I Spend $27 on My Hair Every Week!

Yes, I admit it, I spend $27 on my hair each and every week!  No, I am not a Hollywood starlet or a fashion model who must always be runway ready; I’m simply a guy who wants to present his “best self” to the world.  Sounds like a crazy amount of money though, doesn’t it?  How could I spend so much?  Let’s take a look:

Haircut ($110) and Tip ($15) every 6 weeks:  8 * $125 = $1,000

Purchase Shampoo 4 times per year:  4 * $20 = $80

Purchase Styling Gel 6 times per year:  6 * $55 = $330

Total Annual Cost: $1,410

When I divide this annual cost by 52, I arrive at my weekly cost of $27.12.

Five years ago I discovered Ramit Sethi’s blog where he outlined an approach for automating one’s personal finances which I found fascinating.  Although I considered myself very organized and disciplined in managing my finances, I still felt as though I was often caught by surprise by irregular or recurring (quarterly or annual) expenses.

Adopting Ramit’s system was a major turning point for my finances and helped alleviate the stress I often felt regarding the amount I was spending on a certain item or my lack of preparation for recurring expenses or emergencies.

The basic premise I followed when adapting this system to my situation was “treat every expense as a weekly bill.”  Reviewimg 15 categories of expenses, I calculated exactly how much I historically had spent each year, and then derived my weekly expenditure.  Using a set of bank accounts, I would “bill myself” the weekly amount and deposit this amount into a specific “allocation account” such as Vacation, Emergency, Property Taxes, Gifting, Just for Fun, Charity, and Haircuts.

This system has rendered five major benefits I will share with you.

1. Gives You Control of Your Finances

By proactively allocating funds to your desired expense categories, you are taking charge of your finances and planning your expenditures rather than reacting when a bill arrives in the mail or in-box.  Running through the exercise of determining your weekly allocation amounts will also give you an opportunity to decide if you really wish to continue your spending habits or if you wish to spend less in one area (such as haircuts) and more in another (such as charity).

2. Grants You Permission to Spend!

Having a system of allocation accounts simplifies your decision making process — if you have the money in the account, you may spend it!  One of my allocation accounts is a Garden and Flowers fund; if I am at the nursery or flower shop and a plant or bouquet catches my eye, I can quickly check my allocation account balance using my phone, and if I have the funds buy it!  Conversely, and this takes more discipline, if the balance in my  account is not sufficient, I can’t make the purchase.

3. Reduces Stress

Having money set aside and specifically allocated for a particular expense will eliminate the stress of receiving a quarterly or annual bill in the mail. Rather than having to scramble to find the funds to pay the bill, you simply transfer the money from your allocation account into your checking account and send the payment!  What could have been a stressful event becomes a simple clerical task.

4. Builds Awareness

I find treating my expenses as weekly “bills” very enlightening.  I was shocked to see how much I actually spent on my hair on a weekly basis or how much I would have to allocate each week to pay for my holiday gifts or planned vacation.  Conversely, I found that a small amount saved each week over the course of a year would completely eliminate the “surprise” of having to find  $700 or so for holiday gifts or fund an $1.800 vacation.

5. Helps Avoid Debt

Having funds set aside for recurring or regular expenses can help you avoid debt.  The best example of this benefit is a Christmas or Holiday allocation account.  Many of us like to celebrate the holiday season by purchasing gifts for our loved ones, gathering for dinner or drinks, and attending concerts.  Rather than use a credit card to pay for these expenditures and face a daunting bill in January which may require months to pay off, simply have the anticipated expenses set aside and pay as you go.  No more January debt, guilt, or stress!

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