If the word budget sends you screaming from the room, you aren’t alone.
Most people view budgets as the most dreadful type of diet – a thankless chore that leaves you feeling deprived when you stick to it and guilty when you don’t. That’s why they’re such a source of anxiety, frustration and squabbling within many families. And, like so many New Year’s-imposed diet plans, January is the season for new financial resolutions.
However, in today’s environment, where jobs are shaky and credit card balances are growing, developing a spending plan can provide a shot in the arm for many households – particularly those where there are dissenting views as to where the money actually goes. Here are a few easy, yet effective, ways to put a new 2014 spending plan in place.
How To Avoid Overspending
Sometimes it’s not you, but a spouse or partner. Or maybe it’s adult children who seem to have trouble managing their resources, but are good at draining yours. Either way, without some roadmap it’s too easy to fall into the trap of overspending, leading to unwieldy debt load and the cycle of living month-to-month.
A spending plan helps you achieve your goals without taking on more debt, adjust to a decreased income without necessarily making major lifestyle shifts and get as much out of your money as possible – perhaps even reducing debt at the same time.
It’s all about staying in touch with reality. As long as you’re ignoring the breadth of your spending, you’ll be unable to get anywhere, whether that means putting an end to creditors calling, simply living within your means, or once again building up a nest egg.
Just Where Does Your Money Go?
Most of us are simply reluctant to closely scrutinize our spending habits. But the first month in 2014 is a great way to start. One Touch Expenser, My Weekly Budget, and iXpenseIt are all useful smartphone apps that can make logging expenses an effortless process. Your categories might look something like this:
There it is in black and white: A detailed record of exactly how much money is going out of your household each month. Examine your spending in each category to see if there are areas in which you can cut back.
Be Prepared To Tweak the Numbers
Remember, fine-tuning your spending plan is a process. If the plan you put in place for one month doesn’t work, it doesn’t mean you should quit. Tweak it and figure out how to make it work more effectively.
For example, lets say friends phone and want you to share the cost of a ski chalet for a weekend. First step – check to see what discretionary costs you haven’t yet incurred and where you can scale back, and you’ll have the answer.
Longer-term, you may find that you simply need more income, or that you’re spending too much on housing. This may mean you’re facing some big, and perhaps difficult, decisions but at least you’re working with numbers, not feelings.
Try To Make The Cash Last
Here’s an exercise to help tighten your spending habits. Try withdrawing the amount of money you normally spend each month on clothing, gas, dinners out, movies, etc. Reduce this amount by 10 per cent and set it aside.
Now try to make that small pile of cash last. Avoid use of credit or debit cards, except for emergencies or extraordinary circumstances. Handing over cash for purchases is always going to prove more difficult than swiping a piece of plastic.
This use of cash could help alter your spending habits, revealing where impulse purchases have strained your finances. If you manage to get by without dipping into the buffer you originally set aside, you’ll have taken the first step back towards financial health.