The other day I was about to grab lunch at work. Lunch at work for me is a boring affair. On Sunday evenings I run a sandwich making assembly line which churns out 5 identical turkey sandwiches for my daily noon time feedings.
On this particular day I thought about the pattern I was weaving and I realized that it has been several weeks since I’ve spent money on lunch. My guess was that it had been since a late night vending machine run back in mid January that I’d spent even a dollar while at work.
That’s cool, I thought, it’s been several days since I’ve actually spent any money. That’s a lot of dollars saved.
Then I laughed at the absurd nature of that commentary… a long time since I’ve spent any money, how ridiculous is that?
Understandably, I was spending less money that I could have been spending. After all, I could be stopping at Starbucks on the way to work every morning, and I could be going out to lunch every day. But just because I was not exploiting the most obvious of holes in our budgetary buckets does not mean I was not spending money.
What I had overlooked, and then laughed at, were the concepts of Cost Accounting in relation to my monthly budget and daily activity. Ok, admittedly I sometimes have boring sense of humor but rarely can you have it all.
Cost Accounting, in the simplest of terms, is the recognition of an expense (or cost) as an asset or good is consumed.
For example, I may write a check for my mortgage once a month but I incur an expense equal to 1/30th of my mortgage every day. I may stop at the dry cleaners once a week but I recognize 20% of the expense every business day. All of my utilities are monthly payments against daily accruals.
You get the picture. Through this lens, the idea that I spend no money on a given day is kinda silly. Our paradigm is to pay for such expenses on a monthly basis. And while this approach is certainly efficient, it too is dangerous. Dangerous in the way it separates our consumption from our spending.
Simply put, monthly payments are numbing. Monthly payments lull us into spending more than we should for many of our daily items. The dominant financial model becomes less about our balance sheet and more about cash flow statement. Our short term thinking empowers an appetite to consume which then seeks to milk another payment out of any spare cash flow. Instead we should be looking for ways to wean the monthly expenses suckling from our budgets so that we can create a long term position of wealth.
Now I’m not mad at my power company because they bill monthly, some such arrangements are unavoidable. But, 1) I can dial back the air conditioner or heater on any given day to manage my expenses and 2) the monthly ‘payment’ represents the entire purchase price. A car payment, on the other hand, represents a disconnect in your cash flow. Your cash flow may support the payment but your income probably does not support the full purchase price – otherwise you’d simply pay cash after delaying the purchase for a couple short months.
So reevaluate your budget with a keen eye on your monthly outlays and how they compare against your income. Are the expenses utility in nature – literally and figuratively – or are they nursing a large banker only too pleased to have his hand in your pie?
Shake awake the numbness and regain control over your income. And the next time you’re tempted to think you’ve survived a day without spending any money… give it a second thought.
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