One major misconception that people have about money, is the idea that if they could make more, they would be able to manage their finances better. While I do not want to take away from the many people who desperately need a pay raise, I need everyone to understand one thing: when it comes to money management, how much money you make is irrelevant. If you cannot manage your money well while you make a little, you will not be able to manage your money well when you make more.
According to CNBC’s article, “Most Americans Live Paycheck to Paycheck,” they found that many people making over six figures admitted they struggle to make ends meet. I have worked in Private Banking for 2 different banks over the course of 6 ½ years. Private Banking is reserved strictly for high net worth clients, who make a certain dollar amount per year in wages or business ownership (usually two hundred thousand or more), or have inherited or saved a large sum of money for the bank to invest on their behalf (usually two million or more). I am here to tell you that some people in these categories, still overdraw their accounts, have low credit scores, over extend themselves in debt, and over indulge with bad spending habits. The bottom line is, when you make more, you tend to spend more, unless you set up controls like the ones we are about to review.
Below are a few tips to help you save more and spend less, so you can take control of your present financial footprint.
1. You must start with a budget!
Unless you consistently utilize a budget, whether it’s an excel spreadsheet, online template or app on your phone, you will spend more money. We are talking about money that you could be saving for your future (we will discuss savings further in Part 3: Successfully Setting up Your Financial Future), or applying towards your existing debt (as discussed in Part 1). When you decide to track and really take inventory of where and how your money is being spent, then you can expand your present financial footprint for the better.
Since budgets are so important to your financial present and future, I want to spend some time on the various budgets you need to adopt in order to be successful.
(a.) Monthly Household Budget
Most of us know that in order to budget, you need to list all of your expenses. In order to start your monthly household budget, here are a few terms that you need to get familiar with first:
Fixed Expenses: Do not change from month to month. Ex: rent or car payment
Periodic Expenses: Occur on an irregular basis. Ex: doctor bills or car repairs
Variable Expenses: Vary from month to month. Ex: gasoline or utilities
Annual Expenses: Paid once per year. Ex: club membership or vehicle registration
When you sit down to create your monthly budget, no matter what method you use for your budget, do not forget to allow for every type of expense that you have. Sometimes, we forget those periodic expenses or don’t adjust for the variable expenses, which can really get your budget off track. Don’t forget those annual expenses either, like the AAA membership, license plate renewals, scheduled maintenances, pet exams and vaccinations, insurance co-pays or deductibles, life insurance or car insurance premiums (if not paid monthly), club membership fees, tax preparation fees, homeowners’ insurance and taxes (if not escrowed), etc. Sometimes, if the bill is not right in front of us or due that month, we can easily forget to add it to our budget.
In order to stay on top of your periodic and annual expenses, you should set aside a certain amount every month for them, so you don’t have to come up with a large sum right before it’s due. Go ahead and divide those expense amounts by 12, to save the needed amount each month. Then hold the funds in a separate savings account to house the funds until needed.
(b.) Vacation/Weekend Getaway Budget
When we go on vacation, we sometimes forget to account for everything prior to it. You need to know if the amount you are saving up for or have already set aside, is actually going to be enough for the entire trip. Are you using your own car and paying for gas, renting a vehicle or flying? Will you fly and still need a rental? Are you staying in a hotel or with relatives? Will you have to pay for all of your meals or can you buy groceries for an extended stay, etc.? What is the cost of the attractions you are going to visit? Do you plan to go shopping there as well?
These are all valid questions that you need to answer when planning to take a trip to ensure you don’t over spend or use money that should be for your bills or other obligations. Even if you just have an overnight or weekend trip, you still need to account for everything. If you have more than one trip planned for the year, you need to make a budget for each trip.
(c.) Party/Special Event Budget
When my mom turned 50, we threw her a surprise birthday party. If you have ever thrown a party, you know how easily the expenses can accumulate. When you have a special event or party, you want everyone to enjoy themselves and have a great time. You also want to make sure that you don’t run out of anything. From the hall rental, to the decorations, the food, drinks, entertainment, party favors, plus anything special you may have planned, everything needs to be budgeted for.
