Saving money is not easy but can be. That will be a topic for another day. First, on to spending...
Spending money is very easy. We all love doing it, regardless of whether it steers us off course from our short or long term goals.
The advent of credit, which most of us have lived with easy access to for most of our adult lives, has made us quite complacent when it comes to thinking before buying...when we spend money (in the moment) it usually just doesn't feel real. When the credit card bill comes, however, we are forced to reckon with what many times may amount to a healthy dose of remorse.
Remember, our purchases today, impact the ones we can make tomorrow.
If you have no desire to get your financial house in order, then please stop reading this. It's not for you.
If, however, you want some practical tips that you can take today to improve awareness of your spending, then read on.
Step #1: Know where you spend your money
This sounds too easy right? It's very easy but with anything, it takes a small amount of discipline to carry out.
The old school way of doing this is simply to take out a sheet of paper or (for the more tech savvy) open an Excel spreadsheet.
Begin by making a list (line-by-line) of each item you know you spend on each month. Focus on the things that HAVE to be paid, like rent, utilities, cell phone bill, etc. (think of these as fixed costs).
Expand that list to include budgets for things like gas, groceries, entertainment, restaurants/bars...these are the variables in life, so just make a guess on what you think you spend in a given month. Don't worry your guess will likely be wrong. We will address improving the accuracy of your budgets later in Step #4.
Step #2: Compare what you think you spend to the money you take home each month
This is the step of awakening as often times you might notice that you actually spend more (on average) than you make...remind you of the US Government??? Lucky for them, they can print more money. You cannot.
I digress. On to the next step.
Step #3: Review the list and mark areas you think you may be able to reduce (or eliminate)
We live in a subscription based society. Chances are when you go through your credit card transactions you will find small recurring charges that you completely may have even completely forgotten about.
Remember that online yoga membership you thought you were going to use but didn't??? Cancel it!
Cancel these things that you do not need and very rarely use (or get immense enjoyment from)...with the exception of insurance of course.
Step #4: Monitor your ongoing progress
You need a tool that effortlessly tracks your spending, otherwise you will quickly lose and/or forget this list of expenses you've outlines in Step #1.
There are many tools on the market today that do this for free.
If you are after something very robust that not only tracks spending, but can monitor your investments, be used as a secure document vault, etc. then by all means check out our financial dashboard (powered by eMoney) and sign up for free through our website.
If you are already using the eMoney platform that we offer you can find more resources in our Knowledge Base to help make the most of the platform.
Another option would be to simply use Mint.com. They were the first main player to release financial software (available to the masses) to help with budgeting. I have used both of these tools and they are both very good.
Step #5: Dedicate one hour (or less) each month to review your spending
The technology does not always classify your spending exactly right. Spend a little time re-classifying the transactions into the right category. It's very easy to do.
Review your spending trends to determine if you are on track. Compare some of your variable spending (like restaurants/bars) to the list you first made...how close were you when you made that initial guess? I always have ended up spending more than I think I spend on these things.
Use the software to set budgets. You can be notified anytime you exceed the spending allocated to that category.
Step #6: Make awareness part of your daily life
Half the battle in many things we do in life (or wish to change) boils down to having greater awareness. It is only when we are aware of our potentially self-sabotaging behaviors and things that we are free to engineer solutions that bring us closer to being the better form of who we want to be.
If you are having trouble with accumulating any money left over at the end of the month, start with awareness of where you spend the money. Hopefully this guide can help.
If you have questions or thoughts, feel free to drop us an email.
Best of luck!