Spending Too Much? Try This Simple Budgeting Strategy Now

Spending Too MuchThe first step in solving any problem is admitting you have a problem. Overspending is no different and the sooner you face the fact that you are spending too much, the sooner you will be on your way to getting your spending under control.

 

Step 1 – Own Your Spending

Being able to see where your money is going is crucial and the absolute best way to do this is to use budgeting software such as Quicken. I know what you're thinking! Yes, it does take some time to setup the software and download and classify the transactions from your bank, but trust me, it will be so worth it when you can quickly see where your money is going.

 

Step 2 – Automate Your Finances

Now that you have a clear picture of where your money is going, we are going to have you simplify things by automating some of your bills.  Non-discretionary spending are things like mortgage, car payments, utilities, insurance and food. Food is a different animal and we will discuss how to handle this in Step 3. You probably already have some of these other bills already setup for auto-draft so it should be a snap to get the rest of these accounts setup.

If you are not setting aside at least 10% each month in a company sponsored savings plan like a 401k or a Roth IRA, I strongly encourage you to do this now. At least have enough taken out of your paycheck to qualify for any free company match. It's free money!

 

Step 3 – Use Cash for Everything Else

You've probably heard of the cash envelope system and for good reason, it works! The idea is that you withdraw cash from your bank when you get paid and place in envelopes for the things that you typically overspend on like food, eating out, entertainment, or clothing.  The beauty of this strategy is that if you use the envelope system properly you can't overspend. When the money is gone, it's gone!

If you find that you've spent all of the money in your entertainment envelope, get creative and find free things to do like taking the family to the lake for a picnic. If you need a new outfit for a job interview and you need to dip into your eating out envelope, it's ok to do that but you will have to eat at home to make up for the shortfall.

The point is, you and your spouse are in total control of your spending. When you overspend in one category the consequence is that you will have to cut spending in another area. It's important that you sit down once a week and review your spending and get an update on how much money is remaining in each envelope. If there is a potential shortfall, discuss where the money will come from and transfer the money together. Don't forget to update the balance on the envelopes!

 

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