Your money never goes far enough, uh?

This sucks.

I still remember the time when a month was almost by eternity longer than our monthly income.

This is when we got in debt. I didn’t look at my payslips, I didn’t look at my bank balance and I didn’t care what things cost.

Irresponsible, you think? Dumb?

May be. But most of all it was fear.

When I finally looked, we were in so much debt that fear was irrelevant: I either had to do something about it or we were going to the bankruptcy court.

I was only grateful that there are debtors’ prisons any longer; otherwise my son would have been growing up like the Little Dorrit.

And I did something: I read, I studies, I analysed and I number crunched.

I played around and I used my knowledge of chess (however much I had forgotten about the game) to experiment with strategies for money management. More importantly, I applied these strategies.

As I‘ve said before we made our money go further (and paid off all our debt in three years) by doing these two things:

  • We increased money management; and
  • We increased the amount of money to manage.

Today, I’ll introduce you to the ERR strategy for money management.

I developed it; used it to get out of debt; and still use it because I know that winning the game of wealth is about how much you keep, not how much you earn.

The ERR money management strategy is about three things:

Of course, using it assumes you already have a budget.

When you are serious about winning the game of wealth – irrespective of whether you are paying off debt or building capital and investing – you need a budget (Note: I’m planning to publish a guide on budgeting and budgeting tools within a fortnight).

A budget doesn’t have to be a whalebone corset; it can be like a comfortable shoe.

If you don’t have a budget already, stop reading; go away and come back when you have one. You can use this budgeting tool to budget.

If you’ve done this one right, you’ll know:

  • Exactly how much is your income (weekly, monthly and yearly);
  • How much you spend (it is important that you have this to within couple of pounds; no approximations); and
  • On what you spend your money.

Simply knowing all this is great but not enough to get where you wish to be financially. You have to use this information to make decisions about what to eliminate, what to replace and what to reduce.

One: Eliminate (waste)

Most of us waste a lot. We did! We used to waste over £2,000 every month; gosh, this is £24,000 per year. No wonder we had so much debt.

You are likely to waste a good chunk of your money as well. Great thing that you have a budget now; scout it for waste.

In my experience, up to 80% of the waste in household budgets is on

  • Food;
  • Insurance; and
  • Entertainment

Do you waste food?

To find this out you don’t need systematic research and days of number crunching.

Just look in your bin(s): if you need to empty these often and they contain the food for which you paid good money a week ago you are wasting.

We found that we were wasting up to £400 every month on food. We were in a cycle of buying food, not cooking it and eating out or getting ready meals instead.

All I had to do to cut down our food waste down to an acceptable level – the occasional limp salad – was to realise that we are not imaginative cooks. This means, we can’t look at ingredients and make a meal; we need to start with a recipe.

Instead of buying food and then thinking about the meals, we started planning our meals and buying ingredients for what we’ll cook. We also cook more than we need for one meal and freeze the rest. This way, we use what we buy and we always have ready meals.

This is how within couple of months we were spending on food a third of what we used to spend.

Do you waste on insurance?

Being insured is prudent; being insured when you have dependents – young children and a partner – is a must.

Overpaying for insurance though is not necessary. It is time to make an inventory of all insurance you carry. Notice how much you pay for it and when was the last time you changed the insurer (house and car mainly). If you have not changed in the last couple of years you are over-paying.

The solution is simple: shop around for house and car insurance every year. You will always find a cheaper deal than if you simply renew. And you know what? You just need to tell your current provider you found a cheaper deal and, more often than not, they’ll match it.

Do you waste on entertainment?

I come from a hedonistic culture; I love having fun. I believe that you shouldn’t forget the Cinderella rule of personal finance: have fun and budget for it. But entertainment can become a lot like hard work.

Look at your statements and check how much you spend on entertainment; how many times you eat out, how much you drink, how many times you go to the theatre and the cinema.

Then ask yourself whether you enjoyed it all or some of it felt like hard work?

Cut out everything that felt like hard work. It is your life after all and when it comes to entertainment it should be fun; otherwise it is waste.

Two: Replace activities and routines

If you wish your money to go yet further, the next thing to do is to look for the items on your expenses list that you’d like to continue doing but can change the way you do them.

This is where the fun really begins. Because ‘replacement’ is not simply about being frugal; it is about becoming a ‘frugal artist’.

There were many things we never gave up when we were in debt; we just learned to do them differently. Here are some examples:

  • We started making all our bread; this way we always have fresh bread, I know what is in the bread, it relaxes me and it costs a fraction of what we’ll pay for inferior bread. No brainer.
  • We entertained more at home rather than go to restaurants. It is cheaper, you can really chat to your friends and can include your children. You can also add some spice to having dinner parties to take off the pressure: I had a bet with our friends that I can serve three course French menu dinner for £1.50 per person. I won!
  • We still went skiing. It is just that we booked a cheap flight, borrowed a friend’s house and I bought half price ski passes at mid-day. This was also character building.
  • I kept my exclusive gym membership by bartering it for writing and business consulting.

I can expand the list but you already get the idea. You know the best thing about learning to ‘replace’? It stays with you long after you’ve paid off your debt because it is fun and brings a great sense of achievement.

Three: Reduce consumption

We all over-consume. You need clothes, I agree; you may even convince me that you need labels in your wardrobe.

But do you really need fifteen outfits?

Do you need forty pairs of shoes; twenty handbags?

I love my shoes and my handbags as much as the next woman. I used to have forty pairs of shoes. Then I got rid of 38 pairs and bought three new pairs.

You got it! Now I have five pairs of high quality shoes, including my running shoes.

When you look carefully at what you do, and how you do it, you’ll probably find that you over-consume on many fronts.

I am far from a minimalist and still I’ve reduced consumption in almost all areas of my life. Better for me, for my bank account and for the environment.

Try it. It is very liberating.


Okay, enough writing. I’m off to apply the ERR money management strategy to our budget again.

And I am ready to make a bet with you that I’ll trim between 15% and 20% from our monthly spending again (yeah, I haven’t done this for about a year).

Would you like to play?

We can use the ERR money management strategy together over the next week. I’ll let you know how I got on next Tuesday and you can share in the comments.

What do you say? Shall we play the Game of Wealth?

photo credit: Brother O’Mara via photopin cc