Spending Archives - Page 2 of 7

How Much Should We Spend

07.13.2011 by Mike Young //

I get this question a lot because couples often wonder what is acceptable to spend on different purchases. It’s natural for people to compare themselves to others, but the problem is you do not know everything going on in their lives. They might make way more or way less income than you think. Spending is not a sign of wealth! Most people think a person driving a $60,000 vehicle with a $500,000 house is wealthy, but all it really shows is that they know how to spend money, not that they necessarily have money. So, here are a few guidelines for knowing how much to spend:

First of all, spend less than you earn

I know this sounds really obvious, but most people (in the U.S. anyway) don’t actually put it into practice. If they did, we wouldn’t have the debt problem we have today. That is how debt happens. You spend more than what you make and use credit cards, home equity loans, payday loans, etc. to pay for it. So, the best way to determine if you should spend money or not is to ask yourselves if you have the money in the first place. Not if you can afford the payment, but if you can afford it at all.

Spend less than you make by doing a budget

Unfortunately, many people do not have a clear picture of what they make. If I asked you how much money you make, you could probably tell me $50,000 per year. When I ask what your monthly take-home pay is, that’s a different story. It often amazes me how many deductions people have taken out of their paychecks when I work with them as clients. The work cafeteria, short term disability insurance, double or triple the amount that should be taken out for federal income tax, and deferred compensation are just a few of the things being taken out of paychecks. The crazy thing is, most people don’t even realize or know about these things until someone else points them out. The point is to know exactly the amount of money you have coming in each month. That way, you know what amount of money to budget so that you don’t overspend.

Set limits and stick to them

Once you know the amount of money you have to work with, you and your spouse must determine how much is reasonable to spend on each category. Is $50 each per month enough for blow money to spend on whatever you want? Maybe $100 each per month is more reasonable. The same goes for other categories. Your income and your fixed expenses (mortgage, taxes, etc.) will help determine the amounts. The most important part is to set those limits and then stick to them. A budget on paper is worthless unless you actually live by it!

In case I haven’t mentioned it yet, don’t spend more than you make. It really is that simple. Is it easy to do in our culture? Absolutely not. But it is simple. Follow the above guidelines and you won’t have to guess on what you should spend, but rather you will know. Tell your money where to go instead of wondering where it went!

How To Get Your Spouse To Stop Spending

06.08.2011 by Mike Young //

You know you’ve thought it. Maybe you’ve even said it out loud. “My spouse spends too much!” There is a cure, but it is not as simple as having them take a pill (stop it, I know what you’re thinking!) There is actually a three step method to stop the spending insanity.

1) Have a conversation with your spouse.

This does not mean that you nag your spouse. It does not mean that you berate, belittle, or criticize your spouse. In fact, I will guarantee that will not work. Your spouse may stop their spending for a short time (like a day or an hour), but not long term. You are in a partnership, not a parent/child relationship. Instead, try sitting down together face to face. Make sure the tv, computer, cell phone, etc are all turned off. If you have kids, make sure they are in bed. Basically, get rid of distractions and don’t have this conversation while getting the kids ready for bed. Hold your spouse’s hand in yours and explain to them how you want to do better with money. Here is the important part: tell them WHY you want to do better with money. Do not start with the how or what they “need to start doing”. Explain to them all of your dreams and goals and how you see your financial future TOGETHER. This will set the right tone, put your spouse in a non-defensive mindset, and help you identify and overcome any money anxiety that might exist.

2) Do a written budget.

The only way to truly control spending for both of you is to get on a written plan. You may think that you have a budget in your head, but it is not the same as writing it down. If you sit down together and put a plan on paper before each month begins, it gives you both power over your money. Even if your spouse is not a budgeter, they must have a say in the plan. If your spouse is the type who wants nothing to do with putting a bunch of numbers together, then I suggest you make a plan for the first month. Then, you show your spouse the plan and let them have input. For example, your spouse may say that there needs to be more money for gas. Ask them what category they would suggest lowering in order to increase the gas budget. Once you get the discussion going, it should come to life. WARNING: Attitude is critical in this. There are two ways to say “what category should we lower, honey, in order to increase the gas budget.” You know which is the correct tone, use it. The last thing you want to be is sarcastic or condescending: that will get you the opposite results of what you are aiming for with this process.

3) Put it into action.

Believe it or not, this often is the hardest step of all. You may think that once you have gotten through the first two steps, the hard work is behind you. Wrong! A budget on paper or in your computer is completely worthless if you don’t live by it. That may mean packing a sack lunch when all your friends are going out to eat. Or putting the doughnuts back at the grocery store because you already spent your grocery budget. This is where the true test comes. You may even find out in the process that you spent more than you thought, it wasn’t just your spouse! The key is to stick to the plan and the easiest way to stick to your plan is to know the why you’re doing it. Being debt free, saving for a vacation, or giving money like you’ve never given before can be huge motivators. Find what motivates you and your spouse (you know, the spender) and start putting that plan into action!

Track Expenses To Help Create a Budget

05.20.2011 by Matt Jabs //

For many people creating a budget can be a huge undertaking, and simply getting started is the most common roadblock. Why? Because established patterns of behavior can be hard to change. With that said, if an established pattern has become problematic – as is the case with the financial habits of many – it needs to be changed.

To make change happen let’s focus on how tracking expenses can help break bad spending habits and create a working budget.

1. Keep a spending journal

Carry a pocket moleskin notebook (or any dollar store mini-notebook) in your pocket or purse to record and categorize every financial transaction you make. This may sound annoying or cumbersome at first, but it’s easy to implement and will play a huge role in getting a handle on where your money is going… so if you’re having problems, start doing it.

In your journal simply record 3 items for each transaction:

record the date – so you know when each transaction took place and how many you tend to make each day.
record the amount – so you know how much you’re spending.
record the category – so you can determine how much money to attribute to each budget category each month.

Remember to take ownership of this journal by using my suggestions as a starting point and adapting it to fit your needs. Also remember that your categories are alive; they can be created, deleted, and changed to better fit and accommodate changes in your life.

2. Buy simple budgeting software

While you journal your spending you should also begin downloading transactions into a budgeting software. Doing so will further help you categorize, track, manage, and plan your financial future.

I’ve always scratched my head at people who don’t want to spend $60 on a budgeting program that will likely help them save hundreds each month, but they have no problem dropping $60 on going out to dinner every Friday night! I encourage you to stop making excuses for not buying a budgeting program and just go buy one; it could easily be the best $60 you spend this year! I recommend – and personally use – You Need A Budget (YNAB) for both my business and personal finances, and I love it.

If you’re worried about the $60 then simply forgo dining out a time or two this week to reclaim the cost. If you’re not willing to make that sacrifice then you might as well quit reading now and go shopping.

3. Be disciplined and follow through

You can start your journal, purchase the budgeting software, and feel good about getting started… but if you don’t follow through and make this behavior a habit you will not be successful. Remember that established behavior patterns are hard to change, but not impossible to change! Making the switch to wondering where your money went to telling your money where to go will take time, discipline, and follow through. Are you up for the challenge?

It’s time to change the course of your life. It’s time to grab your finances by the throat and take control back.

You can do this… all you have to do is get started!