How can they afford that?

How can they afford that?

My wife and I have started watching re-runs of crime shows. We
particularly enjoy Cold Case, Law & Order, and Law & Order SVU (Special Victims Unit).
Last night we were watching an episode of Law and Order: Criminal
Intent and it contained a really great dialog that involved a question
I hear frequently “How can you afford that?” I’m quoting from memory here, so the dialog and story line isn’t exact, but hopefully I’ll capture the essence.

A police officer was being investigated by Detectives Robert Goren (played by Vincent D’Onofrio)
and Detective Alexandra Eames for using the police computer systems to
illegally retrieve criminal records on drug dealers and other “rich”
criminals. She would then kill them and steal their money, using it to
to live a better than the average cop lifestyle with her mother and two
children. The relevant part of the story is when the two detectives are
interviewing the officer at her home before they had any hard evidence
to convict her. Detective Detective Goren is convinced she is guilty
but can’t prove it just yet:

Det. Goren: “What I can’t figure out is how you can afford such a nice house and to send your girls to private school?”

Officer: “I’m frugal”

Det. Goren: “I don’t spend a lot, and I couldn’t afford this house”

Officer: “You aren’t frugal enough”

Det. Goren: “Sure I am”

Officer: “You dress to impress. You are a big man and
therefore finding clothes at discount stores that fit you is hard. You
use this as an excuse to purchase high-dollar name brand clothing.
You’re single and therefore date often. You take your dates to
expensive restaurants and drive a nice car to impress them…I buy
bargain clothing, don’t date, never go out and live very frugally. I
use my money to buy my home instead.”

Det. Gorn: Looking stunned he says “That’s very good, but you still haven’t answered the question.”

Detective Goren has a common problem that many people have: he has no clue where his money goes. He only knows he doesn’t have enough. He thinks he’s frugal and that he doesn’t spend much, but he does.

Here are a few tips for people like Detective Goren:

Track your spending

For the first month we started getting control of our finances, I
tracked every expenditure we made. At the end of the month, we totaled
up everything and were frankly pretty surprised at how much things like
eating out, coffee, convenience store drinks, etc add up. We found a
number of areas where we could cut back. Doing so was like getting an
immediate raise. Buy a cheap little pocket note book and keep it with
you. Record every expense and categorize it. Use that to feed into the
next tip and reduce your expenses.

Budget

Create a budget
and manage your finances rather than your finances managing you. Tell
your money where to go. Use the notebook from the previous tip as input
into your budget process. Find areas where you can cut back on your expenses
and put a cap on them. Currently spending $50/month on Starbucks
coffees? Create a coffee budget category and cap it at $10. Make your
coffee at home instead. This will allow you to treat yourself to a
Starbucks coffee without spending more than you want. I’d recommend
using an excel spreadsheet or You Need A Budget to track and manage your budget.

Make an effort to find the lowest price and be patient

Too many people decide they need something, say a new pair of shoes
or a new sport jacket, and just run out to the local mall and get them.
Sure you get what you need, but you most likely paid way too much for
it. Instead shop around at the various stores. Bring a small notebook
and write the prices down. Shop around online as well and see how
online prices compare (don’t forget to factor in shipping). Most importantly, be patient.

I had been wanting to purchase a couple of sport jackets for at
least 6 months or so. Everything I saw was $60 and up. While $60 for a
sport coat isn’t too bad, it was more than I wanted to spend. While
walking through Wal-Mart one evening, I saw some sport coats on the
rack and thought I’d take a look. Turned out there were marked WAY
down. I got them for $19.99 each! I saved $40.00. I bought two of
them, and have been very happy with the quality and look. Dressing to
impress doesn’t mean you have to buy your clothes from Brooks Brothers.

Prioritize your spending

Detective Goren was a bit jealous that he wasn’t able to afford a
nice home, yet continued to spend his money on expensive clothes, dates
and car. While the officer stayed at home, lived frugally (or so it
seemed) and had a nice home. If Detective Goren wanted a home that bad,
he needed to make it a priority and set a goal. What are your financial
goals and what expenditures are keeping you from reaching those goals?
Make a plan of how and when you are going to reach your financial goal
and make that a priority when doing your budget and managing your
finances.

Turns out Detective Goren was right. The officer was in fact
stealing money to support her “above average police officer lifestyle”,
but I think the basic principles she shared with Detective Goren were
dead on. So next time you say to yourself “How can they afford that?“, consider that maybe they’ve made it a priority.

We have 6 children, and constantly get asked how in the world we
afford them. I don’t ever really have a good answer, except that we
just do. I know my wife and I make them a priority and adjust our
expenses accordingly. I am sure that’s a big part of it. It’s truely
amazing how much you can stretch each dollar when you have to.

Do you budget and track your expenses? Do you know where your
money goes? Do you know where your money leaks are? What tips can you
share to help people manage their money better and live more frugally?

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