Top tips on controlling spending outside your budget

Helen Omeghara | ConsumerConnect

A budget has been described by Morris and Morris (2000) as “a plan that helps you to set spending goals and monitor how well you are meeting them.”

How to make a budget and stick to it:

A realistic budget is your best weapon against overspending. That is why you need to put in place measures to curb spending outside your budget.

Therefore, if you want to keep your spending under control, it’s essential that you make a budget.

Indeed, budget allows you to get a handle on the flow of your money ─how much is coming in and where it goes out. With that information in hand, you can make intelligent choices about how to spend.

Make a list of your expenses:

The first step in making a realistic budget is figuring out where your money goes. To keep track, you should make an expense record.

You may be tempted to turn to a relevant computer programme to keep track of your expenses. That may seem like an easy way to approach the task, but most of these programs have a significant shortcoming. How?

They don’t record your cash outlays. Computer programmes have you analyse your expenses paid primarily by check or credit card, overlooking the most obvious source of payment ─cash.

Rather than relying on a computer programme, you can keep track of your expenses in a low-tech but comprehensive way: with some paper and a pen.

Here’s how to do so:

Take out sheets of paper. You will use one sheet per week, meaning you will record your expenses for two months. By doing this, you’ll avoid creating a budget based on a week or a month of unusually high or low expenses.

Select a Sunday to begin recording your expenses.

Record that Sunday’s date in the blank at the top of one sheet of paper.

Carry that sheet with you at all times.

Record every expense you pay for by cash or cash equivalent ─cheque, ATM or debit card, or automatic bank withdrawal. When you make a payment on a credit card bill, list the items paid for.

At the end of the week, put away the sheet and take out another. Go back to Step 3.

At the end of the eight weeks, list seasonal, annual, semi-annual, or quarterly expenses you incur but did not pay during your two-month recording period.

The most common are property taxes, car registration and maintenance, magazine or newspaper subscriptions, tax preparation fees, insurance payments, and seasonal expenses such as summer camp fees or holiday gifts.

Understanding and controlling your finances

In Marshall Brain’s article titled: “A Balanced Financial Life”, he painted a scenario in which an individual were to hire a professional financial analyst to come to his or her home and look over his/her finances.

What the person will say to you will vary depending on your situation, but in general you will hear at least the following:

  • You should have a clear set of financial goals that you are working toward.
  • You should make more than you spend, not just on a monthly basis but across the year.
  • You should be carrying no credit card debt.
  • You should have a three to six-month ‘safety net’ ─financial reserves that let you weather unexpected financial storms.
  • You should be saving for retirement. The earlier you start, the better.
  • You should have a will.
  • You should have life insurance if other people (spouse, children) depend on your income.

These are the fundamental elements of stable financial life. If you are going to “control your finances,” this is where you start.

Why are these elements important? And why were you never told about them if they are? It is an odd thing, but for some reason there is very little “financial education” that occurs in this country.

That is probably because, for most people, the education would be totally meaningless in high school.

If you took a 17 year old high school senior and started talking about retirement, wills, life insurance and credit card debt in a high school class, it would all be totally meaningless.

This sort of information has no relevance until you turn 23 or 24 (or even 33 or 34) and have been working for a while.

These elements are important because without them you live a life of financial randomness. You lack control, or even a basic understanding of where your money is going. If something goes wrong, you have no reserves to fall back on.

When you have created a clear list of financial goals (which you may want to revise based on what you have learned in this piece), you have built a clear understanding of your income and expenses (as well as your “hidden expenses”).

And you have changed things so that income exceeds expenses, and you can save toward financial goals that are important to you.

The importance of your goals cannot be overstressed.

Any need to re-state your financial goals?

In light of all of the above facts, you may wish to recreate or modify your list of financial priorities and your expenses.

You may need to add a savings component for a safety net, or add an expense to cover life insurance premiums.

As you are revising your financial plan, it may seem a little like you have been cheated. Here you’ve been living a life thinking you were pretty much under control, but once you start to factor in things like credit card debt repayment, life insurance costs and retirement savings.

You may find you aren’t making nearly enough money any more. There is not a lot you can do about it in the short term.

Assume a mature attitude and put things in order. Once you have lived with these new realities for a month or two, they won’t seem so bad, and you will have the distinct pleasure of knowing that you are really covering all of the bases.

You will possess the essential ingredients of stable financial life.

Planning and following religiously your budget does not have to be intimidating.

For the sake of your financial health, the first thing that you should do is to start budgeting.

It is important to take into account all aspects of your finances. If you do not have a plan to allocate your funds, your personal financial goals will never be reached.

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