I’m sure you’ve heard of Murphy’s law; an old adage that states "anything that can go wrong, will go wrong.” And then there is Parkinson's law that basically boils down to: work expands to fill the time available for its completion.
Now, I’d like to introduce you to Paco’s law.
Paco’s law says that "expenses expand to reach the limits of what's available to spend”. In other words, you’ll spend whatever is available to you to spend. This isn’t true for every person out there and (disclaimer) the data set I’m observing is incredibly flawed. But the amount of people who reach out to me who are looking for help, advice or tips in this specific area of finances is so huge that there should be a law for it.
Step 1: If You Didn’t Know, Now You Know
Knowing about Paco’s law is the first step to not totally becoming a victim of it. Understand that if you have observed yourself to be in the majority of people who spend as much as they earn, then you should start setting up systems to protect yourself against yourself.
Step 2: Setup Separate Spending Systems
The key is to exploit the loophole in the law and limit what’s available for you to spend. I’m an annoyingly vocal proponent of having separate accounts for your bills and your non-essential spending. Let’s call the non-essential stuff, fun and b.s.
In order for the system to work, you must earn enough to cover your bills, debt payments you have, savings and then whatever is leftover can be blissfully spent on crap you probably don’t need, but you definitely want. (Read this if you need to help figuring out how much you spend on bills each month).
It might sound like having another account to simply your life is counterintuitive, but you need to keep the bills and the fun separate for two reasons. The first is to make sure you don’t accidentally spend bills money on fun stuff. The second reason is to make limiting your fun + b.s. spending super freaking easy. So easy that you won’t have an excuse for not “budgeting” anymore.
In practice, there are two ways to do this. The first option is to put your entire paycheck into your bills account. Then make transfers to savings and the fun + b.s. accounts. So money goes into the bills account and then you transfer it out of there to the other accounts. This first option is perfect for people with variable income. It’s also great for when you’re first getting started and used to this system. Here’s what it looks like in practice:
The second option is to send money from your paycheck to your bills, various savings and your fun + b.s. account. The second option forgoes first putting all the funds into your bills account.
This option is great for people who have a fixed paycheck. You might be able to set it up automatically - which can be a good and bad thing. Good because you remove yourself from the equation. Bad because if you aren’t involved, you might become disengaged. Engagement is the key to making this work.
Step 3: Would You Just Look At It?
If you have lots of cash in your accounts and you do a great job already, you can probably go more than a week without eyeballing your accounts. But if you’re not a jedi yet, you have to look at your accounts. YOU. Not your partner or your mom or your assistant. YOU, homie. Stop not taking responsibility for your shit.
Caring about your finances: this is your life meow.