Improving How You Spend Your Money

Even in a household in which the primary source of income is a regular paycheck, one's available money doesn't always remain steady throughout the year. A surprise gift or bonus may create a temporary sense of being flush, while an unexpected major expense can leave the family in a bind. As a result, it is important to be able to plan your spending to anticipate these fluctuations and not be continually tripped up by them. If your income is irregular, for instance being based upon commissions or freelance work, it becomes even more essential to make plans in order to smooth out the rough spots so that you are not perpetually falling behind on your obligations.

We can expect to make mistakes when we're first starting out with an unfamiliar task, and learning to spend money more effectively is no exception. It's not something that comes automatically, even if a lot of people act as though it ought to be. Some of us are fortunate enough to be raised in families that handle their money well, and as a result learn good spending habits almost by osmosis. However, all too many people grow up in families with a dysfunctional relationship with money. The code of silence that often surrounds money does not help the process of learning good money-handling skills. If parents find it awkward to talk to their children about money, the children often have no real concept of just how much money it takes to run a household. The basics of food, shelter, and clothing are simply taken for granted, treated as if they were like the air we breathe. As a result, when the children grow up and start their first household, they will have an unrealistic idea of just how far their paycheck will go to pay for luxuries, and are in for a rude surprise when they have to lay out money for rent, utilities, food, and the like.

No matter whether you grew up in a family of spenders or savers, a family where there was always plenty or one that struggled to meet the bills from month to month, it's never too late to learn good spending habits. And even if your spending habits are fairly good, it's probably wise to look at how you can improve them further, particularly in the areas of being able to anticipate rough spots and prepare yourself to go through them.

The first place to start is to find out just where you stand financially. If you have no budget or spending plan, if you just pay the bills as they come in and try to cope with them, it's essential to get a handle on where your money is coming from and where it is going. Gather up all your bills and receipts for an entire month, as well as pay slips and information on other income. If you get a lot of tips or other cash income, or if you make a lot of small cash purchases, you may need to carry a notebook with you and write everything down for a month.

Once you have the data gathered, make a list of all your income sources and all your expenditures for the entire month. Don't just write down the numbers; note the nature of the income or purchase beside each number. You want to be able to see not only what amounts you are spending, but why.

Now look through your list of expenditures. You may well be astonished at just how much money you're spending every month, and in what areas. Are there particular areas in which you are spending more money than you realized? Are there areas in which you're not really getting a lot of value for the money you're spending?

Obviously, there are going to be areas of spending over which you have little or no control. If you have significant health problems, your medical spending will probably be very high, particularly if it requires expensive medicines or other treatments. While it may be possible to switch from an expensive name-brand prescription drug to a less costly generic, be very careful about stinting your health care needs. Don't create false economies that will end up being far more expensive in the long run.

Similarly, if housing expenses are eating you alive, you may not be able to immediately move to cheaper digs. You may have a lease with substantial penalties for breaking it. If you own your home, selling it in a down market may be difficult.

However, there are usually a number of areas in which you can make significant changes in your spending habits that will enable you to live better while spending less money. For instance, you may discover that you're letting small sums slip through your fingers on impulse purchases such as coffee and pastries purchased on the way to work. You may discover you're better off buying a bulk box of donuts from the supermarket bakery, keeping them in the refrigerator, and taking one with you each day, along with a travel mug of hot coffee made at home.

You may also discover that you're paying inordinate amounts of interest to credit card companies. If you can free up additional money to send to them each month instead of only paying the minimum each month, you can reduce the amount of money you're paying just for the privilege of having used their money.

Another problem many people have is failure to anticipate recurring but non-monthly expenses such as insurance and vehicle maintenance. Because these things don't occur regularly, they are easily overlooked and forgotten about even by people who do have a rudimentary budgeting process. As a result, when the bills come in, they catch people by surprise and wreak havoc on the family's spending plan, making it more likely that things have to be put on the credit cards where they ride for months racking up interest.

Once you have a complete picture of where your money is going and where it is likely to go over the next several months, you can begin to lay plans for changing your spending. However, you will want to be realistic about cutting your expenses. Many families who discover themselves in financial trouble react with drastic measures such as completely eliminating eating out and recreational activities. As a result, they soon start feeling deprived and break their budget "just a little." But that first splurge is rarely the only one. Instead, it gives them permission to keep making other unplanned purchases here and there until the budget is abandoned altogether and they're back to their old spending habits.

Instead, make sure to allow yourself a little room for enjoyment. It may not be the same pleasurable activities -- for instance, you may rent a video instead of going to a movie, or camp out at a nearby state park instead of going to a theme park and staying at an expensive hotel -- but there needs to be room for fun. You may even be able to do some enjoyable activities for minimal expense, such as free community meals given by local churches or other groups.

At first the changes will be difficult, and there'll be a lot of temptation to slip back into your old haphazard ways, simply because having to be conscious of money all the time is work. But as your financial situation improves and you begin to reap the benefits of being in control of your finances, you'll wonder why you let yourself bumble along for so many years.

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