S Stands for Spend
SIMPLE Personal Finances Series
A couple of months ago, I published my introduction to SIMPLE finances: Spend, Invest, Manage, Plan, Limit and Eliminate
Today, I want to expound on the first part: Spend
Now, before anyone gets it into their mind that I am encouraging them to go out and spend wildly, remember that the first part is Spend, not Overspend. Good thing, too, because SIMPLE doesn’t make for a very memorable acronym (plus, it sounds like a complexion issue I had in high school).
When I refer to Spend, I mean right up front that we should spend wisely, appropriately and according to a plan. Yes, I’m referring to a budget. Additionally, we need to develop appropriate spending behaviors. Impulse spending is our nemesis, and discipline is our goal.
Here are three budgeting options to consider. One is bound to fit your style:
- The Traditional Budget Planner asks you to list your income after taxes, categorize and list your expenses with their projected amounts for the month, subtotal both the income and the expenses, subtract the subtotal of your expenses from your income total… and then pray that you have something left over. Doesn’t it all sound like fun?! This is the reason 60% of American households don’t budget. It can seem too complicated, overwhelmingly tedious, time-consuming, or just plain confusion. Still, a traditional budget is better than no budget. The one thing that is missing from most failed budget planners, though, involves the personal and household financial goals. If you were to go through all of these steps, and not tie the entire process to a good reason, then your efforts very quickly seem pointless and you will quit within a month or two. Instead, write out one, two or three short-term goals that are important to you. Don’t make them too highfalutin (I’ve never actually written that word before… self-pat on the back) or they won’t provide you with any motivation to keep at it. Set goals that you can achieve within the next 12 months or so and that will require just $1,000 at the very most. Maybe a weekend getaway? A new outfit? Some new sports or recreational equipment? Once you’ve added a goal to your budget, you have just changed it from a basic math exercise into a plan to get you something you want. Good luck!
- The The Refrigerator Budget is a single sheet that you fill out and can post somewhere that you will see it (e.g. the fridge). Simply draw 31 lines across a sheet of paper (or 28 or 30, depending upon the month) and number them from 1 to 31. For each day, write a brief description of any money coming in or going out (e.g. payday or rent). Then, list the amount of money being spent or received. Finally, add or subtract in order to project how much money you’ll have on that day. Voilà!
- Perhaps the tastiest budget in the world is our Money Pie. Anytime you receive money (paycheck, gift, tax refund, etc.), run it through the Money Pie. While forcing you to keep your expenses within reasonable ranges, it also allows you to spend on entertainment and recreation without feeling guilty.
As for spending behaviors, check out the following resources:
- Determine what your spending personality is by taking the 30-question assessment at the beginning of our Spending by Color webinar. Then, work on developing the strengths of that personality and overcoming its challenges.
- To combat impulse spending, find a business card-sized piece of paper, write down some important short-term financial goals (vacation, activities, new-to-you car, etc.) and place that card in the same spot as your cash or your debit cards. Now, every time you reach for your method of payment, you have to reach over your goal card and be reminded of what you have already identified as most important in your financial life. Limit your goals to about the same amount as one or two of your normal paychecks. That way, you will be forced to save money and not just “not spend” it.
There you have it: SIMPLE spending. Part 1 or 6 down pat, just 5 more to go!
All the best,