Rule #20: Don't Be Dumb

How's this for a nice simple rule?

• Don't Do Stupid Things

How much money do you spend because of plain old dumbness? Here are two small examples from my own recent life:

At my gym, there are half lockers, one above the other. I always use the top locker. When I go swimming, I usually take off my earrings and bracelets and leave them in the locker. A couple of weeks ago, when I was getting dressed after my shower, I went to pull something out of the locker and heard a little "plunk." It was one of my earrings, falling through a crack into the locker below mine-- which was locked. I peered through the crack and could see my earring, sitting right there, amidst some dust bunnies. I told the attendant it looked like the locker was abandoned, and in any case wasn't one allowed for overnight storage anyway, but she couldn't open it with a master key and she said she'd have to get permission to cut it off. I didn't have time to deal with that, so I just left-- the earring I'd lost was a favorite, but not at all valuable, so I figured I would just come back and try again to get into that locker after speaking to a manager.
But in the meantime, I felt naked! (Almost as bad as that day I forgot my underwear!) And I had a big meeting that day that I was dressed up for-- I felt like I couldn't go without earrings. So I stopped in a little store at lunch and bought the cheapest earrings I could tolerate, which were only $10.
The next day at the gym, I was still wearing those earrings, and took them off as usual when I went swimming. And later, when I was getting dressed, guess what? "Plunk." I did the same exact thing, dropping one of the new earrings in a different locked locker! Afterwards, I went to buy a pair of earrings again, this time super cheapo ones from Duane Reade for only $5-- but unfortunately they hurt my ears, so I only wore them once.
Bottom line, I always knew it was dumb to leave the earrings on the bottom of the locker where they could easily fall in that crack, but I did it anyway, even after losing them the first time. Ever since then, I've put my jewelry inside a shoe or even poked them through a sock to make sure they'd stay put! Fortunately, I only had to spend $15 on earrings as a result of this dumbness-- no great loss, and a reminder that it is probably a good thing that I don't own any expensive jewelry in the first place.

The other dumb thing happened last night. I went to see the Billie Jean King Cup at Madison Square Garden. I love watching tennis, especially the Williams sisters, so I was happy to go, even though $60 for a ticket to a sporting event is not usually my preferred way of spending money. It was actually Mortimer's idea, and he'd gotten a group together a while ago. Though Mortimer is a rabid sports fan, now that he's lost his job, I'm sure he'd rather have kept the cash too.

Before I got to my seat, I bought a beer-- this in itself is pretty dumb, when you consider that a beer costs $8.75 at MSG. One of my other friends bought a bottle of water and they don't let you keep the cap on the bottle-- apparently they're afraid you'll throw the cap at someone. Despite this, they put a lid on my cup of beer. We were talking about the likelihood of spillage and my friend was envying that I had a lid and asked if I wanted a straw, which I scornfully declined-- it just seems wrong to drink beer through a straw.
Back at my seat, I removed the lid and took a few sips of the beer. Then... I managed to spill it, partially on my bag but mostly on the back of a young man sitting in front of me. Of course I was mortified and apologizing profusely and trying to help him clean his jacket off with napkins. And he was a good sport about it, shaking it off and saying it was supposed to be waterproof anyway. But the woman sitting next to him, who I'd at first assumed must be his girlfriend, turned out to be his mother. She turned around and rather imperiously announced "He's going to have to have that dry-cleaned now!" So I said "ok, I'll give you something," and once there was a break between games, I apologized again and gave the guy ten dollars, which he thanked me for and then handed to his mother.
The rest of the evening was without any disasters, but the tennis dragged on a bit and I ended up leaving at about 11:15, in the middle of the 2nd set. (Serena went on to win, though I'd been rooting for Venus.)
So $60 for a ticket, $8.75 for a beer, and $10 for someone else's dry cleaning. It ended up feeling like kind of a dumb evening all around.

Of course, this is just one kind of dumb spending among many. We spend money on things we don't need, things that don't work, unresearched purchases that could have been gotten more cheaply. And then look at all this dumbness of people lending money they knew couldn't be paid back, and people plowing money into investments they should have known were too good to be true. Dumb, dumb, and dumber.

But does dumbness, on some level, actually drive our economy? I mean, if everyone only did the most smart, sensible thing, a whole lot of consumer products would never be purchased. And in every transaction, there is a buyer and a seller-- what benefits one doesn't usually benefit the other too, so somebody's got to be a little dumb or it would all grind to a halt.

But don't let that stop you from trying to be smarter!

Rule #19: Too Much House

• Don't Buy Too Much House

I think this rule has never been truer than now, during a financial crisis of historic proportions. It remains to be seen how the credit crunch will play out, but why did it happen in the first place? People bought too much house. There will be lots of debate over why that happened and whose fault it was, but it all comes down to people buying houses they could not afford.

Not everyone "couldn't afford" the kind of houses they were buying-- some chose to spend lots of money on other things and run up credit card bills, in effect choosing not to be able to afford their house.

And some people, even if they could afford the house they bought a few years ago, are going to find themselves in trouble now if they lose their jobs or can't borrow more money to spend.

Think about it: everyone has things they can cut back on if times get tough. You can cut back on entertainment, meals out, new clothes, new cars, etc. But for most of us, our housing payments are the biggest chunk of our expenses. They're also the hardest to cut back on: you have to either sell your house, rent it out and move into a smaller one, or take in roommates to make extra money, leaving aside dire options like destroying your credit by going into foreclosure. Even in a good real estate market, these things take time and cost money. In a bad real estate market, they may not be possible.

Back in the heady days of the real estate boom, people would always say that home buyers, at least younger ones, shouldn't feel bad about stretching to buy the best possible house they could. It seemed like a safe bet when you could reasonably assume that your home's value would go up quickly and that your earning potential would steadily increase. But now I'm sure a lot of people wish they had been much more conservative.

Where do I fit into this? I went from paying $850 a month for rent and utilities for a tiny studio to about $1,800 a month for the mortgage, common charges, taxes and utilities for a 2-bedroom. (It's actually been more than that due to an escrow error for my property taxes that has been difficult to fix.) So did I buy too much house? (The rule also applies to Too Much Condo!)

