Living on Less Than We Earn

If we want to be free from financial concerns—either as individuals or as families—we need to learn to live on less than we earn. To accomplish this goal, we must be able to—

1. Estimate what we will earn and spend over a specified period of time, generally six months to a year.

2. Make a budget plan that will guide us in spending less than we earn during this period.

3. Combine innovation with discipline in our spending plan.

My wife and I have found several ways to live on less than we earn. You might find our experience helpful.

Food in Bulk

Food in bulk. Up until a few years ago, we tried to save money on meat by buying sides or quarters. But invariably we first ate the cuts of meat we liked best, and the others would often get so old they had to be thrown away. My parents suggested a solution to this problem: Determine the cuts of meat you like best, set aside money in savings for them, wait until the cuts of meat are on sale, and then buy a large quantity. This approach reduced our meat costs by about 30 percent.

Factory Outlets

Factory outlets. Our two oldest daughters had wanted long party dresses, the kind that looked old-fashioned with lots of lace. My wife had priced such dresses and found they cost far beyond our clothing budget. Then a friend suggested she try a factory outlet store. She found some dresses marked irregular, with minor flaws which didn’t detract from the garment’s appearance; others were marked seconds, with serious problems which a skilled seamstress could hide. Other dresses were in perfect condition—styles from the previous year or ones that for various reasons had not sold. Sydney saved about 60 percent of the regular retail prices—and the dresses were exactly what the girls wanted.

Small specialty shops, factory outlets, or stores that deal in freight-damaged merchandise, outdated styles, or day-old food items can save you money. Guides have been published listing outlets for special tools, foods, appliances, computers, books—virtually any consumer product. Check a bookstore that carries local or regional publications for such guides, or make creative use of the telephone book.

The White Card System

The white card system. Our family uses a budget approach called the “white-card system,” wherein we record difficult-to-control expense categories on white index cards. As an example, my wife wrote the budgeted amount for February’s food at the top of one card: $220. Our first purchase for food was made on February 2 and amounted to $165, or three-fourths of our monthly food budget. (We try to do the bulk of our food shopping at one time—usually the beginning of the month. This saves trips to the market where we will be exposed to impulse buying; it also saves on gasoline.) As the purchase was made, Sydney took from her purse the white card labeled “Food.” She subtracted the $165 from $220, leaving $55. Three more shopping trips were made during the month for milk, produce, and other food items. After each purchase, the dollar amount subtracted from the previous balance told her how much she had yet to spend.

A new card is used for each month. When the month is over, it is replaced and the old one is kept for future reference.

We can also use the white-card system to control expenses that do not occur every month. As an example, although buying school clothes is not a monthly expense, we still accumulate money for them in our savings account throughout the year so we can purchase the clothes during sales. We use one white card for each child and put the dollar amount we plan to spend on him or her at the top. Then we list the items they would like to have down the left-hand side of the card. As we determine the various prices of the items, we write them on the cards. In this way we know if we can afford all or only some of the items desired by each child. A prioritizing process must sometimes take place so that we purchase the articles they want and need the most and the ones that are the best buys. As items are purchased, the cost is deducted from each child’s budgeted amount so that Sydney knows how much money is left.

Parents who live on less than they earn provide a proper example for their children. The more adequately we prepare our families for the future, the more successfully they will be able to cope with it. Chet Harmer, CPA, San Jose, California.

Illustrated by Phyllis Luch