My spending has gone off the rails recently. I am spending within my means but not spending prudently. Have bought a lot of stuff that I don't need and is not necessary for life on this planet. So, now I am thinking:
Q: How do I stop?
A: No more credit!
The answer has to be no more credit. I actually pay my credit cards off in full every month, but I realise that is not enough. It's not good enough to think "I can pay that off next month". Much better to only spend the funds you have rather than dipping into credit cards, and have potentially big bills you'll have to pay off the next month (perhaps using savings, or a loan even)!
The Stratagem
At the start of the month, plan to have £5000 in your bank account at the end of the month after regular monthly bills (like mortgage).
If at the start of the month you have > £5000 (after monthly bills), then the extra > £5000 is yours to do with as you please. No rules. That goes into the fund "For Spending". You can use it to overpay loan/mortgage, invest, or spend on things that bring you pleasure.
If at the start of the month you have < £5000 (after monthly bills), then subtract from the "For Spending" account the difference: £5000 - end of month balance. You cannot do any of overpay loans/mortgage, invest, or spend on things that bring you pleasure.
Non essential things come from the "For Spending" account, and you shouldn't let it go negative. If it is negative you should stop buying unnecessary things.
Credit Cards are paid off immediately (or near enough). The whole idea is that you don't have any balance on Credit Cards. And this is why we say you should plan for £5000 at the end of the month (after monthly bills) because any necessary bills during the month would reduce that £5000 in your current account. £5000 is picked as being a nice number, and it's unlikely we'll have any bills that reduce the current account to £0 before the end of the month.
Simplified:
- Rule 1) On pay day, calculate how much you'll have before next pay day based on regular monthly payments.
- Rule 2) > £5000 (as calculated in [1]) adds to your "For Spending Account".
- Rule 3) < £5000 (as calculated in [1]) subtracts from your "For Spending Account".
- Rule 4) The "For Spending Account" is your fund for anything non-essential and you should aim to never let it go negative.
- Rule 5) No (more) credit is allowed. The balance of your credit cards should be zero pretty much all the time. When you spend with a credit card you must pay it off as soon as possible. Your credit card direct debits will be £0 as long as you maintain this stratagem.
