Maybe it’s a New Year’s resolution, high inflation or some other trigger that has made you determined to get your spending under control.
Whatever the motivator, here are some tips on getting on top of your spending and building a savings stash.
Know your money personality. Figure out where you fit in among three basic categories: people who like to hang on to money, people who like to spend it and people who don’t want anything to do with it. These personalities are typical of everyone, regardless of income or age. And if you know how you relate to money, you can make the most of your strengths and learn to overcome your weaknesses. Remember, money itself is neither good nor bad. It’s a tool you can use to build financial success and security.
Write down where your money comes from and where it goes. Even if you think you know this in your head, writing it down with pencil and paper, on a computer screen or in your cell phone notes makes it more concrete and helps you spot hidden surprises. It’s like making a to-do list: If you write it down, it’s more likely to get done and you can check it off.
Record your expenses for a month or two. That should be enough to identify the things you have to pay for, such as rent and groceries, and the fun things you’d like to buy, such as clothing and travel. You don’t have to track every nickel. You could make a guess as to what you’re spending and then compare it with your bills, receipts, and credit and debit card statements to see what’s out of whack.
Come up with a spending plan that suits you. Once you know where your money is coming from and where it’s going, you can develop a plan for getting on top of it. Think of this as a way to control small expenses now so that you can buy bigger stuff—and have more fun—in the future.
Spending plans are personal, what works for your friends won’t necessarily work for you. One example of a simple, low-tech strategy that many people still swear by is the envelope system. Once you know your weekly or monthly expenses, stash the money for each category into its own envelope. And include an envelope for savings.
This is a powerful tool because you can actually see where the money is going and how much is going there. If you’re spending a lot in one category, you can cut back on that expense and put the money into another envelope that comes up short—or into savings.
Enlist a budget buddy. Share your goals, and if you’re tempted to fall off the wagon, ask your friend to help you stay on track.
(Janet Bodnar is editor-at-large at Kiplinger’s Personal Finance magazine. For more on this and similar money topics, visit Kiplinger.com.)
