Albert Einstein said "insanity is doing the same thing over and over again and expecting different results." Is that you? If your financial health is ailing, your New Year’s resolution should be to change your money-handling routine. Here are a few tips.
You say you want to save more money, but just thinking about it will not make it happen. You need to put a plan together with real action steps. Then you need to implement!
Here’s the bad news: The only way you can save more is to spend less.
The good news: It’s all in your control!
It’s universal: No one likes to make a budget. However, if you truly cannot save money because you are spending it all, then planning your expenditures is the only place to start.
First, list all your fixed expenses. These are the ones that remain constant from month to month, such as your mortgage, car loan payment, insurance premiums, utilities, and child care costs. Consider if there is any way to reduce these expenses. Perhaps you purchased a house or a car that is really more than you can afford. While this lapse in judgment is not easy to fix in the short-term, if your budget is really over the limit, you may need to consider downsizing your house or selling your vehicle and replacing with a less expensive one.
Next, analyze your checkbook or bank statements to determine your variable expenses. Variable expenses tend to be more discretionary in nature and change from month to month. Food, clothing, entertainment, and vacations are all variable expenses. You can really control your spending by setting a limit on these expenditures and sticking to it. This may require taking advantage of sales and coupons, substituting one item for another, and looking beyond brand labels for lesser known makers.
Action: Review your list of expenses and focus on items that can be reduced. Then do something about it! For example, if your cable bill or cell phone charges seem high, reach out to these companies and ask for a lower rate. Offer them a chance to keep you as a long-time customer before contacting other providers regarding their new customer specials. If you can’t negotiate a lower monthly expense, don’t hesitant to shop around.
How much is too much? To help you determine which of your expenses are out of line, access an on-line calculator to compare your list with the average budget for a family of your size.
Make a Plan For Large Expenses
While you can’t avoid one-time larger-than-normal expenses or repairs for your home, appliances, or vehicle, you should try to plan for them. By recognizing these outlays ahead of time, you can build in an additional savings into your monthly budget so you are prepared to cover the bill when the time comes, allowing you to avoid having to dip into your savings or going over your credit card limit.
Make Your Saving Automatic
After you take the actions to reduce your spending, you need to grab those dollars. Begin immediately by directing a portion of each paycheck to a savings vehicle. Since the dollars never enter your checking account, you will be less tempted to spend them.
Look to your employer or self-employed retirement plan as a home for these saving dollars. Not only are you accumulating funds for your retirement, you are receiving significant tax benefits as well.
Too Generous with Others
If your biggest spending problem is not your personal living expenses, but being too generous with your family and friends, you may need to take a different tact. Plan to implement a "pay yourself first" strategy. Decide what you need to save to meet your accumulation goals and direct deposit the amount into an investment account. What you have left after saving this amount and meeting your personal spending needs can be shared with family and friends without guilt.
While it is difficult to say "no" to family requests for financial assistance, not planning for your own future well-being can be a disaster down the road. There are two consequences: your children never learn financial responsibility and your financial security is never achieved. You may actually become a financial burden to your children.
Don’t expect 2016 to be any different than 2015, if you don’t change your actions. Review your expenses, make cuts where you can and must, and set up a direct deposit to an investment account. If you do, your "sanity" will return!
This article was contributed by Cassi Vanderpool, Director of Administration at Bedel Financial Consulting, Inc.
Elaine E. Bedel, CFP, is CEO and president of Bedel Financial Consulting, Inc., a wealth management firm located in Indianapolis. She is a featured guest each Wednesday on the WTHR (NBC, Indianapolis) Channel 13 News at Noon, “Your Money” segment. Elaine’s book, “Advice You Never Asked For… But wished you had,” is available on Amazon.com. For more information, visit www.BedelFinancial.com or email Elaine at firstname.lastname@example.org.