Spending Tips
In some ways, managing spending is both the easiest and hardest part of making good decisions with our finances. We know we should not spend more than we earn. At the same time, however, unexpected events in our lives often demand that we spend when we may not have expected to.
The following tips should give you a basic framework for spending that will help you meet your needs while at the same time preparing you for the unexpected:
Create a budget. Budgeting your resources is the surest way to make sure you are not spending more than you should be, and that you are spending your money on the right things. As a general rule, you should create a household budget each year, taking into account your expected income and expenses. This budget should be reviewed at least monthly and compared to your actual income and spending to make sure you remain on track.
To get started, organize your expenses by category (housing, food, clothing, entertainment, etc.). Then, as you spend, track which expense categories are highest (or are surprisingly high). These are good targets for savings.
After you have tracked your expenses for a few months, you should have a good picture of which areas may contain savings. Your next step should be to create a monthly limit for each category. If you hold yourself accountable to those limits, you will find that there are hidden savings you can direct to other priorities.
When you have a handle on your monthly expenses, you will have a good starting point for creating an annual budget. This budget works in much the same way, but also accounts for those larger expenses you may only have once or twice a year (like home insurance premiums or property taxes).
Every budget you make should include some savings, and some amount for unexpected events. Experts recommend setting aside at least 10% of what you earn as personal savings, and “paying yourself first.” For most of us, though, that target can seem unattainable. Try identifying the items you absolutely must pay – like food, housing, utilities, and any payments on debts you have – and making savings for contingencies the very next item on your budget. Even if it’s not 10% of your income, every little bit helps, and can help you avoid going into debt when unexpected emergencies happen.
Though budgeting is simple, it can seem like a lot of work. Fortunately, there are a number of tools available to help you track your spending, set limits, and establish a budget that requires little maintenance. Many are even available as free smartphone apps, helping you keep track of your budget wherever and whenever is most convenient for you. A few examples include:
Plan purchases in advance. Making impulsive decisions and snap buys can explode your spending. Write down what you need to buy at home, before you go shopping, to minimize the risk for impulse buys. Planning in advance has the added advantage of giving you a chance to compare prices before you buy.
Advance planning will also help you take advantage of sales and coupons that may be available for the products you need, and avoid “danger zones” in shopping behaviors. For instance, if you know that grocery shopping around dinner time will make you purchase more food, planning in advance to shop after dinner will help eliminate unnecessary purchases.
Pay in full, and in cash. It might seem a little outdated in a world where we can make purchases simply by waving our phones, but paying in cash is a tangible reminder of just how much we are spending (and on what). Credit and debit cards are wonderful tools, but research into human behavior shows that they generally increase spending by hiding the reality of a purchase from the buyer, and (in the case of credit cards) by making more money available for use than the buyer actually has in his or her account.
When you buy in cash, you are necessarily limited by the amount you keep in your wallet. Bringing only what you need with you when you go shopping will help keep your expenses in check.
Avoid email deals and sale alerts. While you want to take advantage of savings on the things you need, marketers know how to make their products seem like “needs” by pitching them as irresistible deals. Cancelling alerts from your favorite stores will help you avoid the temptation of unnecessary buys. Ask yourself, “if this wasn’t on sale, would I but it anyway?” If the answer is no, you probably don’t need it.
Treat yourself. It may be counter-intuitive, but giving yourself the occasional, inexpensive treat will help keep you on track with your overall budget. Too much focus on watching every dollar and pinching every penny not only is no fun, but also has the effect of making controlling spending seem impossible. Nothing leads to binge spending more quickly than the feeling that you cannot have any fun.
That said, try to seek alternatives to your traditional treats that may be less expensive. Rather than splurging on an expensive dinner, buy higher quality ingredients than you normally would and cook at home. Instead going to the spa, consider purchasing a few nice products and setting aside time for a long soak at home. These small changes will allow you to enjoy yourself, while keeping your overall spending goals on track.