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How To

Budgets for the Aspiring Rich

In today’s world every cent counts. Make them count even more by learning a thing or two about how to successfully live on a budget. MICHAEL COTTON switches on the desk lamp and flips through your receipts.

‘The very rich are different from you and me,’ Scott Fitzgerald once said to Hemingway, or so the story goes. ‘Yes,’ Hemingway replied, ‘They have more money.’ But in Hemingway’s day, the rich also knew what to do with their money. Or at least how to enjoy it. But the days when being rich went hand-in-hand with yacht lessons, boarding school, and peasant-shaped blind spots are long gone. So if the rich don’t know what to do with money, and the poor (we can only suppose) don’t know what to do with it, who does?

You do, or at least you will by the time I’m through with you.

‘Budgets’ or ‘You can’t shut down national parks to cover the MasterCard bill’

How much did you spend on groceries last month? How much on beer? Gasoline? Pizza? Whipits? A brief flip through your bank or credit-card statements should give you a pretty good idea. The first rule of managing your money is to figure out where it’s been going. Then you can be appalled at the amount you’re blowing on midnight pay-per-view authorizations and resolve to get a grip on yourself. And only then you can sit down with your financial statements, a pad of paper, your significant other (if you live with one), and a stiff drink (you’ll need one): because it’s time to work up a household budget.

First, figure out your monthly take-home income. Now subtract 15 percent. This is your monthly working capital. (Don’t worry, your 15 percent will be returned to you later. Right now it’s either in savings or paying off your credit cards. Regardless, it took the keys while you were sleeping and split.) Subtract your fixed expenses—rent or mortgage, utilities, student loans, car payments, insurance, etc.—from your monthly working capital. The amount you have left over is your food and discretionary budget. Don’t spend it all in one place.

I recommend you lump your food and discretionary budgets into one category, since you really do have a great deal of flexibility in how much you spend on food. If you’re not saving up for anything, you can eat out more; if in a single weekend your three favorite bands are coming to town (read: admission/bar tab), your ex-roommate is getting married (read: dry cleaning), and your car is repossessed (read: maybe you should have gone on a budget sooner), you can drop to ramen for a little bit. Better to voluntarily eat cheap than to run out of cash a week before payday. And having a budget can ensure that you don’t do that.

Make sure you set aside a realistic amount for food and entertainment. It won’t help you to set it too low and then have to reach for the credit card to buy groceries. You’ll end up hurting yourself worse than if you were to just spend all you make.

Once you’ve got a budget that can be reasonably adhered to, you should start looking for ways to cut costs. When your lease is up, can you find a cheaper place to live? Can you get by with a less-omnivorous cable channel selection? Can you ease up on the air conditioning in the summer or put on a sweater in the winter? Find cheaper car insurance? If you can find two or three ways to pick up $20, you can give your budget some breathing room. Doing that will make it easier to stick to, which will improve your financial position in hundreds of little ways that—believe it—add up over the years.

Your budget doesn’t have to be rendered in Michneresque detail, with entries for shoelaces and found change; a simple rent/bills/food schematic will suffice. The more specific you get, however, the more control you’ll have. And the more control you have, the more you’ll be able to do with your money.

What about when you can stick to the budget but your significant other can’t, or simply doesn’t want to? This is a problem that must be solved from two different directions at the same time. The first is our old friend Compromise, a feature of successful relationships from desperately last-minute prom dates to the House Ways and Means Committee to your grandparents who’ve been married for 160 years. Talk about what the other person does and doesn’t find of value in the budget and share what you’re both thinking. (Don’t share the thought that they’re a spendthrift-consumer-corporate whore who wants to be in debt for the rest of their lives. That won’t help.) Once you get to the root of the issue, find ways to make the budget accommodate the things that both of you find most important.

The other avenue of attack is to break out the calculator and figure the opportunity costs of not following a budget. Focus on the things you’ll be able to afford later if you don’t blow all your money today. Concentrate on the other person’s dreams. (If you work in marketing, this should come naturally to you.)

Don’t be afraid to adjust your budget as your life and your circumstances change. Say you get into gourmet cooking and decide that you’d like to prepare more meals at home and go out less often. Yes, you can spend your extra pocket change raiding Dean and DeLuca or upgrading your kitchen equipment. You should allow your budget to evolve so that it continues to reflect your lifestyle and your goals. Cancel the Folio Society membership, spend the difference on latex body paint. It’s your call.

You will be one of the few who actually has a budget; most people, in fact, don’t. But that’s okay—most people have the same relationship with their money that a 13-year-old groupie has with Jimmy Page.

Your budget really is your ticket to economic freedom. It’s what allows you to spend money on the things you actually want to spend it on. In a greater sense, having a budget means you’ve taken the biggest step toward getting what you want out of life—be it global domination, a well-cut suit, or getting shitty, shitty drunk.

I’m partial to all three.