The Inability to Say No and Having Ritz-y Taste on a Econo Lodge Budget

I usually hate to give generic, common-sense financial advice that you can find anywhere on the internet. The most common is "instead of buying a cup of coffee at Starbucks, put that money into a savings account." No shit. My readers are not stupid and I'm not going to insult you by giving that kind of cookie-cutter advice.

Today's post will consist of something like observational humor, except not funny...at all (that was kind of funny, right? No? OK, I'll move on). I'll highlight some of my specific observations related to people's spending habits that drive me nuts -- especially when I see those in question complain about their finances or at least imply their struggles.

#1 - The inability to say "no" to your friends
Many people are aware that they've got financial difficulties, yet accept any invitation to spend money, as if it is OK to do it because it wasn't their idea. If you know that you're going to be short on rent for next month but your friend invites you on a weekend road trip, what should you should say? "Hell no!" Making excuses for spending money is easy. Just because it was someone else's idea doesn't mean it's any less of a poor decision.

If you're invited to spend money and cannot afford it, it's OK to say no. In fact, some of your friends and family might respect you for it. Whether the invite is direct, like "Want to go to Cancun this winter?" or indirect, like "Hey Bob -- all of us bought new Macbook laptops -- where's yours?" you need to learn to say no. There is simply no point in taking the time to come up with spending and financial goals if they can be so easily changed by some peer influence.

#2 - Ritz-y taste, Econo Lodge income
Regardless of the weakness, I see that many people have at least one. Whether it's designer clothing, organic groceries, a certain brand of electronics, or the refusal to cook for oneself, every day I see people that cannot afford their personal luxuries try to justify them. Here are some real, specific examples with fake names:

- Joe is unemployed, has a young child, no savings, and a wife working a low-paying full-time job, recently refused a truck full of free furniture from his grandmother for his new apartment because he's "looking for matching stuff."
- Devin struggles to pay his mortgage and other bills, yet goes out to lunch every day because he hates to cook and thinks it's a good way to socialize.
- Fred has thousands of dollars in credit card debt yet buys expensive designer clothes every month.
- James uses his first paycheck from his first job out of college to buy a Hi-Def TV and a Wii.
- Tom has many tens of thousands of dollars in student loans but goes to the bars with his friends every Friday and Saturday night.
- Tracy has a very low income and is unsure how she'll pay her rent for the month. Yet she refuses to do her grocery shopping at any place other than the specialized organic food store.

Am I trying to say that you can't have matching furniture, a Hi Def TV, or designer clothes? Abosolutely not. Am I saying that you can't eat organic food, go out to lunch, or drink beer at a bar? No. What I'm saying that that you cannot classify these items as affordable simply because they're mainstream and everyone else is consuming them or because you feel entitled to them. If you've got an Econo Lodge income, you can't stay at the Ritz.

Insisting on expensive habits when you cannot afford them is, in my opinion, the biggest reason that people get themselves into financial trouble. Consuming based on our personal preferences gives us a feeling of independence. It makes us feel like we're doing things our way on our terms. But in the end, the choices that we made that once made us feel so independent actually enslave us and forfeit our control to our creditors.

By saying "I'm going to go out to lunch if I want to," or "I'm going to eat organic food if I want to" or "I'm going to go drinking with my friends if they invite me," if you can't afford it, all you're doing is signing over control of your life every time you sign a credit card receipt.

It is often said that the troubles with today's economy stemmed from "securitizing" mortgages, which means taking big bunch of mortgages, putting them all in a box, taping it shut, writing "security #1" on it, and then selling it. Those who buy it don't have the details of what's inside -- just that it's got a bunch of mortgages. To me, not being aware of your individual transactions is the same thing. By refusing to analyze where and how you're specifically spending your money, all you're doing is looking at the credit card bill at the end of the month and seeing one big number that reflects the sum of your monthly spending. Without looking at the individual transactions and evaluating their impact on your big picture, you're simply asking for trouble -- just like the mortgage industry.

So before you start spending on one of your vices, create a budget to see what you can really afford. You may be quite surprised!

Pork Barrel Spending in Corporations is Equally Appalling

To understand the significance of the downturn in the market, check out Sequoia Capital's Powerpoint presentation on Tech Crunch, which contains a quote near the end that reads "spend every dollar like it's your last one." Though this exaggerates the advice that I offer on this site, it's an interesting principle to consider before you open your wallet.

When you, personally, are fronting the bill for an expense, it's easy to say "no" if you feel like you're overpaying or being frivilous. But when your company is going to pay the bill, you're probably less likely to stop yourself, knowing that you can just "expense it."

Employees in come companies legitimately think, because they're traveling for business, that expensive dinners and hotels and plane tickets and car services and luxury retreats are consumables to which they are entitled. Somehow the fact that the company is going to pay the bill excuses them from making financially sound decisions that are in the best interest of the shareholders. The same goes for over-the-top construction, decorating, and other unnecessary eyes-closed, blank-check spending.

Not all companies are guilty; I actually believe that the company I work for does an excellent job of exercising thrift. However, I find it sad that employees in other organizations that expense extravagant happy hours and meals and hotel rooms are doing a horrible disservice to the actual owners of their companies. All employees of a corporation have an indirect fiduciary responsibility to their stockholders, even if that relationship is separated by many degrees.

It's easy for John McCain and Barack Obama to criticise the government for its pork-barrel spending. Americans hate to see their tax dollars wasted. But the truth is that much of our retirement money lives in corporations. Why do we not hold them accountable for their inefficiencies and outrageous spending (does the AIG $400,000 retreat ring a bell?)?

Every time a client is taken to Morton's instead of Panera; every time a consultant stays at the Marriott Marquis instead of the Comfort Inn; every time a quarterly meeting is held in Las Vegas instead of corporate headquarters, the bottom line is knocked down another notch. And the more corporations whose bottom lines are affected, the more affected are those whose retirement accounts are in mutual funds.

My grandmother has her life savings in her IRA, which is losing money like it has holes in its pockets. I understand that frivilous business expenditures aren't the main culprit that got us into the crisis we're in today, but they're his first cousin. I believe that outrageous senses of entitlement and a complete lack reasonable, responsible financial behavior, on behalf of both individuals and corporations, are to blame.

I welcome and encourage your anonymous comments about outrageous corporate spending that you've seen in your career.