In the movie Boiler Room, Ben Affleck’s character spouts out that “Whoever said money doesn’t buy happiness doesn’t [expletive] have any.” Maybe, maybe not. But more than we often admit, money and psychology are inseparably fused.

For most, the act of spending money brings temporary gratification. The key to responsible spending is to avoid becoming “addicted” to this feeling. I’m not suggested everybody with a bit of credit card debt is a compulsive shopper, but I think we have all caved in a little to this universal human weakness.

In theory, the act of buying something should be a balance between the pleasure we get from owning something new and the “pain” we feel from parting with our money. But in the electronic age, the feeling of parting with money is no longer immediate. When you pay with a credit, or even a debit, card, the realization of spent money doesn’t come until the end of the month.

That’s why it’s a good idea to record every transaction, even when paying with plastic. Keeping a running total of your purchases will remind you of how much you’re spending, and create mental obstacles for your impulses that may want to spend more than you should. Why?

Throughout college my motto was “financial ignorance is bliss.” I charged and charged and just ignored my credit card balances each month – as long as I had enough to make the minimum, I didn’t care. But as soon as I began to look at the mounting debts on those statements, it became harder to spend. When I was thinking about my debt, I could be cheap. The only problem was I could easily put it all out of my mind days later.

As I now work to permanently change my habits, I still find it hard to read every statement carefully – after all, it’s not a pretty picture. But the more keenly aware I am of my monthly budget and my long-term goals – every day – the easier it gets to spend less.

On the flip side, I have known people so frugal that every penny they spent hurt. I am pretty sure I will never get to that point, nor do I want to get there. After all, if you can not enjoy something, why buy it at all?

Think you could live with just ten dollars of disposable income per day? It sounds scary if you’re used to enjoying life, but it is not only possible, the ten dollar a day rule is practical, too.

You have heard the argument before, but it’s the little things that we purchase every day that add up and have potentially crippling long-term effects on our finances. That means the coffee, soda, candy, and cigarettes need to go. Some estimates argue that by giving up your daily coffee (or simply by making it at home) and investing $2 - $3 a day you can retire with an additional $25,000. Not too bad! But your caffiene fix is only the first place you can cut back.

Watch What You Eat

For most people eating out is the single biggest drain on disposabe income. And it’s not just fine dining that drains your wallet; daily pastries and sandwhiches can be a culprit. Aim for packing your breakfast and lunch and cooking at home as much as possible. When you do splurge on a nice meal, skip the appetizers and desert, limit your drinks, and get a doggie bag for the leftovers. Make both cooking and frugal dining a habit and you could save a couple thousand each year.

Spend Nothing Days

We take it for granted that because we have money in our pockets and because there are so many things for sale that spending money should just be a part of our daily lives, no questions asked. But little could be farther from the truth. Aside from weekly or monthly errands to get groceries, fill your gas tank, or replenish your medicine cabinet, why do you need to spend money? With a little planning it can be easy to designate one or more days of the week as “no spend days” and get in the habit of not parting with a single cent. If you set a daily spending limit (like ten dollars a day), no spend days are a necessity if you want to make larger purchases on the weekend, say.

Cool Off

Hanging onto your money is not easy. In fact, there are millions of people spending millions of dollars every day to persuade you to part with your money. Frightening, isn’t it? So the next time you are tempted to buy something that you know you don’t “need”, force yourself to wait three days and then come back. While you are waiting to buy, ask yourself three questions: 1. Can I afford this purchase now, without sacrificing more important needs and without paying interest? 2. What long term value will this item deliver? 3. Have I done my homework (ie, am I getting the best product of its kind at the best available value?

Nobody can get out of debt without the right debt management plan. Pick a plan that is too aggressive and you may not be able to keep up; go with a “too affordable” plan and you won’t get out of debt as fast as you should. One the flip side, if you are too aggressive with your debt management plan and put too much money to debt each month you may not have enough left over for necessities or emergency expenses. That can lead to new charges on your credit cards, negating your hard work. Read the rest of this entry »

The Automatic Millionaire Workbook is the follow up to Personal Finance Guru David Bach’s best-selling the Automatic Millionaire. Both books cover the same material, with the workbook providing exercises to evaluate your financial situation and implement your personal plan.

Bach’s anecdotes about his clients’ success stories are motivating and I agree with his concepts, though I think some are better suited for people who have “settled down”. If you’re like me, moving and changing jobs every couple of years, it’s a bit trickier to put all your bills, savings, and investments on autopilot. What worked one month may not the next.

Bach’s advice can be summed up as: find and eliminate your “latte factor”, pay yourself first, make it automatic, and own your home.

Bach has trademarked the “latte factor”, but economists have been onto this principle for years. Basically, tiny purchases you make everyday, such as coffee, cigarettes, or candy bars, seem diminutive, but over time add up to staggering amounts. Eliminating these daily costs is an important step toward long-term wealth.

Pay yourself first is taking money from every paycheck, for retirement and an emergency fund, before you pay a single bill. Making it automatic is the use of payroll deductions or previously-scheduled electronic bank transfers to save and pay debts before you see a single penny in your checking account. I have been using this for a few months and have already been impressed with how much faster I am paying off my credit card. Though the monthly amount I am paying hasn’t changed, I no longer skimp out on a payment some months because something else came up that I used the money for.

Finally, Bach insists that everybody should own their home. Again, it’s hard to disagree with him here, but for many young professionals home ownership is so far away it’s almost laughable. Certainly it is a good reminder of an important long-term goal.

I would recommend both the Automatic Millionaire Workbook or the Automatic Millionaire for anybody looking for a system to simplify the difficult task of getting out of debt and saving for retirement, with the understanding that the younger you are, the less you may be able to implement right away.