Gails Blog

You know that old adage that says if you want to sell your house, bake cookies. It seems when a house smells wonderful - be it fresh, warm bread or hot, chocolately cookies - people are more attracted to the home.

Well guess what. It doesn’t just hold true for house sales. It seems that what whets our appetites also influences us to be more impulsive when it comes to buying other stuff. Aromas affect us on a subliminal level - which is one reason we often underestimate their power. We can recognize close to 10,000 odors. And we breathe about 30,000 times a day, so there’s lots of opportunity for those scents to hit our limbic system — an old area of the brain relating to memory and emotion - where they can be turned into motivation.

According to the Journal of Consumer Research, in one experiment, the aroma of cookies influenced tightwad women to spend more on clothing. Go figure. Now we’re going to have to walk around with clothespins on our noses to get out of the store with our budgets intact.

Then there’s the case of the shampoo that went from last place on general performance to “easier to rinse out, foamed better and left the hair more glossy,” when only the fragrance had been changed.

In another experiment, the fragrance of sweet citrus was pumped into the mall’s air for a week in amounts so small that shoppers couldn’t tell the scent was there. But the shopkeepers could tell when they watched their sales jump by $55-90 per customer, even though the experiment was done in a traditionally slow sales period and stores were instructed not to offer special promotions.

But it’s not just smell that grabs us by our purse-strings. It seems that our exposure to visual influences on our appetite reduces our ability to defer our gratification. In one experiment participants played the role of magazine photo-editors, choosing among either appetite stimulating pictures of food or non-appetite stimulating pictures of nature. All the participants were then asked to participate in a lottery that would either pay them less money sooner or more money later.

Those exposed to the food photos were 20% more likely to choose the lottery with the chance of a smaller, more immediate payoff than those who were exposed to the photos of nature. It seems, with appetites at attention, we cannot wait to be satiated.

Even our ears can be used against us. Did you know that music in a major chord make people buy more than music in a minor chord? Uh-huh. Some obsessive marketer actually measured this, and now when you’re listening to all that music as you shop, you can be sure it’s been designed to engage your buying impulses.

Sigmund Freud suggested that we are motivated by conscious and unconscious forces. The next time you’re bopping down the aisle and you slow down to examine a new product or attractive item, keep in mind you’re marching to some marketer’s drummer. Yup. Certain beats of music will slow shoppers down, making them dawdle in front of goods on display. Combine that with the right visual stimulation and a scent that moves your to feel relaxed and open to new ideas and you don’t stand a chance of getting out the door without blowing your budget.

I received a question yesterday that I’ve received before about the Magic Jars and how to get started with them. Rick wrote:

We are starting the money jar system tomorrow since it is the first of the month. We are behind on our bills going into the new month. How do we start the money jar and continue to play catch up at the same time?

People seem to have difficulty figuring out where the money for the jars comes from. It’s as if they think this is “extra” money, not money they would have been spending all along. So…

First off, the money that goes into the jars is the money that you would have been spending on things like gas, food, clothes, entertainment and medical costs - all your “variable” expenses. It’s not EXTRA money.

And the place to start in changing your money management is not with the jars. It’s with a balanced budget. You can’t actually make the jars work for you if you don’t start by making a budget that balances

Crap! Really! I have to do the math

Darn tootin’. You’re going to have to do some hard work before you can clean up the mess you’ve made of your money. If you skip this step you’re lazy, uncommitted and looking for an easy way out. There is no easy way out. You’ve muddle up your money and now it’s time to do the detail to sort it out. So get out copies of your bills, a pen, a piece of paper, a calculator and get ready to do the math.

Go to Gail’s Interactive Budget and the instructions, Gail’s Guide to Building a Budget. They’re on the right hand side of this page, under Gail’s Other Pages. Follow the instructions and make a budget that balances. You can’t have a negative number at the bottom. It has to be positive or zero; the budget has to balance.

If you can’t make it balance, you have a problem. Either your expenses are too high or your income is too low. Start by cutting out EVERYTHING that isn’t essential to keeping body and soul together. This may include cutting back on fixed expenses. Cable, cell phone and telephone bills are one place to look. Turn down your thermostat and put on a sweater to save on heating costs. Get rid of a car you simply can’t afford to keep. If that’s not enough, then you’re going to have to find a way to make more money. (Am I starting to sound like I’m repeating myself yet?)

