When I got my first full-time job as a teacher, my modest salary felt like a fortune. I was on my own for the first time and I felt like I could do anything I wanted and buy anything I wanted. So I did. I managed to put a little bit aside into a savings account, but overall I didn’t really pay attention and I got into some bad money habits. After a few years, I started to notice a terrifying trend. My credit card debt was increasing at an alarming rate, and more and more my income couldn’t cover it. I didn’t feel like I was living an elaborate lifestyle, and I couldn’t pinpoint an obvious place that my money was going. I didn’t have an expensive car payment, I didn’t go on shopping sprees, and I lived with roommates. And yet I was watching my hard-earned money slip away. I started to panic. Clearly my vague monthly proclamation that “I’m going to spend less this month!” wasn’t working, and it was time to get serious about controlling my spending. Here’s what I did to start to get a handle on my finances.
1. Keep track of your expenses…ALL of your expenses
Out of sight, out of mind, right? Keeping track of where your money is currently going is KEY to creating a realistic budget, no matter your income, and it needs to be your first step. I’m not just talking about your rent and bills, either. Half the battle of getting your money under control is being aware of your current spending habits. You can’t change what you ignore.
Keeping track of all your purchases requires some dedication, but it doesn’t have to be hard. One option is to let technology help you. Your bank is a great place to start. Many will offer a breakdown of your expenses right on their website or app.
There are also numerous apps that are created to help you develop and stick to a budget. Some apps simply help you keep track of expenses, and other apps will do it all, including investing your money for you! Check out NerdWallet, who has created a list of the best financial apps for 2019. I use a simple free app called HomeBudget, which allows me to set my budget and organize my expenses into categories. I prefer to enter my expenses manually, rather than use an app that is connected to my bank account, because it forces me to pay close attention to what I’m spending.
For those who prefer to keep technology out of it, or who simply want a more hands-on approach, keep your receipts for EVERY purchase and have a blank paper in your wallet to immediately write down those purchases that don’t come with a receipt (yes, even the $2 parking meter charge and the $0.75 vending machine potato chips). Choose the same day each week to sit down and manually record what you spent and where you spent it. You can have a designated notebook for this or create a simple spreadsheet. Put it in the same place every week.
Whatever way you do it, at the end of the month take a look at your overall picture. Put your expenses into categories (my categories are Groceries, Food and Drink Out, Personal, Travel, Entertainment, Incidental) and ask yourself some questions about your spending:
- Are you spending more than you are taking in?
- Are you surprised by anything?
- Is there any category that stands out as taking most of your money?
- Is there anything that you can easily cut back on?
For me, it was all of the little food and drink purchases that I would get throughout the week. $5 here, $6 there. Each time I would think, ‘It’s only a few dollars, no big deal.’ But man, do those few dollars add up fast. Seeing it laid out so clearly caused me to immediately reevaluate my priorities.
2. Get creative!
Now that you know where your money is going, it’s time to get creative! Take a look at where you are spending too much and find ways to cut back. Grocery expenses through the roof? Try meal planning using items that you already have (learn how to get started with meal planning). Shopping habit? Try local thrift stores, where you can find some great deals. Expensive gym membership that you rarely use? Consider joining a workout Meetup group instead. Ready to get rid of cable? Go in with a friend for a Netflix or Hulu account. Driving a gas guzzler? Check out public transportation or carpool options. Write down all of your ideas for ways that you can adapt your spending habits and choose the ones that make the most sense to you.
Use what you’ve learned about your habits and priorities to create a realistic budget for yourself. Be sure to prioritize paying off debt and putting money toward savings and investments!
3. Change your mindset
This is a big one. Changing your relationship with money is like changing your eating habits. If you are only focusing on what you CAN’T have and thinking in terms of deprivation, you won’t see long-term change (and let’s face it, you’re going to be pretty grumpy). Many people, myself included, have a hard time prioritizing intangible future purchases over things we want now, or they overly rely on credit cards to get immediate gratification, putting themselves further and further into debt.
Be kind to yourself. If you’re reading this, you have probably made mistakes with your money in the past. So have I, and there are many things that I wish I had done differently with my money. But you’ll never move forward if you’re constantly berating yourself for what you did in the past. Acknowledge your mistakes, make sure you learn something from them, and move forward doing better. As a teacher, we teach kids that their behavior doesn’t define them. Making a bad choice (or a series of bad choices) does not make them a bad person or mean that they can’t choose differently next time. That message is no different just because we’ve grown up.
Putting money into savings and investments accounts isn’t nearly as much fun as going to a concert or going out for a nice dinner, and sometimes it may feel like you are missing out. But people are adaptable. Focusing on your goals and on making the most out of what you do have is the road to long-term success.
What about you? Where do you tend to overspend? Tell me in the comments!