When I taught high school students about budgeting through Junior Achievement, the party planning exercise was perfect to introduce them to the budget concept. Of course, they wanted to spare no expense and throw the party of the year, but once they sat down to see how much every detail of the party would cost, they realized how necessary that budget was to keep them from overspending. Most importantly, they learned that they had to let go of some of the extravagant items on their list.
(d.) Grocery Budget
We all know that we shouldn’t go to the grocery store hungry, but did you know that you shouldn’t go to the store without a budget and a grocery list? Whenever I go to the grocery store without a list, I end up buying items that I didn’t need, because I already had them at home in my pantry or refrigerator. Depending on the item, I sometimes have to throw it out, because it expires before I eat it. That is basically throwing money away, and we can’t have that!!
Now, I make it a priority to stay on track during a grocery store run, by having a list and a set budget amount to spend. Whenever I put something into my shopping cart, I keep a tally of my shopping cart balance. This keeps me from adding additional items that I really don’t need, especially if it will blow up my budget.
(e.) Utility Budget
One thing I like about the gas company, is that they allow you to join their budget plan. In doing so, you will pay a little more during the summer months to be applied towards your bill when the higher bills rack up during the winter. This helps with your monthly household budget as well, because you won’t get a surprisingly high bill that you can’t afford out of the blue.
(That’s enough about budgets for now. In a later article, we will explore some of the best budget apps and templates to use. For now, Excel has some great budget templates to get you started.)
2. Use cash instead of credit or debit cards.
Once you have your budget in place and you have determined the amount of money you can spend on entertainment, eating out or other miscellaneous items, another way to keep from overspending, is to only use cash for those expenses. It’s so easy to pull out a card and swipe, that you don’t even realize how much you are spending. When you use cash, and you start breaking those large bills for purchases, you start to take better inventory of how much is left to spend.
3. Drastically reduce the number of times you eat out.
I know some people who eat out for lunch every day at work. It’s like they are allergic to packing a lunch from home. Even if you only spent $5 per day during a 5-day work week (most spend more than $5 per day), that is $25 per week. 52 weeks of buying lunch at $25 per week, equates to $1,300 per year. When you add breakfast, dinner, coffee runs, plus the weekends—it can really get up there.
Do you have a large credit card debt that you can’t seem to pay off? Stop eating out every day, and apply what you would spend eating out on the debt. It really is that simple. Or how about that daily Starbucks coffee run? I’m not saying you need to completely stop going out to eat, because it is nice to have a reward from time to time. Maybe instead of eating out 3 days a week, you reduce it to 1.
4. Save your bonus and income tax refund.
Most people have something big they like to buy when their income tax refund or company bonuses come through. If you don’t have a savings account or any cushion to fall back on, instead of buying something new, plan to keep it in a savings account. I know we want to reward ourselves, but if you are in severe debt or don’t have anything set aside for emergencies, it is very wise to keep that money instead of spending it. Even if you want to pay off some debt, decide on a specific amount to keep for the savings account and don’t touch it.
5. Cancel cable.
Cable, satellite, etc., has gotten so expensive. They offer all these channels and it’s still hard to find something good to watch at times. With streaming services on the rise, you can utilize many different options to satisfy your television needs. I pay less than $28 per month for Netflix and Hulu combined. There are many other options out there, that may work better for you. All you have to do is ask around or do some research in your area.
6. Cancel memberships and subscriptions you are not using.
If you haven’t been to the gym in over 6 months, let that membership go. The same goes for any other membership or subscription that you may have and are not utilizing. Stop paying for things that you are not using on a consistent basis, because you are wasting your money. Even if the premium is only $10 per month. That’s $120 for the year that you can add to your savings or apply towards your debt. If you paid for that same membership for 10 years that you really didn’t use, that’s $1,200 down the drain. Every little bit does count, especially if you are living paycheck to paycheck.