I am saving less cash each month than I used to, even though I have gotten 2 raises since I was renting that have helped make up the difference. But given how much the value of my investments has fallen, I'd love to be saving more. I am exactly in the position I described above, where I could definitely make some lifestyle changes to save money, but they'd make nowhere near as big a dent as having lower housing costs. But I have no debt other than my mortgage, and I'm still maximizing retirement savings through 401k and Roth IRA contributions-- my budget is balanced.

Here's another important thing: my home, I think, will turn out to have been a very good investment. The cash I put into it would have lost its value in investments right now, but based on the current housing market in New York City, my condo's value has more or less held steady if not increased slightly since I bought it (based on price per square foot of recent sales in the neighborhood), and I don't think it will fall as precipitously as the stock market has. I could rent it out and turn a small profit. Or I could take in a roommate if I needed to.

I'm not being a Pollyanna about the real estate market: if I had to sell my condo any time soon, I'd be in big trouble, because there's just too much on the market and my place isn't that special. But I put 20% down, I have a 30-year fixed mortgage at a good rate, and as long as I stay employed, I can make my payments while still saving money. All this is because I bought a modest home that I knew I could afford, not what a mortgage broker told me I could afford.

Rule #18: Alone and Together

I recently wrote about getting back into good habits, such as cooking at home and bringing lunch to work. I also went to the gym, read several books, and caught up on a couple months' worth of New Yorker magazines. I even took out my recycling, cleaned the house and did laundry-- so what happened? Did I suddenly run out to a phone booth and turn into Princess Awesome? No. What happened was that I spent a week being totally anti-social.

I know some people might have a hard time with this, but for me, it happened to be fairly easy-- a significant other thousands of miles away, as well as my other friends being busy or away (or I was just ignoring them). And I don't have kids, obviously. So I just spent some quality time alone, and realized this should be another one of my financial rules:

• Be Anti-Social

The great thing about living alone is that it gives you more time, and time is money! If you spend a lot of time alone, you're more likely to cook meals at home rather than going to restaurants. You'll also probably have lower entertainment costs. Some people don't mind eating in restaurants alone and going to movies, theater, etc. alone-- I myself have done these things, but when it comes down to it, I don't really like to and I'd rather just stay home. Being alone in public always seems a little weird-- being in a long-distance relationship really made me very aware of how most people like to do things as couples or with friends-- if you're eating alone in a restaurant, chances are you're the only person doing it. Even if you're on a business trip and in a hotel restaurant, it can seem very uncomfortable to eat alone. And most people probably choose to avoid that by ordering room service! Which brings me to the flip side of this rule:

• Be Social

Ordering room service for one is a lot more expensive than sitting in a hotel restaurant, where perhaps you'll meet others. And you never know, perhaps that could turn into some kind of career networking that could lead to money-making opportunities in the future!
Doing things with other people also allows you to spread out costs-- it may not be exactly true that two can eat as cheaply as one, but it's certainly easier to buy groceries for two, and to buy other items in bulk at lower unit prices. And you can order wine by the bottle instead of by the glass!
Traveling is another area where it definitely saves you money not to be by yourself. Most hotel rooms are designed to hold two people, and are priced accordingly. And how many times have you seen a really cheap price for a packaged trip where the small print always notes that the price is per-person based on double occupancy, and that the "single supplement" will double the cost of the trip?
Around the house, there are many ways you might save money by living with someone else rather than alone. First of all, studio and one-bedroom apartments tend to cost more than half what a two-bedroom costs, so having a roommate can save you money on rent. Then there are tasks like cooking, cleaning, and repairs. For people who live alone, doing all these things can start to seem burdensome and you're more likely to want to pay someone else to do them for you. But if you can share the housekeeping with someone else, it won't seem like as much work, and you're more likely to continue to do it yourself. In the case of repairs, it may even be unsafe to do things yourself without help-- if you fall off a ladder or something, the medical bills could end up costing you way more than hiring a handyman would have!


So, alone or together? Social or anti-social? Hermit or party animal? Once again, completely conflicting advice, but I do think it's possible to find a balance between these two extremes. One solution might be to find a partner who travels a lot!

Rule #17: Numeracy

• Do the math.

Personal finance is about numbers. And working with numbers means you'd better be able to do math. I know it intimidates a lot of people. They grit their teeth all through school, eagerly awaiting the day when they will no longer have to do math. They take their SATs thinking "Ugh, when am I ever going to need this stuff in the real world?" I actually have a secret yen to become a question-writer for the math section of the SAT, because really, who's sitting around saying "If I have 10 marbles and my brother has half as many marbles..." If that were truly the case, the siblings would either just count their marbles or be too busy beating each other up to care. I can think of much better real-world questions to engage today's students in practical problems they might one day have to solve, such as this one:

Mary is on the Amtrak Acela train. She goes to the cafe car and buys the cheese & cracker plate and some wine, for a total of $8.50. She gets 4 pieces of cheese, and 4 packages of crackers. 2 of the packs of crackers have 3 crackers each, and the other 2 packs have 2 crackers each.

Questions:
1) Into how many pieces must Mary cut the cheese in order to have an equal amount for each cracker?*
2) Can you think of a good joke to make about "cutting the cheese?"
3) How much wine did Mary get? It must have been cheap. Should she go get a couple more?

Actually, I suppose those aren't appropriately multiple choice. But to get back to broader personal finance concerns, I think it's very important not to be innumerate. You don't have to know calculus or trigonometry to manage your finances. All you really need is the ability to do basic arithmetic, and at least some understanding of a few other general math concepts.