Once you’ve balanced your budget, the Interactive Budget Worksheet will tell you how much is going into each of the jars. I’m sorry, you can’t store this budget, but you can print a hard copy for on-going reference, and I recommend you do so.

Okay, now we come to the jars. This money is your “variable” spending. Assuming you’ve balanced your budget you now know how much to pull from your bank account each week for the jars. Some jars, like “clothing and gifts” or “other” may remain empty until you’re back in the black

All the rest of you money stays in your bank account and can be used to pay your bills. Your mortgage/rent is a fixed expense, and assuming you’ve balanced your budget, the money is in the bank to pay this bill. Ditto your car payment, insurance, childcare - everything that’s at the top of the Interactive Budget under the titled “Fixed Expenses”.

Two more things: First, if you can’t figure out how much you should be putting toward debt repayment, use the Own Up to Your Debt Worksheet (on the right hand side of this page, under Gail’s Other Pages) to determine how much should be going toward your debt repayment.

I know the budget says it should be 15%, but if your hole is deep - as is the case with many of the fams I work with - you may start off budgeting 30%, 35% or 40% of your income to debt repayment - whatever it takes to get you out of the red within three years or less. If it looks like it’s going to take longer, or your debt repayments are throwing your budget off kilter, you only option will be to MAKE MORE MONEY.

Second, you can’t sacrifice savings in the name of paying your debt off faster. Sorry, that’s cheating. You have to set aside some money each month for emergency and savings (which is long-term savings, not saving for a car or a vacation), so that you’re working with a balanced plan.

I know there are those who believe you should pay off ALL your debt before you start to save, but I don’t agree. If you have nothing set aside in an emergency fund, the first time you run into a problem, you’ll go back to using your credit; very defeating emotionally.

And if you don’t start the habit of long-term savings TODAY, you won’t ever start.

Ever heard of inertia? That’s the thing that keeps a body that’s at rest at rest until something acts upon it. It also keeps a body in motion in motion. If you aren’t saving today, you’re a body at rest. I am the force that has been sent to act upon you to get you moving in the right direction.

Lots of people are using the jars all over the world. I’m really surprised that such a simple - and really old - idea has caught on in such a big way. I think it’s because it’s a way to make money management really concrete. When the jar’s empty, you’re done spending.

And the jars really work. I haven’t worked with a single family to date who haven’t had money left in the jars at the end of my time with them, despite my having cut their budgets by 50%, 65%, or 85%! Wow! So y’all can live on less, if you’re determined to change your circumstances.

Course, determination is a big thing. If you’re at all wishy-washy about what it’ll take to get you out of debt, if you just can’t work up the guts to do things differently, it won’t be the jars that failed.

The single biggest reason why people can’t live on a budget is their failure to plan for inevitable expenses. Sometimes people refer to these as “unexpected” expenses - I’m not sure why, since some of the things they include as “unexpected” aren’t unexpected at all, just irregular.

“Unexpected” is really just another way of saying, “I don’t want to have to think about it.” Be honest. Did you really think you were going to get through the year without your seven-year-old car breaking down at least once? Did the fact that you needed new tires really come as a surprise? Did you actually think the window that got broken last summer was going to mysteriously heal itself?

Home maintenance is one of the areas where people act all surprised when the bill comes due. I tell people they should be budgeting between 3 and 5% of the value of their home for annual maintenance. So if your house is worth $200,000, you need to be setting aside a minimum of $500 a month to keep it in ship-shape. People just about choke when they work it out for themselves. A couple with a $400,000 home informed me there was no way they could afford $1,000 for home maintenance. Really? Your most important asset? You can’t afford it’s upkeep? So you have people paying through the noses on their mortgages watching their homes crumbling around them because they don’t want to have to deal with the realities of home maintenance. That’s how the new roof becomes an “unexpected expense.”

The same holds true for household appliances. Do you have an appliance replacement fund? Are you saving up for the next electronic item that will fizz out, or will it be an “unexpected expense?” How about the new snowsuits the kids will need next winter? It’s not like these things aren’t inevitable, it just that no one wants to think about them, so we act all surprised when we’re faced with the expenses. And then we whine about not having any money.

