“Why are we spending SO MUCH MONEY lately?! Surely we could live on far less if we just decided to cut back once and for all!” Does this sound familiar?
A brief review of credit card and bank statements confirms department stores, clothing stores, restaurants and ‘cash withdrawals’ are the culprits. The next month begins but what won’t be purchased? Kleenex, deodorant, toothpaste, snow tires, new boots, graduation pictures, batteries, cough syrup, a celebration meal, your favourite magazine, a Tim’s coffee? Don’t think so.
The facts are simple. In western society many of our wants have become needs. Can you tell one from the other in the list you just read? Most can’t. And yet, billions of people live without all of these and research indicates they are no worse off on the ‘happiness’ scale.
But you want to cut back, and you want to save for our future. To truly build walls around your wallet you need to understand your own spending habits. You need to recognize that you are in a battle for your own money every day. You need to know that failure could lead to a retirement of debt and regret. You need to decide what is most important to you and change your spending and giving habits to better reflect your personal values.
So, how do you do it?
If you are married, it starts with a conversation. You are not going to do this alone. Discussing the bare bones of a household budget is no easy task for two people with a vested interest in every ‘line item’. And without benchmarks, trends, a marriage counsellor or a cash flow expert, either you’ll apply to get on the show “‘Til Debt Do Us Part” or plant yourself in front of the computer and read every Rob Carrick article you can find.
If you are single, you’ll decide on a weight-loss program for your wallet. The problem is the accountability piece. To help you succeed you should ask someone for support. Most think that single people have a better chance of success when it comes to budgeting but my 5+ years of experience as a Money Coach does not support this.
No matter the composition of the household, creating a budget should start with the facts. Tracking every penny spent is not easy to do but the rewards really do make it worthwhile.
David Chilton writes in ‘The Wealthy Barber Returns’, “Behavioural economists point out that the mere act of monitoring expenses tends to reduce spending… knowledge is indeed power.” I am a strong believer in this ‘system of awareness’. My wife and I have diligently tracked every penny our household has spent for the past 25 years – you can’t preach what you don’t practice!
I can truthfully say there are few things we do as a family that simultaneously creates flexibility in our career paths, prepares us for big purchases, allows for indulgences and helps us sleep better. Yup, tracking every penny can do these things for you. And there are different ways to do it. Software programs like Quicken and Mint.com do the trick but so does the old-fashioned method of writing it all down.
Once you know where it is going, you can plan better where you want it to go. You can better align your spending with your personal values, and save for the things that matter. With predictability comes financial peace. Fewer surprises and less stress means you will be in charge of your money – rather than it being in charge of you.
If your wallet needs some ‘It tastes awful. And it works.’ medicine, and your historic success rate with these things is sub-par, consider tracking every penny for a few months. It’s not easy. But it works in getting you started down the path of financial freedom.