Staying on Track with Your Spending Plan
Learning Goals
This article wil help you understand:
1. How to finalize your spending plan.
2. How to avoid impulse spending.
3. How to set up an environment that will assist you in meeting your savings goals.
4. How you can reward yourself occasionally and still stick with your plan.
1. Introduction
Previous articles have helped you learn about ways to increase your income and decrease your expenses. Now you have a goal and have learned ways to achieve that goal, you should establish a concrete plan and set yourself up for long-term success.
Your final spending plan should consist of the following:
1. A monthly savings target
2. Five or more concrete ways to achieve that target and how much each method will help you save each month
Here is an example of a finalized spending plan:
Jill, a married mother of two young children, is an accountant. She makes $45,000 per year and her husband, John, a sales representative, makes $35,000 per year, so together they make $80,000 per year, or $6,666 per month. According to the guidelines established in Module 2, they should plan on saving 5% of their pay, or $333, each month. This is their monthly savings target. Right now they are breaking even each month. They determined they could do the following to achieve their monthly savings target:
1. Dine out only once a month instead of weekly (saves $180/month)
2. Get coffee at work instead of at Starbucks (saves $30/month)
3. Stop subscribing to cable television (saves $50/month)
4. Use coupons at the market and buy more items on sale (saves $20/month)
5. Switch to a less expensive cell phone plan (saves $25/month)
6. Spend less on internet shopping (saves $50/month)
In total, if Jill and John can stick to this plan and put all of their savings into a savings account, they could save $350/month and meet their monthly savings goal.
You should sit down with your family and create a similar plan for yourself. Once you have your plan, put it in a visible place in your home so you are reminded of your goals. Many individuals who have taken this course have commented that this information should be taught in high school or college, not just to debtors in bankruptcy. The website www.dollarthink.com is one such personal financial management course geared to young adults.
The remaining sections of this module will describe ways to help you stick to your spending plan, as the plan will be successful if you can adhere to it in the future.
Monitoring Your Performance
Take the following steps to assess your performance every six months:
* Keep All Your Receipts for One Month’s Spending
* Add up the Total Expenses for Each Category (groceries, dining out, entertainment, phone, water & electric, gas, housing, insurance, miscellaneous)
* Look at the Results: Where is Your Money Going?
* Identify Places Where you Can Cut Spending Further
* Make a List of Five Specific Things You Will Do to Cut Your Expenses
* Do Those Five Specific Things
2. Set Up a Supportive Environment
An old saying goes that if you do something for at least 3 weeks, it becomes a habit. The longer you can stick with your plan at the beginning, the more likely you’ll be able to maintain it. There are several ways to help you stay on your plan. First, focus on achieving small goals and then build toward larger ones. If it helps to set a smaller savings target at the beginning and then increase your target over time, do that. If you are successful in a small way at the beginning, this will motivate you to continue saving more and more.
Also, don’t be afraid to get help. You may want to tell your friends and family that you are trying to cut down on your spending. This way, they can support your choices and help you achieve your goals.
In addition, set up your physical environment to support your goals. If you were trying to lose weight, you probably wouldn’t stock your kitchen cabinets with cookies and potato chips. The same principle applies in following a spending plan. If you are a big e-Bay or internet shopper, turn the computer off so the temptation isn’t so visible. If you like to talk to friends on the cell phone a lot and incur expensive phone bills before 8pm, put the phone away until 8pm when there aren’t extra usage charges. By setting up your physical environment to support your goals, it may be easier to follow the guidelines you have established for yourself.
3. Take Advantage of Windfalls
Another way to help you stick to your spending plan is to take advantage of windfalls. If you happen to get a pay raise, a bonus at work, a financial gift from a relative, or a tax refund, plan on investing that money in your savings account, rather than spending it. This way, if you have a difficult month in the future where you may not be able to meet your spending target due to an emergency, you will still be able to meet your savings goal for the year.
4. Don’t Spend on Impulse
Another guideline you should follow is to avoid spending impulsively. Spending money on things without thinking over your purchases ahead of time will likely result in regret. As mentioned earlier, a good plan for avoiding impulse spending is to go home and wait 3 days before making a major purchase. This time will allow you to decide how badly you really need an item before you decide to purchase it.
Another helpful habit is to only carry cash with you and only carry enough cash to pay for the things you really need. This way, if you notice something you want that isn’t a necessity, you won’t have the credit card available to pay for it. In addition, if you have to visit the ATM each time you want more money to spend, forcing yourself to run this extra errand may dissuade you from spending the money. Carrying only cash also can make you more aware of how much you are actually spending each week.
You can also avoid spending on impulse if you make a list of things you need to buy before you go to a shop or store and only buy the things that are on the list. Making a list not only allows you to focus only on what you need, but it also allows you to tally up how much you may be spending before you go to the store so you know what your budget will allow.
5. Don’t Feel Pressure to Keep Up with the Neighbors
You may feel that your social status may be defined by how much money you have, the type of car you drive, or the size of the house you own. This can lead to pressure to spend money on clothes, cars, and houses to keep up with others.
This is a bad trap to fall into because often the Joneses next door may be in a great deal of debt themselves! Resist the temptation to spend money to keep up with others so that when you are older and you really need money, you will have it.
6. Reward Yourself Occasionally
Sticking to a savings plan takes discipline and can be difficult. Thus, it doesn’t hurt to reward yourself occasionally if you are progressing in the right direction. A good way to do this is to determine for yourself what you would most want to spend money on and leave room in your budget to spend a pre-allotted amount of money on this one thing. For instance, if you are a huge baseball fan, leave $30/month for attending a ballgame in your hometown and plan on watching the rest of the games on TV. If you hate to cook, plan on eating out once a month at a reasonably-priced restaurant. If you love music, plan on setting aside $20/month to buy a new CD.
Whatever you decide to do, be sure that you set a maximum amount of money you will spend on this one luxury and stay within your pre-set range. Also, don’t give up your entire plan if you wind up spending a little more than you would have liked one week or month. You may be able to return the purchases you spent your money on, or save more money the next month.
Sticking to a spending plan can be difficult and you may have to work at it for months before it becomes easier to follow. But, you can do it! Good luck!
Summary
* Creating an environment that focuses on savings will make it easier to stick to your spending plan.
* If you receive a financial windfall, such as a work bonus or gift, invest most (if not all) of this money in a savings account to help meet your monthly savings target.
* Don’t feel pressure to keep up with your neighbors’ luxury purchases—they may be in debt themselves!
* Plan on rewarding yourself occasionally if you are doing a good job meeting your savings goals.
Now Take Action Today to Make it a Great Day
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