Why? Here's a few very practical reasons:

• Getting change: can you look at the change you've just been given and be sure you got the right amount even if it's not spelled out on your receipt?
• Prices: what if the little "unit cost" sticker is missing from the supermarket shelf? Can you tell which size of a product gives you the best value for your money?
• Discounts: do you know how much an item is really going to cost you if it's 30% off, plus an additional 10% off the already-reduced price?
• Interest: can you figure out how much more you'll earn a year if you move your money to a different savings account with a higher interest rate?
• Medians and averages: if you've got 9 people who make $10,000 a year and 1 person who makes $10,000,000 a year, the average income of that group is $1,009,000. But the median is only $10,000. That is an important difference to remember when reading any kind of economic statistic.

Some of these may seem like silly little things, and you may think it's still not that important to be able to do some basic math in your head. You may use a calculator for everything, or an Excel spreadsheet. And these are wonderful tools which I highly recommend using! But tools are only as good as their users: it's very easy to make mistakes using a calculator, and especially Excel. Your own sense of what an answer should be can sometimes help you catch an error that may be buried in a formula in a spreadsheet.

You may say "but I'm just not comfortable doing math in my head. I don't have that kind of brain." That is perfectly understandable. I personally can't do it all that well, and have always been jealous of people who are better at mental math. But sometimes it's not about calculating an exact number in your head, it's just knowing the range the answer should fall in. I remember being shocked, at one of my earlier jobs, when I had to show a spreadsheet to a high-ranking financial guy. I forget exactly what issue we were trying to resolve, but I said something about how if we changed a certain percentage in one place, another number would be about 30% higher. He stopped, said "uh, um," a couple times, tapped a few numbers into a calculator and then said, "yeah, you're right." I just found it so bizarre that this guy had risen to a very senior level of managing a company's finances without being able to get his head around what was a pretty straightforward bit of mathematical estimation.

How can you improve your numeracy? Here's a few ideas:

• Practice: challenge yourself to do little bits of math in your head, while balancing your checkbook or when paying for things in stores.
• Check out sites like math.com for quizzes and tutorials.
• Consider using books like a GED test prep guide, Everyday Math for Dummies, All the Math You'll Ever Need, or Secrets of Mental Math, for tips and tricks and explanations of solutions to math problems.
• There may be adult education classes in your community that are targeted towards practical math. They may even be free.
• More practice: even if you're comfortable with basic math, it never hurts to keep exercising that part of your brain and learning new skills. Instead of using online calculators to figure out your mortgage payments or retirement plans, build your own spreadsheets and play around with them.

Remember, you don't have to actually take the SATs anymore. Think about learning math as just one more nifty little way to improve your financial life. Pretty soon, you may even think math is fun!

*As for Mary's problem, the answer is 5: there are 10 crackers, so each of the 4 cheeses has to be cut into 5 equal pieces to make 20 little nuggets of cheese which can then go 2 each on the crackers. I think a proper explanation would have something to do with least common multiples. But good luck actually trying to divide those little cheeses evenly into fifths! I think Mary usually simplifies matters by ditching two of the yucky Wheatsworth crackers, which crumble too easily, and anyway, she's still on Atkins.

Rule #16: Who Do You Think You Are?

• Don't be too sure.

We all see ourselves as part of a community-- or usually, many communities. We draw circles around ourselves, including some people and excluding others-- sometimes they're big circles, sometimes they're small. We see others as like us, or different from us, and these comparisons inform the way we live. It's a lot like those Venn diagrams you probably learned about in grade school:
In this example, the black dot in the middle is me. Some "communities," or groups, to which I belong, are the large group of all residents of New York City, the smaller group of upper middle class Ivy League graduates, and the very small group of people who live on my block. (Obviously the sizes of the circles aren't intended to be exactly proportionate to the real numbers of people represented.)
Depending on the situation, I might think of myself as identified with these groups to varying degrees. Most days, I don't feel like I have a whole lot in common with the group "New Yorkers." New Yorkers are a pretty diverse bunch, and most of us feel no need to smile at each other on the subway and say "Hey, you live in this city too! Howya doin'!" But if I was in a small town in Uruguay and overheard someone saying they were from New York, I might say "Wow, I'm also from New York!" Of course I don't always consider myself "from" New York, or I might downplay that identification, for instance if I was with family in New England who were all watching a Red Sox game.
We all have these shifting hierarchies of identity. We are citizens of the world, our country, our city, our apartment, or even just our corner of the room. So how does this relate to our financial lives?
For every identification we make with some group, we position ourselves within that group by our income, our consumption, our possessions. We like to know where we stand against others-- are we richer or poorer, is our house bigger, is our car newer, do we have more or less saved for retirement. And we think things like, "well everyone around me in this community that I belong to goes on vacation every year, so I should be able to do that too." And studies have been done that show that people often feel happy or unhappy not so much because of their own financial status per se, but because it is higher (happy) or lower (unhappy) than that of the people around them.

I try to think about these issues a lot. In this blog, I often say things like "I pay $80 for a haircut, but that's not that bad by New York standards." Or "I love my tiny studio apartment but my friends can't believe I live in such a small space." Or "publishing is an underpaid industry." These are all "true" in some ways, but if you shift the context, they seem all wrong. Someone in Africa could live for months on what I pay for a haircut. And they probably live in far less space than my old studio apartment... but someone in London might think my studio was actually relatively luxurious for the price, given that housing is even more expensive there than it is in New York. And someone who works at McDonalds or Walmart would probably be thrilled to make a publishing salary. What about the fact that my net worth is much higher than the average American's? Does that mean I can just relax and say I'm doing well? What if I compare my net worth to those Ivy League grads? Suddenly it looks like I'm way behind.

So part of this rule comes down to

• Judge yourself against your own standards and goals rather than comparing yourself to other people.

If my net worth and savings are on track to be able to pay for my kind of intended retirement lifestyle, it doesn't matter how it compares to anyone else. But that doesn't mean I shouldn't keep those comparisons in mind. It's important to

• Have a social conscience.

It's a no-brainer that all Americans are fortunate in relation to others in the world, and some Americans are more fortunate than other Americans, and we should all keep that in perspective.
Then there's that

• Don't worry about keeping up with the Joneses

thing. Again, it's pretty much a no-brainer that you shouldn't just try to do or buy everything your neighbors do. But sometimes it's not the neighbors you need to worry about, it's your own inner Jones!

