put some or all of their future raises directly into their retirement or savings accounts, before the added income gets lost in monthly expenses. Studies show that Save More Tomorrow dramatically increases savings rates.
It worked like a charm for debt-free DiVito, now halfway to her goal of having a $20,000 emergency fund.
She’s is realistic about the challenges facing others who might try the same thing, however.
“I wish I could say everyone could do this, but it really does take a certain salary level to do so. It’s hard for anyone to achieve savings and retirement savings with anything less than a $50,000 salary in a big city.”
Still, No-Spend November is a great excuse to kick-start your own budget examination. What is your biggest money leak? What could you do without, just for a month, that might at least give you a head start on those dreaded January credit card bills?
“I’d definitely recommend it. Even if you don’t quite reach your goal, it’s a great way to start thinking more positively and productively about your finances,” she said. “And I’d really like to emphasize the positive part. … So many people have credit card debt, school loans, or just nothing saved, that it’s easy to feel overwhelmed and down about money, to the point where you’re doing nothing about it because seeing progress seems so far away. But a little bit goes a long way.
“Budgeting really does take your money further, and No-Spend November is a great way to start getting financially organized.”
More from Bob Sullivan:
- The Restless Project: This Is Why You Can’t Sleep at Night
- Do You Feel Stuck? New Book Offers 8 Ways to Break Free
- Big Data, Kill Switches, Facebook Stalking — Debt Collection Goes High-Tech