It happens. We treat ourselves once, and then twice, and soon treats become common expenses we can’t afford. Many people find their spending habits slip out of control without their noticing. Debt piles up, savings accounts drain, it’s scary and sometimes difficult to know what’s happened. Successfully understanding where the money’s going, and how to control spending is the key to keeping your head above your financial waters.
Vacations, new cars, delicious meals out, pretty shoes, helping a child out with their overhead, whatever it is, our lifestyles sometimes max out our income. Think of what you buy and why – are you eating out with your friends at expensive restaurants you really can’t afford? Do you feel like spending will make it seem like you have more money than you do? Or did you grow up poor, and now that you’re not you feel you should be able to spend money? Maybe you had money growing up and you’re used to a way of life that isn’t sustainable with your current income. It’s important to know where your “extras” are going and why. Curbing your entertainment to less expensive activities – instead of attending a fancy play, go to a movie, for example, can help. Assess your spending. Do you really need another purse or that piece of art? Can you afford it?
Here is a blunder most people make – it’s easier to pay with a card, and so we do. Studies show that people who pay with actual cash instead of using a credit card tend to spend less overall. The thinking is, watching actual money leave your hands makes you more precious. Credit cards are easy, you don’t even need to have the money, and that’s a pitfall. If your debt exceeds your monthly income, you’re spending too much – by a lot. And if you’re only paying the minimum each month, you’re spending a large percentage more than you would have if you’d just paid in full. To handle credit debt, it’s better to pay more than the minimum to whittle what you owe. Also, switch to cash. Budget out a weekly allotment of cash that you’ll withdraw at the beginning of each week. Stick to that cash, and tuck the credit cards away.
If you don’t have a long term or short term savings plan, it can be hard not to spend every dollar you make. Coming up with strategies for how you’ll save money (experts say having a six-month cushion is a good rule of thumb), will help you assign income so that you don’t spend the cash you may need for, say, emergency housing maintenance, on something frivolous. Consulting a financial advisor at your bank is a good step to setting up smart savings plans.
Solution: Analyze Your Spending, Then Budget
The best way to understand how your money’s being used is to chart it out. Make a spreadsheet and track all your expenses you’ve made – keep receipts from cash expenses and look up credit card and debit card statements to see where it’s all going. Next, make a reasonable budget, minimizing the areas where you’re overspending. An important thing to note, you should factor in entertainment or a little splurge money. Giving yourself some funny money won’t make saving feel like punishment, it’ll feel like control. Now, give the budget a spin. See if you can keep to it, and if not, figure out why adjust, and take another crack at it again, until you get it right.