7. Set up an automatic transfer into your savings account—Pay yourself!
You can adjust your direct deposit with your employer at any time. If you haven’t already done so, open a savings account and have a specific amount direct deposited into the savings account and the rest into your checking every pay. If you do not have direct deposit, you can set up an automatic transfer from the checking to the savings account on a specific day of the month. Either way, you need to establish a system of automatically putting a certain amount into a savings account at every pay period, so you can build that account up in case of emergencies. Even if your current budget is stretched to the limit, starting with $15-$25 per pay, will get you in the habit of saving. Once you see the balance increase, you will be motivated to increase the amount to save per pay, as soon as you can.
8. Downsize your home and/or car
Our biggest expenses are usually tied to where we live and what we drive. If you are living or driving beyond your means, it’s time to look into other options.
Right before I separated from my husband, I financed a Mercedes. Shortly after that, I found out that I was pregnant. With one income and a baby on the way, it was clear that I needed to make some changes. I had to give up my precious Mercedes Benz. Thankfully, it worked out to get the car sold, and now I have a vehicle free and clear of any payments. It didn’t feel good at the time, but not having that huge car payment every month, really was the best option for me. Plus, I’ll get another Mercedes one day—when I can pay for it with cash, lol!
Even though I didn’t list this first, this should be at the top of your list if you are a believer in Christ Jesus. Sadly, this is one of the first things that many believers stop paying when they get into a financial bind or go on vacation, etc. We must give back to God 10% of all our income in order for the rest to be blessed.
10. Actively attack your debt!
You might remember this as Tip #4 of Part 1: Correcting the Financial Mistakes of Your Past, but it is worth mentioning again.
Many financial advisors suggest to pay off debt with the highest interest rate first, but I disagree. Oftentimes, those debts have the highest balances and it may seem like forever to get them paid off. I recommend paying off the debt with the lowest balance first. If you have a debt that is a couple hundred dollars, you will be able to pay it off much quicker, which will give you satisfaction and momentum to keep going, and pay the rest of your debt off from there.
Once you pick that first debt to payoff, determine a specific amount that you will pay on it every month above the required minimum amount due. Make sure that you pay that amount every month no matter what. For example, if $20 is due per month on a $500 debt, pay $60 per month (or more if you can) to pay it off in about 9 months, allowing for the accruing interest to accumulate each month as well. Once that debt is paid off, you move on to the next lowest debt you owe, and apply that $60 you were paying on the first debt to the next one, until it is paid off and so on.
Eliminating those smaller debts first will make you feel victorious and provide you with momentum to keep going. By the time you get to the larger debts, you will be able to apply a much larger payment per month, to get them paid off as well. Repeat this method until you have paid off everything.
Once you pay the debt off, you may want to leave the account open, because if it has been open for a while and has contributed to your credit history, closing the account can lower your credit score.
Depending on the amount of debt you have and the amount you can budget to pay it down each month, it may take a year or a few years, but be patient and work the process. I’m telling you, if you stick to it—it works!!
11. Just say no!
Sometimes we have to pass on the things that we really want, because we simply cannot afford it at that time. My pastor, Dr. R. A. Vernon has said, “do not buy or sign for anything else that you know will put you in an uncomfortable situation or add strain to your budget. We are too old for another oops!” Stop buying stuff because everyone else around you has it or is buying it. We need to get in the habit of thinking before we spend. Before you make any purchases, you need to ask yourself: is this covered in my budget? Do I really need this? Why am I really buying this?
Bonus for Singles:
When you get married, try to live off of one income for the first year or two. That way, you can pay down existing debt and/or save up before buying a larger home or getting further in debt together. If you each maintained your own households prior to getting married, now that you are combining households, you can really make a difference in your finances, if you choose not to start buying new items based on your combined income right away.
There is a famous quote by Oprah Winfrey that goes, “Do what you have to do, until you can do what you want to do.” It is hard to make sacrifices, especially when it involves finances. CareerBuilder conducted a report in 2017, which revealed that “nearly 80% of American workers say they live paycheck to paycheck.” The reality is that many of us are spending money like we can afford it, when we honesty cannot. When you overspend, something else will get neglected or you will continue to put yourself further in debt.
I want to encourage you to take a deeper look at your current spending habits and make some real adjustments in every category. It is never too late to start making a change for the better, so start today!
Let me know what you think in the comments…