• What you spend does not determine who you are; who you are doesn't have to determine what you spend.

That is the best way I can think of to put it. Don't box yourself in with your own notions of where you fit into the world. This doesn't mean you have to break all the usual rules, but don't let yourself feel too trapped by them. Realistically, this can be quite hard! I was brought up in a certain environment, reinforced by school and work amongst many other people brought up in similar or wealthier environments. I'm not just suddenly going to change all my standards. Am I going to wear rags and live in a camper van on the street just because it would save me money? I can comfortably answer "NO, because people like me just don't do that!" "People like me" being at least some of the inner circles below:

But what about some less extreme examples? Maybe "people like me," i.e. well-educated, somewhat tech savvy, employed in media field, financially secure bloggers, tend to replace their computers more often than every 10 years. Should I? Maybe "people like me" have cable TV. Should I? Do "people like me" have weddings that cost $10,000? Or $30,000? Or $500? Do we go skiing for a week every winter? Do we only buy our clothes at certain stores? Do we send our children to private school? Do we only live in certain neighborhoods? Do we pick up used furniture off the street? Do we have full sets of matching glasses and plates and silverware?

Everyone will have a different perspective on these questions, but I think we can all challenge ourselves to expand the definition of "people like me" to include "people who have less than me" rather than "people who have more than me," and spend less money by eliminating at least one thing in our lives that we think we "should" have, but don't really need.

Rule #15: All and Nothing

I'm not sure this is even a rule per se-- it's more about a certain personality trait I think some people have that helps save money, and it might not be a rule you could follow otherwise. But it's worth trying!

• Be interested in everything.
• Let yourself think about nothing.
  

Go ahead, say it-- huh? Is she on some kind of Zen trip? What does this have to do with money, and why does it matter?
I started to think about this rule during a trip to Coney Island on the last gorgeous weekend of summer. From the minute the subway train went above ground, I was glued to the window. There are so many interesting things to look at from an elevated train-- you see interesting architectural details on buildings, and brick walls painted with advertisements from bygone days. You can see teams playing sports when you pass school fields. You can see the changing ethnic mix of each neighborhood you go through. You can see new buildings sprouting up where there were none before and watch their progress. I'm sure not everyone finds this interesting, but I do.
Then at the beach, as the afternoon went by and the already sparse post-Labor Day crowds started to thin out even more, I was looking around at the little clusters of people. Some were chatting with friends, but like me, a lot of people were there by themselves, reading or listening to music, sometimes taking a dip in the water... But what people were most often doing was just sitting and looking out at the waves, watching the sailboats, motor boats, tankers and cruise ships passing by. It's one of the reasons I love the beach. I can't think of any place that seems to allow so many people to feel completely relaxed and at peace just doing nothing.
What I am getting at is that sometimes we spend a lot of money just because we're bored. We need stimulation-- books, movies, video games, sudoku, hundreds of channels of TV, nightclubs, exercise classes, new clothes, new cars, new homes. So much of what we spend money on involves entertainment, going out with friends, and change just for the sake of change. Look at all those people waiting in line for the Playstation 3! And yet there is so much around us that is free to enjoy. Do you ever just sit and think? Do you ever just take a walk to see what's on a street where you've never been? I'm not saying that is the only thing anyone should ever do, but did you ever stop to think about what you do to stave off boredom, and how much money it costs you? Approach life with a mind that is open to the little details, and also relaxed enough to sometimes just peacefully think of nothing. After all, "nothing is free." How true that is, in more ways than one.

Rule #14: Buy Good Things

• Spend the extra money to buy something that lasts.

Of course I have to illustrate this rule with an example close to every woman's heart: shoes. This week, I have a brand new pair-- beautiful soft Italian leather (like buddah!), great style and fit, and they were only $25! Ok, the truth is that they are not technically new. I bought these shoes on sale about 2 or 3 years ago, marked down to $79 from about $300. But even if I had paid full price, I think I'd have gotten my money's worth. I wear them to work quite frequently, and though I shine them every once in a while, they were starting to get scuffed and the heel was wearing down. But for $25 my local shoe guy put on a new heel and sole protector, and made them look brand new. I'll be wearing these shoes for many more years.
Shoes are an area where I don't like to cut corners. Good quality shoes are worth it-- they break in better, they last longer and they are easier for a cobbler to repair. With a little maintenance, a decent pair of shoes will last for decades.
Of course, there is the issue of fashion-- some styles might not last for decades. So if you're going for quality and paying a little extra for it, you should probably look for a more classic style rather than a trendy item. And if you want to jazz up your wardrobe a little with something trendy, that's the time to look for a lower price and not worry as much about quality. The other day I was wearing a pair of pink sandals that I bought last summer. All my other shoes are pretty much black or brown so buying a pink pair of shoes seemed like quite a wacky indulgence. But they were cheap, so I figured what the hell. I can only wear them with one or two outfits in my closet, but they look great with those outfits. The only problem is that they hurt! Any time I have skimped on quality with shoes, they have turned out to be shoes I can't walk far in without getting blisters. And it seems a bit silly to buy fun shoes that you can only wear while sitting at your desk, where no one can even see them!

This rule doesn't just apply to clothes, of course. If you're going to buy something major, check out the ratings at Consumer Reports to see what has the best record for lasting long and not needing repairs. And aside from the issue of function and maintenance, again, make sure you are buying something that you will be happy with for a long time. I remember when I moved into my first apartment of my own-- I bought the cheapest furniture and kitchen supplies I could find. A few years later, most of that stuff was broken, worn out, or just driving me crazy because it worked so poorly. So a lot of it ended up being replaced, whereas if I'd bought better stuff to begin with, I would probably still be using it, and would have spent less money in the long run.

Rule #13: Know Thyself

Here's a "back to basics" rule that always comes in handy!
I think one of the most important keys to managing your finances is to be aware of what you are really spending money on. Think about it-- whenever people complain about being broke, don't they always say something along the lines of "I swear, I just don't know where it all goes!"