The following oversights can also have a big impact on your budget:

Annual costs. It’s easy to forget about the annual car, home or life insurance coming due this month if you don’t have it built into your budget as a monthly amount. Ditto your car licence, your health club membership, and the kids’ soccer fees.

Then there are your property taxes, if you pay them directly. And if you’re self-employed or working on a contract basis, you should also be setting aside the taxes you’re going to have to come up with next April.

You may be able to wear your jeans until the bum is bare, but the kids will outgrow their clothes before they wear them out, so you should have some money budgeted for them on a monthly basis.

Pet care cost are predictable till Poochie gets sick. If you don’t have pet insurance (I’m not convinced of the value of this, but am willing to entertain arguments), then you should have a little set aside monthly in your budget for your inevitable trip to the vet.

People don’t budget for gifts. Whazzup with that? In January, I start setting aside the money for birthdays and Christmas. I love buying presents, but always do so knowing I’ve got the money to cover them sitting in my savings account.

Medical costs. Yes, I know we have universal medical coverage, but not everything is paid for, no matter how “universal” it is. So if you aren’t budgeting for things like glasses, the dentist, cold medicine and pain killers, and all the other stuff you’ll end up buying, you’re bound to run into some “unexpected expenses”.

There are a whole bunch of things in your budget that are going to get more expensive over the next year. Some big signals include the cost of heating, gas and, eventually, food. If you’re not building a buffer into your budget to take these increased costs into account, your budget will fail, yet again. So add a 10% buffer to each category. That should take some of the sting out of future higher costs and keep your budget on an even kilter.

Y’all have been very patient, waiting for the numbers I promised at the beginning of the week. When you worked out what you’ve been spending, were you surprised? Think about how you have been managing your money for a minute. Have you been keeping track? Are you aware of where your hard-earned bucks are going? Do you know exactly how much is going where?

According to The Stats Man, the average household spends $53,160 a year. For y’all who don’t make that much, I don’t want you to just shut down and go away. We already know some people make more - and spend more - than others. This is an average. But we also know that how much we make has very little to do with how much we spend; not since the advent of credit.  So keep reading.

If you’re a member of a family with two grumps and children, you’re spending even more: $72,030. If you’re a lone female parent, you’re spending $42,060. If you’re a couple over the age of 65, you’re spending $40,390. And if you’re a singleton, you’re spending $29,680.

Surprised by the numbers? Hey, I don’t make ‘em up, I just report them. Since these are averages, there are people who will be below these numbers. But there will also be people who are above - which is what “average” means, right?

So what do you think the average family spends on food? On clothes? On shelter? Do you spend more or less on transportation if you’re a renter? Some of the numbers are counter-intuitive - they’re not what you’d expect. Some just make me scratch my head.

BTW, people are always asking me what they should be spending on food and my answer is always the same: I don’t know. I don’t breakout for these categories because they’re so dependent a whole bunch of other considerations including how much you make and what you’re spending in your other categories. The big breakout I use is for LIFE, into which all these things fall. On LIFE, you should be spending no more than 25% of your net income - unless, of course, you have no consumer debt, in which case you can scoop the 15% from debt repayment and add it to your other categories. See, there’s huge benefit to being consumer debt free: You get to spend more money on the stuff you want. 

People are always scratching their heads about where their money goes. I know because they tell me. And because I’ve only worked with one person out of 130 on the show who actually knew what she was spending. Imagine. That 0.76% of people who knew what they were spending. Astounding.

So, do you know what you’re spending every month?  Guess what Statistics Canada says the average Canadian spends a month (based on 2005 numbers).  Go ahead, guess. No, I’m not going to tell you yet. I want you to figure out what you’re spending first, and then I’ll give you the average, and how it differs for couples with children, lone parent female families, and one person families. 

Don’t even know where to start? Grab your last month’s bank statement(s), credit card statement(s), and line of credit statement(s). Now, break every transaction into one of the following categories:

• shelter (mortgage, rent, hydro, heat, taxes, maintenance)
• services (cable, telephone, security, home-cleaning, cell, internet, childcare, health, pets) 
• food (everything you put in your mouth and swallow, including restaurants)
• Shopping (any STUFF you bought for yourself and anyone else — EVERYTHING)
• transportation (car payment, gas, repairs, highway tolls, taxis, bus, train)
• entertainment (movies, books, magazines, hobbies, gym, club, sports)
• bank fees (service charges, ATM fees, NSF fees, DON’T INCLUDE INTEREST)
• interest costs (from everywhere)
• debt repayment (don’t worry about splitting out interest and principal, just add all your debt repayment amounts together)
• savings

Don’t want to be bothered spending the time figuring out where your money is going? Go away then. That’s right. Scram! Keep on digging yourself into a hole. When you’re ready to put some effort into making things right, you’re welcome to come back. I’ll be here, and I’ll be happy to help. 

