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This is such a simple concept and yet… it escaped me for years.

For most of my 20’s I spent what I wanted to spend and it had little to do with what I earned. The gap between my earnings and spending was never huge but it was enough to have credit card debt and stay on the minimum payment plan for my student loans. It also kept me in a perpetual state of consumer guilt. The short high I got from buying myself something nice was immediately followed by dread that I couldn’t afford it.

Spending less than you make simplifies family life by:

• Reducing tension or arguments around spending.
• Answers the question, can we afford it?
• Creates a cushion for the inevitable but unexpected bill.

For my family, spending less than we make means my husband and I no longer have arguments about purchases. It’s easier to have a non-judgmental conversation about our ‘wants’ and ‘nice to-haves’ and leave emotions out of it.

This strategy also helps when you have unexpected bills.

Life happens.

The best laid budget can be shredded by car repair bills or a cracked tooth. It’s not a matter of if you’ll have a large unexpected bill but a matter of when.

If you’re living below your means those out of the blue bills sting but you pay them and move on. If you’re living pay cheque to pay cheque those unexpected bills just push you further into debt and make it harder to see a way out.

If you’re in debt or struggling to pay your bills spending less than you earn will be challenging to implement. Start with small changes like cutting a few nice to have bills like cell phones with data plans, premium cable television and curb your eating out. Then look for ways to increase your income to pay off debt (check out this post and the comments section for ideas on creating side income).

It took us a few months to cut our bills and spending and then almost two years to pay off all of our consumer debt. In September of 2011 we were finally able to start spending less than we made and start saving.

Now when we have an unexpected bill we pay it with cash, dipping into our savings if need be, and then get back to our regular savings the next month. The peace we feel now was worth all the hard work of getting out of debt.

Has anyone else had a shift in their financial life from spending more than they made to spending less?

2007 - Honeymoon in Paris paid for on multiple credit cards

Here we are. Newly married and on a dream honeymoon of two weeks in Paris with a quick jaunt to Rome for a night. We are walking up and down the Seine and eating a lot of chocolate croissants. We are happy, euphoric and yet… something nags at me as I fall asleep at night.

Something isn’t quite right. I’m not as carefree as I should be. I’m not enjoying this vacation as much as I could. The coffee isn’t as soothing, the sleep isn’t as restful and the great meals often leave me with a heavy feeling in my stomach.

The not quite right feeling: the whole vacation is on credit.

Yes, we were those people. We saved some cash for our wedding, we had a bit of help from family, but most of it including our honeymoon was on a credit card.

Despite getting a lot of Aeroplan points it didn’t feel good. It was stressful. It knocked some fun out of the honeymoon and when we got home I was not awash with honeymoon love but awash with credit card dread.

It was a hard but good lesson to get.

While we didn’t pull ourselves out of consumer debt we did start saving for vacations. We opened a travel savings account and had a designated change jar.

In the next two years we saved all of our change and any random income for a future vacation. Canadian change adds up fast with $1 and $2 coins so we made progress quickly.

When we had a healthy amount in our account we used all those Aeroplan points to book air travel for a trip to Italy, Spain and Morocco. As we accumulated more savings I booked more pieces of the trip and took our change into the bank and exchanged it for Euros. It felt good.

Flights to Rome and Morrocco, ferry travel from Tanjiers to Spain, our spending money, rental cars we picked up in Rome and Marbella, entrance into the Alhambra and Segway tours in Florence, all paid for in cash.

enjoying the Coliseum on our cash vacation

While I will always cherish our honeymoon, the trip we saved our change for for two and a half years is my favourite travel memory so far. There were no dark thoughts on that trip, except maybe when I was throwing up on the rocky ferry taking us from Northern Africa to Southern Spain (pregnant + easily sea sick), and we didn’t return home to buzz killing credit card bills from our adventure (though we did still have consumer debt).

Paying with cash is powerful. We’re going on a beach vacation next month, a want not a need, and while it was a huge chunk of our annual travel budget, we were able to pay cash. We booked it five months ago and had enough in our travel account to pay the deposit. Last month we made the remaining payment. With cash.

While we haven’t given up credit cards completely we have given up buying anything we don’t have cash on hand to cover at that very moment. We don’t carry credit card balances and we don’t buy something unless we can pay for it that month.

It might sound boring or restrictive to some people but it has been the most freeing financial rule we’ve made. It gives us all the power in our spending and our financial life. It takes away any discussions or disagreements on if we can afford something. Either we can or we can’t. There is no maybe only yes or no.

Anyone else living cash only? Anyone trying to make the transition?