There are so many things about money that are unknowable and unpredictable. You can strategize and make educated guesses, but no one really knows what the performance of an investment will be, where interest rates will go, how tax laws will change, or whether they'll get a raise. But one thing you CAN know is what your own spending and savings habits are, and for most people, it's probably a pretty good starting place to figure out what they will be in the future, or how best to change them. Once you know what is knowable, then you can worry about the guesswork. First of all:

• Keep Records

First of all, make sure you are saving all your credit card bills and bank statements. You should be doing that anyway! That's the easy part. What's harder is to start tracking how much cash you spend. Keep a little notebook, or jot things on your daily planner or in a PDA. (I enter every penny of cash I spend into Pocket Quicken on my Palm, and then upload the transactions to the desktop version of Quicken, where I enter or download all my other credit card and bank transactions.) Even if you sometimes forget, just do it whenever you think of it. You'll start to realize that you probably spend cash on the same things quite often, so you'll start to see patterns. For every dollar you jot down, that's one less dollar whose disappearance will be a mystery later. Once you have these records of what you have spent,

• Look at your spending records and total them up by category.

I think a software program such as Quicken is a great investment, but you can also easily create an Excel spreadsheet or two that will serve the same purpose. Before I had Quicken, I used to do a big spreadsheet once a year. I'd sit down with my bank statements and credit card bills and enter all the transactions and sort them into broad categories. For checks and credit card expenses, it was easy to see what I had spent the money on. For cash, it was harder, but I totalled up all my ATM withdrawals and then thought about all the things I tended to buy with cash-- I multiplied out what I tended to spend on breakfast and lunch and subtracted those from the total. I subtracted an amount for laundry. Whatever was left was just categorized as miscellaneous. It wasn't very accurate, but it was a start.
Think about the categories your expenses fall into-- which ones are fixed expenses, such as a mortgage payment. Which ones are variable expenses, such as clothing? Which ones are necessities and which ones are luxuries? There is no one right way to do this-- think about what makes sense for you. Instead of just having a category for Books, for instance, you might want to have a category for Education and another for Entertainment. The cost of a book about how to start your own business might be put under Education, but a Danielle Steele novel would go under Entertainment-- you might want to think about what expenses are investments in your future in some way, vs. just throwaway spending on something with only temporary value.

• Analyze the data

Once you have a system for collecting the data and sorting it into categories, look at it! Think about it! Play with it! You may be surprised at what you learn. Maybe you didn't realize you were spending just as much on buying lunch every day as you were on clothes. Maybe you didn't realize your cable TV bill was 5% of your take-home pay. Maybe you didn't realize you'd forgotten to include an awful lot of things when you came up with that supposed budget you were going to follow.
This is where Quicken can make things really fun, because of all the reports and graphs you can easily run. For example, a few years ago, I started hanging out with some new friends I'd made, who happened to enjoy good food more than some of my other friends, who I also didn't see as often. Here's a rough illustration of what I discovered:

The green arrow represents when I met those new friends, changed my social habits and started eating dinner out more often and more expensively. The shape of the red line representing my net worth is a bit exaggerated, but it just blew my mind how noticeable it was that I was saving less money just because I had started hanging out with different people! So you can bet I dropped them like a hot potato!
Ok, I'm kidding-- I did not really sacrifice my friendships on the altar of personal finance, but it did make me think we should maybe start doing some at-home dinner parties more often instead of blowing so much money at restaurants!
For other people, graphing net worth vs. friendships might be irrelevant, but if you can look at how your spending changes throughout the year, how much you spend in different categories, whether you're saving money each month or constantly in the red, you're bound to learn something about yourself. (And though analyzing your spending is a good place to start, don't forget to look at your income and investments too.) In the long run, that awareness will help you make decisions and align your actions with your priorities and goals, whatever they may be.

I suppose the reason I decided to post about this today is that I am so stressed out about what's going on with my condo purchase! I keep thinking about how much it's going to cost and trying to figure out the long-term consequences of my decisions. Sometimes it feels like I've bitten off more than I can chew, but then I remind myself that I know what I spend. I know what I have to spend and what I can cut. I know how much I save. I know where my limits are. I can do this. I'll be okay.

Rule #12: Coupons

• Pay attention to coupons

This would seem to be a personal finance no-brainer, right? You look out for coupons, buy things for a little less, what's not to love? For grocery and pharmacy items that are repeat-purchase staples, I definitely try to use coupons. Sometimes it's a little annoying if the coupon requires you buy a lot of something, but I know I'll use these basic things, so I will stock up a little to get the discount if I have to-- it makes perfect sense. But there is another part to this rule:

• Ignore coupons

Aside from the aforementioned items, I don't go looking for coupons, and I often don't use the ones I come across. Too often, seeing a coupon makes you think you should buy something that you probably didn't need. It makes you go to that store or website, and once you're there, you end up spending money. Sometimes coupons are only good on a large size of something, at McDonald's, for instance, where you end up paying what you would have paid for the smaller size you should have gotten in the first place. Sometimes the coupons aren't valid on certain merchandise, so you end up picking up all kinds of stuff at Macy's only to discover that since it was already on sale the coupon won't give you any additional discount but you buy the stuff anyway.
I pretty much try to ignore these kinds of coupons and discount deals. When I need to buy something major, I'll look around to see if I can get a deal anywhere. If I can't, I'll buy the thing anyway. If I end up buying fewer unnecessary things overall, I think that makes up for possibly paying a few dollars more for the ones I do buy.

Some more thoughts on coupons in this post and its comments.

Rule #11: See No Evil, Hear No Evil...

I met a professional dominatrix at a party the other night. (Being able to say this sort of thing 100% truthfully is reason #1364 why I love New York.) Now if I was really the stellar personal finance blogger that I aspire to be, I would have thought to ask her some relevant questions about her work, such as "how much do rubber bodysuits cost these days," "are your whips and handcuffs tax deductible," and "does the dungeon you work for offer a good 401k?"
I'm sure she would have been willing to talk to me about some of these issues, as she was off-duty and really quite friendly: at one point, she sat on my lap and stroked my cheek, and twice, she bent over and slapped her own ass in my direction, which I think is dominatrix sign-language for "I like you."
Anyway, that was about as much dominatrix as I could handle, so I doubt the PF interview will ever happen, but the encounter did leave me feeling like it was about time we had a few more RULES around here! So appropriately enough, I present Rule #11:

• Sensory deprivation.
  

