Debt by a Thousand Cuts
Stopping the Unseen Leaks in Your Budget that Are Sinking Your Financial Ship
Spending can become so automatic that you barely recognize where the money goes. What you do know is that you work hard, get paid, and the money disappears as fast as it is earned. Or faster, meaning credit cards are often used to get through the month. Finding these leaks in the budget will not only allow you to stop increasing debt, but also pay down existing debt and set aside money for unforeseen events.
Step 1: Create a Budget
A budget is simply an accounting of where money is currently being spent. Look over the bills that are paid each month and then track spending on everything from gas to food. Until you have a good understanding of what your expenses are, it is impossible to find the leaks in spending.
Review your spending patterns. After you have tracked spending for a few weeks or a month, take a critical look at where money is going and look for spending patterns. Do you buy lunch every day, get a daily latte at the local coffee house, or eat out several times a week? Do you visit the snack machine during the day or make a daily run to the grocery store? These habits create opportunities to reduce spending.
Set a budget and stick to it. Whether you write a budget out on a legal pad or use online tools, take the time to enter the actual expenses. When you reach the budget limit, stop spending. If you have allocated $400 for groceries, then when you hit $400, eat what you have at home and do not go to the store for the rest of the month. This will help change your spending habits and you will pay closer attention to where and how your hard earned money is spent.
Step 2: Set Measurable Goals
When goals are established be sure you can easily see both progress and success. Reduce spending by either a dollar amount or a percentage. Then allocate funds accordingly. If you want to reduce your food budget by 30% spread that out between grocery shopping and eating out.
When you have a specific amount to spend you can make better financial decisions. Let’s say you decide to set aside $100 for meals out. When your children are begging to stop at the fast food restaurant ask yourself (and them) would you rather eat out now and use up $30 of our budget or spend it at a nicer restaurant later in the week. This provides opportunities to make conscious decisions about spending and have better control over your money.
Step 3: Think Long Term
Just as crash diets do not work for weight loss, crash spending freezes don’t work in the long run either. If you want to save up for a specific expense, like a trip, a crash spending diet might be the answer for a short term goal. Long term debt issues, require long term changes in spending habits. Be sure your budget reflects realistic spending measures that will bring success. This may mean cutting back a little now and then in a couple months reviewing the budget and cutting back some more.
When you work with a set budget, impulse spending is reduced and you make thoughtful choices about where you spend. This gives you more control. Stopping the leaks, means your hard earned money will be spent on the things that matter the most to you and your family.