There's a specific kind of anxiety that hits when you log into your bank account and realize you have less money than expected. Whether you've dipped into your savings account when you hadn't planned to, relied on credit cards more than you wanted to, or wound up in debt up to your eyeballs, realizing that your spending has surpassed your income can leave you frozen in your tracks. Luckily, you don't have to stay feeling frozen forever. By putting together a plan, you can take control of your finances and get back on the road to financial independence. This 5-step guide will help you stop spending too much money:
Step 1: Be Honest About Where You're At
It's human nature to deny a problem—or how bad a problem is—because acknowledging a problem means having to deal with the fallout. However, the opposite is also true: In order to deal with a problem, you have to acknowledge that it exists. If you want to stop spending too much money and get things back under control, you first have to be honest about how out of control it is. If you have a spouse who shares the responsibility with you, sit down with them and carefully explain exactly how much money is in each of your accounts, as well as what you have in debt.
Step 2: Create a Budget to Stop Spending Too Much Money
Creating a budget is absolutely critical to getting your spending back under control. To create a budget, first record all the money that you have coming into your accounts. After you know your income, write down the expenses you have to have. These include:
- Mortgage or rent.
- Electricity, heat, hot water, and other utilities.
- Credit card and loan payments.
Having a budget allows you to see exactly where your money should be going on a monthly basis. It teaches you to plan ahead for expenses like groceries and rent instead of spending your entire paycheck when it hits your account. Once you have a budget, you also need to train yourself to have a budget mindset. With a budget mindset, instead of looking at your account and thinking "I have $500 left in my account," you think, "I have $500 left in my account, but $400 of that is going towards my rent this month and $50 of that is going towards my phone payment, so I only have $50 left to spend."
Step 3: Reduce Your Budget Where Possible
Once you have your budget laid out and understand where your money is going each month, it's time to look at your budget critically and begin making cuts. Here are some good starting points for lowering what you're paying every month:
- Reduce your grocery bill by meal planning, using coupons, and drinking tap water instead of soda.
- Reduce your electric bill by turning off lights and unplugging appliances that aren't being used.
- Reduce your oil bill by turning your head down 3 degrees.
- Consider dropping subscription services like Netflix or Hulu until you're finances are under control.
- Go down to basic cable or give up cable for a period of time.
- Make coffee at home instead of spending money getting coffee while you're out.
- Go out to dinner less often.
Occasionally, you may find yourself in a position to make drastic cuts to your budget. For example, you may be able to go down to one car in your household by choosing to bike to work, or you may choose to move into a less expensive apartment. However, even without making drastic life changes, you can make a difference to your bank account by fine-tuning your budget in these basic ways.
Step 4: Create Goals
Once you have a budget and it's been shaved down as much as it can be, you're in a good position to stop spending too much money and start making financial goals. Create both short-term and long-term goals. Short-term goals can help you feel a sense of accomplishment when you're first getting your budget on track, while long-term goals give you something to aspire towards and prevent you from falling back on old habits when short-term goals are met. Common financial goals include:
- Having an emergency fund with 3-6 months of income saved.
- Paying off a car.
- Paying off your credit cards.
- Paying off student loans.
- Saving enough for a down-payment on a house.
Step 5: Save Before You Spend
When your budget is ironed out and your goals are set, all that's left is to stick to your plan. The easiest way to do this is to move the amount of money you want to be saving each month out of your account the minute your check comes in. If need be, you can even have a separate checking account for bills where you move all the money for your fixed and variable expenses. By saving aside the money you need first, you don't give yourself the ability to overspend your "fun money."
Another option is to only pay for miscellaneous expenses using cash. If you have an issue with overspending on credit cards this can be a great way to curb your spending habits.
You don't have to let your finances—or lack thereof—control your life. Making a plan and sticking to it is key to getting your finances under control once and for all. Naturally, you'll make mistakes along the way, but by continuing to re-evaluate your financial goals, you can stay ahead of your finances rather than letting them dictate your life.