I think anyone would agree that if you are blindfolded, gagged and restrained, it is virtually impossible to spend money, unless the person who got you into that condition is charging by the hour. But let's think about some more reasonable alternatives, at least as they apply to my life.

I don't watch TV. I think this alone is a huge factor. If I don't see something, I won't want it. And let's face it, advertising works. I can't tell you how often I've had to grit my teeth and pass up buying a Swiffer-- my brain tells me a regular mop or paper towel will do the job, but the commercials make the Swiffer look so much more fun!

I don't read all the catalogs I get. Of course I don't have the willpower to throw out every single one, but most of them go straight in the trash, unless there is a chance I might find something I particularly need.

I don't go window-shopping, and I rarely read fashion magazines, decorating magazines, etc. Just more glossy, beautiful ways to think you need something that you really only want.

I try not to listen to the proverbial Mr. & Mrs. Jones, so I won't be tempted to keep up with the various vacations, new cars, clothes, social activities, and real estate that they are no doubt bragging about.

And though this one might really seem impossible to most people, I don't tend to listen to music radio stations. I used to listen to a great alternative radio station back in the 80s and early 90s, and I was constantly buying records, tapes and CDs of the bands they played. Now I listen to talk programs on NPR and use my iPod for music, and I'm much less tempted to buy new CDs. I still hear music in stores and through friends, and I still read reviews and check things out on iTunes and then buy the CDs I really want. My CD collection may not be the most up-to-the-minute, but I have plenty of great things to listen to, and if I miss some catchy new tune from a one-hit-wonder, I figure it's no great loss.

So that covers some options for the senses of sight and hearing, which are, as it happens, the senses of which a dominatrix is most likely to deprive you. I'm sure there are also ways to save money by not allowing oneself to touch, sniff, or lick things, and if you happen to think of any, please let me know! But be aware that from now on, I will be enforcing a strict policy that all comments be prefaced by "May I speak, Mistress X?" I know you love it, you miserable worms. Thhhwack!

Rule #10: Make Enough Money

Doh!

• Make enough money to support your desired lifestyle

When I really think about it, the sad truth is that my finances really only work because my income has grown to a point where I can afford to live the way I want to. When I made less money, there were certain things that I didn't do, because I couldn't afford them, or because I just didn't want to do them at the time. But over the years, a lot of things about the way I live haven't changed, and I've never felt like I really denied myself much that I wanted. If I lost my job tomorrow, I am a responsible enough person that I would of course try to make major cutbacks, but what if I just had to take a 20% paycut? Would I cut back expenses by 20%? That might be really hard. Would I have the discipline to actually change my habits significantly? Or would I tend to make excuses, saying "well just this one more time I'll take someone out to a nice restaurant/buy cool boots/take Amtrak instead of the Chinatown bus, etc..."
I'm not an extravagant big spender with super-luxurious tastes. There are a lot of things I do without. But like anyone else, I have certain minimum standards about how I want to live, and they don't seem to vary much. Here's an illustration:
This is not drawn with accurate figures, but represents a rough sketch of my financial history. The early years were tough, as I was not making much money while trying to live on my own for the first time. I didn't get into huge amounts of debt, but there were a couple of years where I must have barely broken even, if that. Then there were years when I saved a little, but not much. It's only more recently that my income has grown to a point where I could save a lot, but only because my spending hasn't ballooned to match.
Unfortunately, it's not like you can just select the amount of money you want to make on a checklist when you are hired for a job! (I can fantasize about the HR paperwork: "Let's see, I think I'd like dental plan B, and I'll put $50 a month in a FSA, and hmmm, well, I'd like to be able to afford two homes, a yacht and an all-Prada wardrobe so I think I'll take the $400,000 to $449,999 salary range...check!")
But there are times when you have a choice in the matter. If you happen to have a passion for collecting Rolexes, a career as a social worker might not be the right choice for you! (From what I hear about social work salaries, even having a passion for 3 meals a day might be a problem...)
I may not be able to choose to make as much as I want, but I can choose to approach my career in a certain way and devote a certain amount of energy to it so I can move up the ladder and make more money. I can choose to pursue a job at a company or industry based on its average pay scale. Sometimes I choose not to follow the money, because other things are more important. Yes, grasshopper, as usual, it all comes down to balance.

Rule #9: D.I.Y. vs P.A.Y.

Okay, this may be the wishy-washiest rule ever. But I guess I think of my rules more as philosophical cattle-prods than actual strict instructions.

• Don't pay someone else to do what you can easily do yourself

The thing that comes to mind first when I think of this rule is salad dressing. Who needs $5 more, Paul Newman or me? Why would I buy someone else's bottled salad dressing when I can make my own delicious concoction in about 30 seconds with simple, inexpensive ingredients? (Recipe: one clove crushed garlic, big pinch salt, a few grinds of pepper, dash of balsamic vinegar, about 2 tbsp red wine vinegar, about 6 tbsp olive oil. Shake in a jar and then pour on.)
Here's a few other things where this part of the rule applies:
Do my own nails vs. going to a salon
Walk or take the subway instead of taking a taxi
Clean my own home instead of hiring someone else
Paint my own walls instead of hiring a professional
Buy unfinished furniture and stain & varnish it myself
All of these are things I don't mind doing and can do well.

But that brings up the flip side to this issue:

• Pay others to do anything that you might really f**k up!

