Personal finance writer Holly Johnson and her husband, Greg, first started tracking their spending and looked at their previous month’s bills. “We quickly found that we were spending more than $1,000 on food for two people,” she said. Like many Americans, the Johnson’s hadn’t known how much they were spending. They were too busy—working long hours and relying heavily on conveniences like eating out.
Bill Taylor, vice president of financial planning at Northwestern Mutual, believes that’s why so many people don’t know where their money goes.
“I think some people have a rough estimate of what they spend,” he said, “but very few have a budget that they follow and stick to.”
Unfortunately, overspending can lead people to neglect their savings or go into debt. “It’s a bad habit,” said Taylor. “Habits become ingrained, and if you constantly overspend your budget, then you will constantly accumulate debt.”
To avoid going down that path, it’s important to proactively get a handle on your spending. Here are some suggestions for how you can stop overspending.
Figure Out Where You’re Overspending
Taylor suggests that you look at your expenses over the course of one month. While websites like LearnVest can aggregate that data for you, you can also write everything you buy in a notebook.
Like the Johnsons, you might be surprised about how much you’re spending on things like taking Ubers or buying new clothes, and that will help you realize what you should cut out.
“It’s easy to go out for lunch every day or pick up some take-out on the way home,” said Holly. “It’s also easy to keep your expensive cable package and never shop around because you’re busy.”
But if you want to change, that means making cuts. For the Johnsons, this process was key since “only when we began tracking our spending,” Holly said, “did we realize where our budget leaks were.”
Create a Budget
Johnson, who has a book about budgeting coming out next year, believes that the process of making a budget was invaluable to her and her husband.
“We learned that, ultimately, we were the ones with the power to turn our situation around,” she said. “No one else could do it for us.” By making small cuts to their monthly spending, they were able to pay down debt, save and invest.
“Get real with yourself and what your income lets you afford,” suggested Holly. “You are probably living beyond your means, and you can remedy that situation only by cutting back.”
But deciding what to cut back on can be difficult. Taylor suggests making a list of things that you have to pay for, like rent, your car and food, and another list of things you would like to have, like a gym membership, meals out and new clothes. Once you have the two lists, you can rank potential purchases according to what would add the most enjoyment to your life.
“Perhaps going to the gym is a necessity for you, and so that’s something you have to pay for each month,” he said, “but going out to eat is less important.”
Staying on Track
Johnson found that the most difficult part of sticking to a budget was mastering herself. “Learning to tell yourself ‘no’ may be the hardest lesson of all,” she said.
Taylor suggests that you focus your attention on bigger financial goals. “Remember that sticking to your budget means you are going to have more for retirement or you are going to be able to pay off debt or get the car you want or buy a house—whatever it is you want to do.”
But it’s not all about saving money. The worst mistake that Taylor sees people make is that they become too frugal—which leads to burnout. It’s important to set aside money to do fun things and to reward yourself.
“If you’ve stuck to your budget all month,” he said, “you should balance that out by spending some of your savings on something that’s fun or that you really want.”
Another option for staying on track is to consider increasing your income. This might mean taking on another job or working on the side. For example, Taylor knows a group of teachers who build decks when school’s out to supplement their earnings.
Sticking to Your Budget Will Make You Feel Better
One of the biggest benefits of spending within your means is the psychological relief that you feel.
“When people start to live within their budget,” Taylor said, “they are so much happier.”
That comes as no surprise to the Johnsons. “We have been avid budgeters for many years now,” Holly said, “and we feel great about it.”They use the money that they previously spent on conveniences to invest in their retirement accounts and build college funds for their two daughters.
“We sleep better at night,” she said, “knowing that our money is being spent and saved according to our values.
Now, we want to hear from you! Would like to share your opinion or make a comment on the Unlock Your Wealth Radio Show? If so, then please leave your comment or questions in the space provided below and share this article with your friends and family on Facebook and Twitter. Your comments or question could be chosen as our featured Money Question Monday and a phone call by financial expert Heather Wagenhals could dial your way to be live on the Unlock Your Wealth Radio Show.