Budgeting Essentials
3 Keys to Keeping your Wallet Full
This week's Question:
I am spending all my money each month – Any Way
to Stretch My Money?
With all due respect, I must answer your question with a question:
Do you know where all your dollars are going?
Let me tell you why this is important.
I will use myself as an example.
If I don’t know - or worse yet – I don’t care where some of my money
is going – where do I draw the line between the
dollars I care about and the ones that I am careless about?
Knowing where every dollar goes is easy to determine.
Yes, it will probably take a few more minutes in the beginning,
however, once you begin taking control of your money,
you will start a habit that is as simple as brushing your teeth.
First, jot down all your incoming dollars.
Whether that be paychecks, royalties, pension,
self-employment income, or whatever money is coming in to you.
Come up with a total household income for each month.
Second, list all the bills you pay each month.
If you have bills that you pay quarterly or annually,
I would strongly suggest you check out
last week’s blog entitled:
7 Tips to Catch Up Your Monthly Bills
->In this blog we described how to break down quarterly and annual bill payments
into monthly amounts so that you can accurately forecast
how much money you need each month to stay on top of your bill payments.
When you subtract you monthly bills from your total household income,
you will come up with either a positive or negative number.
If the result is positive, you can use these blog tips to save even more money.
If the result is negative, you can forget all this and get a second job
to try and stay ahead, or you can put these blog tips to work
to shave excess expenditures.
Key 1:
Stretch your money
by looking at
discretionary
spending areas (DAS)
Investigate D.A.S. or discretionary spending areas are activities
that take dollars away from you.
Costs beyond necessary expenses.
Areas like entertainment. Sports.
Clothes shopping.
Jewelry purchases.
Holiday gifts.
Hobbies.
Exercise equipment.
Memberships.
Subscription channels,
digital subscriptions,
cable TV,
and other expenses.
Hold on, we are not going to rub the cat’s fur backwards here.
We are going to start out by observing how many dollars
are going away from you to sustain your current discretionary spending level.
Remember, our goal is to stretch your money
because you are spending all your money each month.
You will be the one to decide which things you can live without
and what items you want to spend dollars on consistently.
So, jump into this project with your family members present and accounted for.
Why?
Because, when people do not understand the why,
they have a difficult time making spending adjustments
and maintaining compliance.
What to look for in discretionary
spending areas?
Stretching your money requires you to dig in and discover what
is included in each of your discretionary spending areas.
Yes, all of them. You cannot fix what you do not know about.
Find out what these categories contain.
Too often, we spend money on impulse.
We see something. We like it. We buy it.
If you are spending all your money each month,
it is time to check and see what you and the family are spending money on,
outside of your customary monthly bills.
Unfortunately, it is ridiculously easy to get into the habit of spending just
a little more money each month on items or activities we enjoy.
We justify the additional expense and rarely go back
to reevaluate how much this “enjoyment” is costing us.
This is one of the reasons many of us find ourselves spending
all our money each month.
Key 2:
It’s time to take a dive
Do you plan shopping trips on holidays like Memorial weekend?
Yes, you may save a few bucks here and there.
However, whether you are shopping in a brick-and-mortar store or online,
the goal of the retailer is to get you to look beyond your pre-planned shopping list.
Focus and Distraction
Focus and distraction techniques routinely performed by sellers
are rarely realized by buyers.
Since a seller wants you to buy more than you planned, they tempt you with:
Bright shiny sales signs making merchandise seem more desirable.
Advertisements that show you how much fun you will have and
how good you will look wearing their merchandise.
Bringing you to a page that shows you related items you may need.
Reminding you what customers also bought – so you consider it.
Installment Payments
This temptation to purchase more merchandise may be the most
hideous one of all. Installment payments like buy-now-pay-later,
or the four-easy-simple-payments exist to get you
to focus on a smaller dollar amount.
“I don’t have to pay for it now, what a relief.”
“I only have to pay $75 dollars now.”
These words are music to a retailer’s ears.
If you must use this strategy to get by for a while, I get it.
However, do not let it become the norm for you. Why?
It will hurt you financially in the long run.
This is one of the reasons many of us find ourselves
spending all our money each month.
Holiday Sale Shopping Help
You may not think this is a big deal, since you got them on sale,
but let’s look at the numbers:
Jeans on sale on Memorial Day weekend: $45.00 orig: $59.00.
Shirts on sale this Memorial Day weekend: $29.99 orig: $39.99.
3 pair of jeans = $135.00 vs 1 pair of jeans = $59.00
5 shirts = $149.95 vs 2 shirts = $79.98
Spent on sale = $284.95 vs not on sale = $138.98
That “hot” holiday sale just cost you an additional $145.97!
Stop to consider that 146 dollars just left you.
Pro Tip on Sales:
When you regularly check on prices the way we do,
you will find out that many times sales are not the big deal
that the retailer wants you to think that they are. What am I talking about?
Retailers often do what I call “pattern pricing.”
This means that when sales are slow, you can find sale prices
popping up more often. Not just at holiday time.
Key 3:
Source your purchases
ahead of time
I discovered what I call "sourcing" during the pandemic.
This became even more important during the tariff talks.
Why?
Because many retailers raised their prices. A
nd not just by a dollar or two.
For example, we had been purchasing
a health product online
from Big Name retailer for $29.95.
Days ago, that same item’s price increased to $34.95.
Instead of just ordering the product from Big Name (again)
and grumbling the whole time I was ordering it,
we decided it was time to do some sourcing.
In less than a couple minutes we discovered that another
Large Name retailer with a brick-and-mortar store was selling
the exact same product for $29.99.
Bonus – since we also needed another small item,
we ordered that as well and got free shipping.
Pro Tip on Perspective:
Refuse to look at this as something you are doing wrong.
Rather, start looking at every dollar that goes away from you.
If you are okay with dollars leaving you ,
that is fine.
If you are not okay with dollars leaving you,
do something about it.
Consider looking at these and other expenses every six months as needed:
Sporting events
Entertainment
Going out to eat
Buying books, music, movies, art, jewelry, clothing,
shoes, kitchen equipment, almost anything that you buy.
Questions you can ask
Do we need to spend this much money
on this item every day, week, or month?
Could we get by with less of this item?
Should we cut this expense by 50%?
By purchasing every other week or every other month?
If we really want to keep this item,
is it time to check for better pricing?
Can we put this purchase off until later?
Have we allowed
this area of our spending to “creep”
upwards without much notice?
Remember Your Goal
Keeping your wallet full
Your purpose here is to eliminate
as much excess spending you can,
and keep the rest.
Remember, cutbacks can always be restored
when more money comes in,
or when you save dollars in other areas.
Now that you know
where your money is going every month,
you can s-t-r-e-t-c-h
your money.
Whenever we make cut-backs in our spending,
I try to remind myself
that we cannot spend more than we make
without getting into serious debt.
Oftentimes cutting back on
discretionary spending
is easier than getting a second job.
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About the author
I’m Dan, AKA “Dan the Budget Man!”
I have over 30 years’ experience managing multi-company organizations providing accounting leadership. One of my primary job duties is preparing the annual budgets for the companies in the organizations. For many years I have been preparing the budgets for between 20 and 35 companies annually. I also provide comprehensive, step by step budget, accounting, and Excel training. Today I get to share those skills (and customer driven focu) with you on www.BudgetingEssentials.com.
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