When I lived with my ex-, we had a toilet that was constantly running, wasting lots of water. We read our various books and decided it was easily fixable. Well, 3 hardware store visits later, at 9pm on a Sunday night, I was in tears in front of a dismantled toilet and wishing we'd just called a plumber. We did eventually manage to fix the toilet before either of us had to pee in a bucket, but with the extra money we'd spent on non-returnable parts that didn't fit, I think it would have been worth it to call a professional.
Obviously, different people have different skills. If you are good at household renovations, of course you'll save lots of money doing them yourself. But if you're not so good, you may end up incurring extra costs, not to mention the potential for personal injury!
This relates to a recent post at The Happy Capitalist about garage doors and financial planning as do-it-yourself endeavors. He makes the great point that money management is an area where many people don't seek out professional help but probably should. I am an example of this, I think. I (hopefully) have enough basic financial knowledge not to do anything rampagingly stupid with my money, but I could probably get higher returns from my investments. Years ago I told myself I should see a financial planner, but the one whose name was given to me apparently worked on commissions rather than a fee, and the friend who used her felt like she'd been steered towards particular funds for biased reasons. I do pay an accountant to do my taxes--I started doing it when I owned a co-op and my deductions were more complicated. Now that I am renting, I could manage to do them myself, but I trust my accountant to do them better. I'm sure she's found me enough extra deductions over the years to more than repay her fees.

One other factor comes into this rule: time.

• If you can really make better use of the time, pay someone to do things that take up time

For me, it's laundry. I don't have laundry facilities in my building. I have a busy life. Do I want to be running back and forth to the laundromat down the block and waiting around all weekend when I could be doing other things that actually enrich my life? No. So I put all my stuff in a bag, drop it off, and pick it up when it's done, all clean and folded and smelling nice. It costs more, but not all that much more. I used to do my own laundry when I had machines in the basement, and I'll go back to doing it myself if I have that convenience again. But for now, it's worth it to pay someone else.

When do you DIY instead of PAY? Let's hear it, readers...

Rule #8: Work for free...

Free stuff, that is!

• Work where you get something you love for free.

I do not work in a high-paying industry. 15 years into my career, I probably still make less than most first-year law firm associates, and I think I've had a better than average, if not stellar career path compared to other people in publishing. But I've always had a few perks that made it worthwhile. I don't mean perks like free espresso and ping pong tables in the office. One of mine is books: I've always loved to read, which is why I was drawn to publishing in the first place. If I'd had to buy all my books at full price, I'd be many thousands of dollars poorer. The other big perk I've had has been travel. At one of my jobs, I had to go to Europe 3 or 4 times a year, and was usually able to extend my trips into at least a few days of vacation time. I also racked up a lot of frequent flier miles than I was able to use for personal travel, again saving me thousands of dollars. I also save money in other small ways because of my job. I occasionally get free meals. And when it comes to tax time, I can deduct everything under the sun: internet access, movies, plays, museums, magazines-- all of these things very legitimately contribute to my awareness of the book market!
I'm sure I could also have been happy working in some other career where I made more money (and had the espresso and ping pong), but I'm sure there are many paths I could have taken that would have made me miserable. I kind of stumbled into what I do, but I've always felt that it is a pretty good balance in terms of its challenges, its time demands, and its benefits.

Rule #6: Max out your 401k and Roth IRA

• Contribute the maximum allowed amount to your 401k and Roth IRA every year.

I started this with my first job and I'm so glad I did. I decided it would hurt less if I just started out my working life without having that money in my check, as opposed to making the decision to start taking it out later. I like being forced to save money-- I am not so disciplined that I don't need this kind of help! And of course it is great that it is deducted before taxes, and my employer matches a portion of my contributions too.
The Roth IRA was a little harder, since I had to make myself set it up! There were a couple of years where I didn't get around to it, but I have 6 years' worth of maximum contributions now. The first couple were CDs at my local bank, which involved going in and talking to someone at the bank who wasn't very helpful. But now I have an E*Trade Roth IRA account, so for the last few years it's been easy to just transfer the money in, and I've been putting it into mutual funds that will hopefully earn more than CDs in the long run.
Retirement is such a tricky subject. According to the calculator in Quicken, if I continue at this pace, I should at least be able to retire in my early 70s without starving to death. But that assumes a lot of variables that I’m just not sure about: what will my tax rate be when I retire? How old will I be when I retire, and how long will I live after that? Crystal ball, anyone?

Rule #7: The Now or Later Rule

Many people will tell you that before you spend a dollar, you should think about the future value of that dollar if you invest it. The thinking is that if you save money now, it will grow via investments, and then someday you'll have more money to do the things you want to do, and presumably, more time to do them when you're retired. This is not bad advice. I expect to live until I'm well into my 90s based on my family history, and I want to have resources to enjoy that part of my life.
But on the other hand, you can't save everything for a rainy day. Sometimes I ask myself this question:

• If I don't buy/do this now, will I still be able to enjoy what I'm buying/doing later?

It depends on what I'm spending the money on. Here are some examples:

Having a big house: postpone it, I can enjoy that when I'm retired
Elegant furniture: postpone it until I'm old and need to spend a lot of time sitting down or in bed
A car: postpone it, I'll have more of a need for it later, at least until I start to really lose my faculties, or get osteoporosis and turn into one of those little old ladies who can’t see over the steering wheel.
Travel: hmm, I might not enjoy mountain hikes and swimming with wild dolphins when I'm arthritic and decrepit. Better do it now.
Sailing: again, I might not be physically able to do it later, so I should do it now.
Gym membership: there may be cheaper ways to stay fit but if I even want to make it to old age, I don't think I should skimp on exercising.
Education: sure, do it now because it's an investment in the future anyway and I might have Alzheimer's later.
Clothes: who knows, maybe when I'm 80 I'll be rocking Miu Miu instead of muu-muu, but I think it's a better bet to enjoy wearing nice clothes now while I'm still young and slender!

I certainly don't make all my decisions using the "a bus could run over me tomorrow" argument: I do think you should plan for the rainy day. But I also think you should make hay while the sun shines, or at least before your knees give out.

Rule #5: Ask These Questions

This is sort of a follow-up to my rule about shopping. If I must go shopping and buy stuff, I try to remember to ask myself these questions, or at least some of them!

