Rule #1 of getting your finances under control: Always Know Where Your Money Goes
I remember the day back in 1997 when Jason and I put together our first budget. It was slim pickins’ in those days but we figured out that we should have an extra $65/month that wasn’t going toward bills, diapers or food. I remember being so frustrated because we could really have used that $65, and it should have been there, but it never was.
I know it sounds simple, always know where your money goes, but it’s something a lot of us struggle with. A dollar here, two dollars there, it adds up. The first step to gaining total control of your finances is to know where every cent goes.
Step 1: Carry a journal with you.
You don’t need to run out and buy a journal, a folded piece of paper will do fine. Check out the PocketMod, it’s a free printable journal that fits in your pocket.
Step 2: Write down every purchase for a set amount of time.
When I say every purchase, I mean EVERY purchase. To get a long-term picture you need to do this for a month, but even a week or two is useful. This is tedious at first, especially if you buy a lot of stuff, but after a few days it’ll become 2nd nature. In addition to writing your daily expenses, write down the big stuff like your power bill and vehicle payments.
Don’t skip this step for two reasons. One, the goal is to see where your money is going so you can save it. Two, writing every purchase down has the psychological effect of making us feel more responsible for our spending decisions.
Step 3: Categorize your purchases.
Sit down and look over your journal, really look. Split everything into three columns: necessary set payments (monthly payments that don’t change, ex: rent/mortgage), necessary varying payments (monthly payments that change a little each month, ex: fuel for vehicles), and everything else (ex: groceries, eating out, coffee on the way to work, etc.)
Step 4: Analyze your purchases and make decisions.
You really can’t skip paying for anything in the “necessary set payments” column, perhaps you can renegotiate terms, but you really want to let everything in this column stand.
Take a look at the items in the “necessary varying” column. As the name implies, these payments are necessary but there are ways to reduce what you are paying. Drive less, turn the thermostat up a few degrees. Make it a goal to reduce the total spending in this column by just 10%, a reasonable goal that can be accomplished quickly with little to moderate effort.
The “everything else” column is where you can do real damage to your spending habits. Scrutinize every purchase and see if it was really necessary or if you can reduce the cost. I’m not suggesting you deprive yourself, rather, make some changes to help your financial picture. You probably already know what has to be done to see savings in this category, it’s just a matter of convincing yourself that the changes are worth the savings.
Here are some real-life examples that have come from the lists I’ve made over the years:
-I began making my before work coffee at home, or I purchased it for $.99 from a gas station instead of buying a $3 cup at a coffee shop.
-I started getting manicures every two months instead of monthly. Eventually I decided the cost wasn’t worth it and in 2001 I tore off the fake nails and went back to short, natural nails.
-When I realized that I was spending $35/wk buying lunches at work I began to pack 4 days a week. I still got my “treat lunch” once a week but I saved a significant amount of money each month. I also lost weight, and added bonus.
-Grocery spending is the biggest area in which I have learned to save money. Matching your meal plan with the sales cycle is an easy way to start saving without making a huge impact on what and how you eat. Set a dollar amount that you want to spend on groceries and challenge yourself to make it a little lower each month. If you (and by you I mean me) typically spend $10/week on a bottle of wine you can save an easy $120/year by skipping one bottle (or buy cheaper wine, LOL!)
-Until recently I was spending an average of $60/week on gas for my van. My van is our secondary vehicle, I no longer work so using the van to make money no longer applies. Sure, there are places we have to go during the week and it’s the only vehicle we have that will fit all 7 of us, but that doesn’t mean I can’t spend less on gas.
I can’t avoid driving but I can restrict how much we drive. I have control over deciding if each activity and trip is necessary, if there is a reasonable alternative to driving (meaning, can my husband stop by the store on the way home), and if I can combine trips. I do this by seeking out activities multiple kids want to do and combining that driving with other trips.
I could go on and on about little ways to save, but I think I’ll save it for another post :)