One evening I’d splashed out on an extravagant restaurant meal and exceeded my target daily cash burn rate of $50 per day.
The next day I went on a monastic mission to buy only essential items from my local department store: socks, bandaids and nylons. I vowed to only buy basics that day to get back on track financially.
I virtuously reached the check out with just stuff from my list. Then suddenly I needed strategically-placed truffle-flavoured popcorn and eucalyptus-scented candles like an altitude-sick mountaineer needs oxygen.
Clever retailers use all kinds of tricks to lure us in to spending discretionary moolah (like placing enticing treats near the cash register).
Cash burn rate
What exactly is a cash burn rate, you ask?
It’s the amount we expend daily on entertainment and non-staple items (like those eucalyptus-scented candles). Honestly, life would be blah if we only spent money on strict necessities.
I chatted with four folks recently to learn what their daily “cash burn rate” is.
COLIN, burn rate: $30 per day
Top temptation = ramen rampages!
Colin is a single guy paying steep downtown rent. Staying in the black on his modest income is tough.
He funnels money from each paycheque in to sub-accounts for gas, rent, insurance and groceries and allows himself a maximum of $30 per day for fun money.
“Once the ‘burn money’ is gone, I never draw from my other accounts,” notes Colin.
He admits his willpower wilts like a cooked noodle when it comes to Asian noodles though.
“I just love ramen,” says Colin laughingly. “I love junk food too. But I’ll ask myself, ‘What have you done?’ when I’m at home eating a bunch of chips and candy. The high is definitely fleeting.”
Colin also loves the social high of living in Vancouver’s densely-populated, bustling West End.
“I can run in to about ten people I know in a movie theater lineup – which is great, but it can ruin my budget,” says Colin. “I used to end up drinking many glasses of alcohol after the movie with these friends.”
TIP: Try to find cheaper alternatives that don’t totally cramp your social life.
For example, Colin has switched to ordering cranberry juice or tap water nowadays to avoid fiscal and cranial headaches.
LINDSAY, burn rate: $30 per day
Top temptation = baby bling!
Like Colin, Lindsay allocates funds from each paycheque she and her husband earn in to sub-accounts for life’s needs and uses surplus funds for “wants”.
Her main splurges are restaurant food, manicures and specialty coffee.
Lindsay is also a new mother. She admits it’s easy to give in to buying popular nursery items and toys.
Lindsay usually sources secondhand shops for gently slobbered upon playthings before searching retail stores. The upside of thrifting is you can also declutter and donate toys your baby rejected.
TIP: Check out your secondhand options before paying full price.
Lindsay is a quite a disciplined shopper, but she often brings her mom along with her when she feels the urge to splurge.
“She’ll ask me ‘do you really, really need that thing?’ when I want to buy something just for fun,” say Lindsay. “I’ll usually put whatever I don’t really need back on the shelf after she challenges me.”
TIP: Ask a friend who doubles as a “retail therapist” to accompany you to the mall.
CLAIRE, burn rate: $8 per day (this isn’t a typo)
Top temptation = kitchen remission!
Claire has a remarkable lack of entitlement.
Ditching dish duties for her family of four and eating out is Claire’s weekly indulgence (which adds up to about $55 – roughly her total weekly ‘burn’).
“I also waste money on buying too many books and magazines. I would save so much money if I checked them out of the library,” confesses Claire.
TIP: Consider options to borrow or rent instead of buying.
Claire is a former financial advisor. She embraced frugality after rescuing too many clients from dire financial peril.
“So often people take on debt because they have status cars, purses and other junk they buy just to impress others,” says Claire. “I’d rather have minimal debt than impress my neighbours.”
TIP: Don’t try to keep up with the Joneses. The Joneses are broke.
SASHA, burn rate: $25 per day
Top temptation = gaming gorges!
Sasha is also a single person who must ration her earnings carefully like Colin does to afford the stratospheric cost of living in Coal Harbour.
“I have a loose ‘burn’ limit of $25 per day for myself. If I go over that amount one day, I’ll cut back another day,” explains Sasha.
Sasha’s main extravagances are expensive beverages and restaurant food.
“I also have a weakness for video games,” she says with a chuckle. “They’re so cheap you think, ‘Well, why not get another?'”
Sasha also attests she’s more likely to overspend when the weather – and her mood – are great.
TIP: Recognize your spending triggers and be extra vigilant during those times and at those places.
Managing your burn rate
Sasha is not alone. Mood, the time of day or year, place you shop are powerful impulse spending triggers. Credit Counseling Society of Canada’s website offers excellent advice on how to recognize spending triggers and curb debt. It’s easy to burn money and our spending decisions are often motivated by environmental and psychological forces.
For instance, did you know you’re more prone to overspend when you’re tired? And you’ll likely spend more in subtly-lit, lavishly-decorated stores than garishly-lit, sparsely-merchandised stores?
While seemingly small purchases can boost your mood, be mindful that your spirits will soon crash if you rack up your credit card or deplete your savings in the process.
If you chronically binge buy, try the silo approach – either analog or digital:
- Analog: Divide cash – yes, actual paper currency – from each payday in to jars. Each jar should contain realistic amounts for necessities. One jar should be for trivial items. If you raid the other jars to pay for trifles, you burn yourself.
- Digital: You can also regain control of your finances by setting up auto transfers via online banking that coincide with your paycheque. This allows you to immediately put money in to sub-accounts earmarked for housing costs, food, transportation and bills.