• Do I need it?
• How many do I already have?
• How much will I use it?
• How long will it last?
• Could I borrow it from a friend or family member?
• Can I do without it?
• Am I able to clean, lubricate and/or maintain it myself?
• Am I willing to?
• Will I be able to repair it?
• Have I researched it to get the best quality for the best price?
• How will I dispose of it when I'm done using it?
• Are the resources that went into it renewable or nonrenewable?
• Is it made of recycled materials, and is it recyclable?
• Is there anything that I already own that I could substitute for it?

I think I copied this list out of a book a while back, but I can't remember the source and couldn't find it online. If anyone knows who should be credited, please let me know. Not all of these questions relate directly to finances, e.g. things that are recyclable might actually be pricier, but it's a good guide to being a more responsible consumer in general.

Rule #4: Shopping

• Don't.

Okay, I know that is too simplistic. But it actually is pretty simple: stay away from stores and you'll be tempted less. I am no saint in this department: I work within a few blocks of J. Crew, The Gap, Banana Republic, Club Monaco, Ann Taylor, Restoration Hardware, Armani A/X, 9 West, etc. etc. It is retail ground zero around here and taking a walk at lunchtime presents temptation galore. Just today, in fact, I was dragged against my will into the Gap and forced to purchase a bra. But I'm also near some nice parks and quiet spots to sit, and I always feel more relaxed and ready to face the rest of my day if I just read or relax in the sun. This doesn't solve the problem of getting a mailbox full of catalogs every night: that is where not having DSL comes in handy. When I think how long it will take to order something with dial-up, I just don't do it, and by the next day at work, I've forgotten what it was that I wanted.
When I do go shopping for things that I need, I find it is better not to go with a friend. Sometimes it is great to have a supportive presence, someone to tell you that you don't look as fat as the mirror might suggest. But then, with good intentions, the friend might convince you to buy something that is a little outside your normal look (in my case, this might actually mean "they try to give you a much-needed makeover") and you decide to go for it, despite that little inner voice that says it's just "not you" and then where is that friend when you're getting dressed every morning? That "not-you" item sits in your closet unworn until you give it to the Salvation Army (of course getting a receipt for tax purposes).

Rule #3: Found Money

• If you find money on the street, don't be ashamed to pick it up!

Many people may find this a bit petty. And will this tactic single-handedly propel you into the stratosphere of enormous wealth? Of course not. But why not just do it? I've heard people say it's not "worth the time" to stop and pick up a dime. Well, what else were you going to be doing with that split second? And do you take the time to clip coupons? (and for that matter, did you spend an hour or two putting Google & Amazon ads on your blog to earn a few pennies?)
I've seen guys in sharp suits stand on subway platforms and toss pennies onto the tracks, as if the weight of them was just too annoying to have in their pockets, or perhaps just to prove that a mere coin couldn't possibly be something they'd need to worry about. If you don't want your pants to hang funny, fine, but at least give it to a homeless person!
Now I am not advocating that we all turn into the weird guy with the metal detector, and I do not recommend staring at the ground all the time to search for money, because A) you'll miss seeing a lot of really interesting things, and B) you'll end up with back problems.
But money is money-- if you see it, why pass it by?

Rule #2: Online access

• Use online access for all your banking, investment and credit card accounts

This is another thing that really changed my financial life. Probably a no-brainer for most people by now, at least anyone who might be reading this site, but it's so much easier to be able to access bank accounts, investments, credit cards, etc. online. No more paper statements causing clutter and having to be shredded. I have repeating transfers set up between savings and checking to cover regular bills, and I save the cost of stamps by paying bills online directly from my checking account. And I time the payments and transfers as close as I can to the due dates, so I can maximize every one-millionth of a penny of interest I can earn in my savings account (and feel like I'm socking it to The Man).
I have a repeating reminder in my calendar to make sure I download and reconcile everything at least monthly, though I tend to download credit card transactions weekly. Again, it's seeing the spending and being able to analyze it easily with Quicken, that really motivates me to try to change my habits. Most major banking and investment institutions offer account activity downloads in Quicken's format, as well as Microsoft Money.
Online access has also particularly made a difference in how I understand my investment and 401k accounts, and really keep track of how they are doing vs. my bank accounts-- a good prompt to reallocate assets if they're not earning what they could be.

Rule #1: Credit card use

• Use a credit card for every expense you can possibly charge.
• Use a card that gives you frequent flyer miles or some other benefit that you'll actually take advantage of.
• Only charge as much as you can pay off in full every month-- don't carry a balance.

I know this is controversial-- a lot of people caution against credit card use, saying that it's easy to go crazy spending money without seeing how it affects your bank balance. They'd rather use cash or debit cards, thinking this will keep them in control better, and for some people, that may be the right way to go. But if you can keep your expenses in perspective and not spend more than you can pay off, here's why it's a good idea:
-- you are basically getting a free short term loan for a few weeks, as no finance charges are due if you pay your bill in full every month.
-- you get a printed record of exactly what you spent your money on, monthly and usually a summary at the end of the year. It's harder to keep track of cash. Knowing what you spend your money on is the first step to being able to see where you can save.
-- if you use Quicken or another financial tracking program, you can set up online access and download your transactions right into the program.
-- if the card has a good rewards program, you can save a lot of money. I use a United Airlines Visa, and between credit card use and actual flights, I've earned enough miles for an average of one international round trip for each of the past 5 years. Some of this was based on business use reimbursed by my company, but that's at least $3000 or so that I've saved on airfare. My card has a $50 annual fee but it pays for itself!

Obviously, if you can't pay off the card every month, you should avoid using it, and if you have a credit card balance, you should do everything you can to pay it off, before the high interest buries you! When I was in my early 20s, I ran up a balance and switched cards a few times to take advantage of those "no interest on transferred balances for the first 3 months" kind of offers. But as soon as I had any cash, I tried to pay off the cards. I have known people who had built up some savings, and still carried large credit card debts. "But my savings are earning interest!" they'd say. It makes sense to keep some savings for emergencies, but you're probably paying 10 times more in interest on the credit card balance than your savings is earning, so just pay off as much as you can.