budget living

New Year, New Budget

Cut spending
Written by TK

Cut spending

Improving your financial situation is one of the most common New Year’s resolutions.  Why is that?  As a financial planner I think it’s because people always feel they can improve their financial situation.  We can always spend less and save more.  I also think it’s because people like to keep up with the Joneses, even if they can’t afford it.  Do you think that’s true?

If you want to make changes with your money in the New Year it all starts with a budget.  You can’t save for retirement until you find room in your monthly expenses to save.  You can’t afford to go on a dream vacation until you pay off your credit card debt and you can’t pay off your debt until you free up (or make more) disposable income.  That’s just how it goes.

The budget is the be all and end all of everything related to money.  If you want to achieve your money goals this year start with a budget.

How to set a budget

Some people think that setting a budget means spending the money you have until there’s nothing less.  I used to be one of those people.  I would get paid, buy what I need to live, spend money how I wanted and then wait for the next payday.  Now I’ve come to realize setting a budget is much more than that.

Setting a budget is about spending what you want to not what you can afford.  Just because I can afford something doesn’t mean I should buy it.  Setting a budget is about setting limitations.  Ask yourself, how much do I want to spend on cable not how much can I afford to pay for the cable package.

It’s always easier to set a budget in percentages: saving, living expenses and fun money.

Keeping on track

If you have money goals you want to achieve you need to have a budget, otherwise your money life will be chaotic because that’s what life without planning is…it’s chaos.

Living on a budget is not easy.  However it’s necessary to live within your means and avoid debt.  Out of control spending leads to bad money situations, so set a budget and track your spending to make sure that doesn’t happen.

Using a budget software such as Mint or You Need a Budget can help track where, how and when you spend your money.  If you’re overspending in one you’ll need to cut back somewhere else to stay on budget that money.  Then the next month you’ll need to make a conscious effort to spend more responsibly.

Reward yourself in the short term

If budgeting was easy everyone would do it.  It’s not easy, but it’s a lot easier than trying to pay off a truck load of debt.  It takes time to change money habits and although you should keep your eye on the bigger picture it’s good motivation to reward yourself in the short term.

I like to give myself $100 fun money every three months to reward myself for good behavior.  $100 is an amount I can afford to spend and for that one day it lets me loosen the wallet strings.  It also gives me something to look forward to which is important when working towards a goal or giving yourself restrictions.

Photo from Pixabay

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TK

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