Of course, once people figure out how much they’re spending, they might find they’re just not making enough. Which brings me to my next point. I got a question this week from a woman who writes:

I would love to hear about people’s second and third jobs. I need to be able to work from home evenings and weekends as much as possible, but I want legit employment! I am not interested in starting my own business (I would need a really good idea; none yet). So I need options! I used some of my holidays for a second part-time and temporary job last year, but that opportunity may not present itself this year. I agree that if you want to spend it, you gotta earn it!

What a fabulous question. I’ve watched lots of people work from home in some pretty unique ways:

• medical or legal or other types of transcription,
• online data entry
• at home fast-food order processing
• sales: think clothing, toy and houseware parties website creation
• freelance writing
• dog-walking
• house-sitting
• meal preparation for shut-ins
• personal shopping
•  on-line board hosting

Since I’m not the keeper of all the good ideas, I’m opening this one up to y’all. Write your best ideas for this chick and let’s see if we can get her some more work! 

I was shopping with my daughter in Payless when a woman heading towards me pointed at me and said, “I watched you on TV last night, which is why I’m shopping here instead of there,” she laughed as she pointed to the more expensive shoe store across the mall. Her husband who was toting a tot on his shoulders laughed too and said they were living on the jars.

Everyone wants to use the “magic” jars. No matter where I go, people tell me they’re living on the jars and lovin’ it. Wow! Something so simple, eh?

Since I put up the website a week ago, the most questions I’ve had have been about the jars: how much to put in them, how often to refill them, and lots more.

There’s no formula for how much goes in each jar. It really does depend on each individual budget. But you can figure this out for yourself by going to Gail’s Guide to Building a Budget and following the instructions, and the link to Gail’s Interactive Budget Worksheet. This worksheet will show you what should go into the jars. It’s a bit of trial-and-error to find the right mix, but keep at the budget until you balance and you’ll have a really good road map to move forward.

The jars aren’t actually the “magic” in making money work; the budget is. The real magic is the fact that people seem to want to use the jars - people hate to budget - and I think it’s because it’s so tangible. You decide how much to put in the jars, you put the money in, you live on it, you can see when the dough’s running out so you have to stop spending, and you get a real kick out of having money left in the jars.

That’s the part that really blows my mind. I cut the budgets of people I work with by 50%, 70% as much as 90% — what, you didn’t see that show?  – and they still manage to have money left at the end of the month. Whazzup with that?

I’m just working with a couple who had to figure out how much went into the jars as their first challenge. They loved it. Not at first, though.

When I gave them the challenge, they were really disappointed. They had hoped I would balance the budget for them, which is what I usually do. But when I check-up with them this week on how the jars were going, they were very happy - and they had money left!

When I asked why things were going so well, she said she felt empowered being able to figure out the budget and adjust it as their circumstances change. You got it babe!

That’s the beauty - often overlooked - of a budget… it’s your road map so you get to say how much you’re spending in each category. If driving a new car isn’t important to you, you can cut back on your transportation costs and beef up your grocery bill, entertainment, debt repayment or savings. The important thing is that the bottom line balance… YOU CAN’T SPEND MORE MONEY THAT YOU MAKE. If you can’t balance, then maybe you have to find a way to make more money.

As for how often you put money into the jars, again that’s a personal choice. When I worked with my first couple, we put it in monthly. Tasia says she’s still using the jars, but they switched to putting the money in weekly. People find it easier to work with the shorter time frames.

Managing your money isn’t rocket science. And it isn’t magic. It’s discipline. You have to be determined to live on what you make, passionate about getting your consumer debt (credit cards, lines of credit) paid off in three years or less, and convince that it is important to have some money set aside for the future.

If you’ve never had a budget that worked before, try it. You may like it. And it may be the first step to eliminating that sinking feeling in your stomach every time you think about your bank account.