Announcement

Collapse
No announcement yet.

Why Am I Broke?!? 6 Frugal Tips for Getting a Grip on Spending

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

    Why Am I Broke?!? 6 Frugal Tips for Getting a Grip on Spending

    For many people, getting a grip on spending is something that happens only under the pressure of suddenly finding themselves broke. They wonder how that credit card balance got so high and hastily go back through the charges, certain there must be a mistake.

    It’s unfortunate that, all too often, financial responsibility comes to the majority of people only in the midst of a cash flow crunch. Managing bills in a crisis, whether it’s brought about by an unexpected expense or simple neglect, tends to magnify the problem. Sometimes it prompts people to carry over a balance on their credit card or make a late payment, one of those events banks count on to add to their bottom line. Even for the fiscally responsible, it could mean dipping into emergency savings just to pay living expenses. The time to put a plan in place to get control of spending is before it gets to that point; managing cash flow during a crisis almost never works out well in the long term.

    Document Your Spending

    Getting a grip on spending starts with being able to identify where your money is going, and that means creating a spreadsheet to track every penny. This is a very difficult task for many families, as it’s both tedious and time-consuming. If both adults in the home are working, they both have to be committed to the project, and there’s a very good reason for that. Let’s say one member of the family is spending just a $1.50 on coffee. Doesn’t sound like much, does it? Hardly seems worth adding to the spreadsheet — and yet $1.50 a day translates to $45 a month ($30 a month just counting work days), roughly what many families are paying for Internet access. If that $1.50 a day gradually expands to twice a day, that’s $90 a month, equal to many families’ entire cable bill.

    The reason tracking every expense is a critical first step is that, for the majority of families, their biggest financial losses are actually the accumulation of dozens of such tiny expenses.

    Ditch the Credit Cards

    That’s a tough one for many people — and yet necessary to get a grip on spending, because credit cards are the ultimate backward-facing financial metric. Credit cards tell you how much you spent on various items the previous month. Unless it’s a recurring expense, that data is useless for managing cash flow! Spending money becomes a lot more visceral switching to debit cards, when you can see your balance slipping away.

    Switch to Envelope Budgeting

    “Envelope budgeting” is an old-fashioned cash management plan that involves literally putting money for different bills in separate envelopes. What’s left over after the money goes into the various bill envelopes is how much you have to live on until the next payday. These days you don’t have to trudge down to the bank and withdraw the cash to stuff in real envelopes, which are too easy to misplace. It’s much easier to go back to your trusty spreadsheet and create virtual envelopes. Managing your cash this way also makes it easier to color code expenses that exceeded their allotment, which immediately highlights stealth price increases and unexpected fees that would otherwise sneak up on your cash flow.

    Tame Your Food Bill

    Almost inevitably, one of the first eye-openers that comes from carefully tracking expenses is how much you’re spending on food. Those quick trips to the grocery store every other day really add up, and grocery stores love you for shopping that way. Plan meals ahead, and do your shopping at stores like Costco, Aldi, and Big Lots. It’s more work — but you’ll be amazed at the savings.

    Kill Off Unnecessary Monthly Expenses

    Once you’ve gotten a handle on the myriad of little out-of-pocket expenses hurting your cash flow, it’s time to turn assassin and kill off unnecessary expenses. Paying for online storage? Replace it with a pair of external storage devices and run your own backups. Do you have software subscriptions (I’m looking at you, Adobe)? Find a fixed-fee alternative for those monthly bills. Are you paying monthly fees to play online games? It may be time to ask yourself if you can really afford it anymore. Those $10 and $20 a month expenses really add up.

    Periodically Shop Services

    Once you have a grip on the big sources of cash flow bleed, then you can start on expenses like phones, cable, and insurance. By analyzing your viewing habits, you may find a less expensive alternative to your cable package. The same goes for phone service; be sure to check out prepaid services like StraightTalk. You should periodically shop your auto insurance, particularly if you get married, buy a house, or go years without filing a claim.

    While fiscal diligence may seem like a lot of work at first, after you get into a routine, the time it takes will gradually dwindle. Once you tame the cash flow beast, it will be easier to do financial projections, and start getting ahead on money management.


    -Redtea
    Independent News for the Right-Minded American
    Last edited by disneysteve; 03-14-2014, 12:54 PM. Reason: link posting violation

    #2
    The key thing to get a grip on is one's mindset. One has to be convinced that deficit-financing one's lifestyle is a very bad thing and that a frugal living mindset is a good thing.

    That being said, NO, NO, NO! Do NOT ditch your credit cards. Credit cards are not the enemy; misusing them is the enemy. Deal with that, and keep all the positive benefits credit cards provide (which includes HAVING a credit record because without one it's a very uphill battle to get any kind of major purchase -- auto, house, etc -- financed).
    Retired To Win
    I blog weekly on frugal living, personal finance & earlier retirement at:
    retiredtowin.com
    making the most of my time and my money

    Comment


      #3
      Originally posted by Retired To Win View Post
      The key thing to get a grip on is one's mindset. One has to be convinced that deficit-financing one's lifestyle is a very bad thing and that a frugal living mindset is a good thing.

      That being said, NO, NO, NO! Do NOT ditch your credit cards. Credit cards are not the enemy; misusing them is the enemy. Deal with that, and keep all the positive benefits credit cards provide (which includes HAVING a credit record because without one it's a very uphill battle to get any kind of major purchase -- auto, house, etc -- financed).
      Agree! For us it all boils down to self discipline and good record keeping of spending.

      Comment


        #4
        Planning and discipline

        Why am I broke? Good question! Whoever is broke most likely does not understand finances or disregards any financial concept he/she came to hear about. The accidents (acts of God or things beyond control are just that, even though one can somewhat prevent disasters with proper planning). One's planning and discipline are required to not only prevent coming to being broke but to getting (far) ahead in life with finances. This is a vast subject, it implies lots of technical aspects such as budgeting (a subject in itself), needs versus wants, monthly standard spending, etc. Briefly, one is broke because he/she has either an inability to make money (could be for many reasons) or, if there is an income, the spending is consistently more than the income. Inevitably, becoming "broke" is close but is quite predictable.

        Comment


          #5
          luxurious lifestyle

          Why am I broke? That's a question that everybody must ask. But for me, one of the reasons is that because of having a luxurious lifestyle. Well, I guess you must surrender your credit card. If you have one just discipline yourself to use it for emergency purposes only.

          Comment


            #6
            There are great suggestions. It still bugs me that we will teach so much information in school but we are not going over basic credit card information or how to stick within a budget. I think the instant gratification has become so normal that loaning money is more standard than ever. Especially if you are struggling paying rent, why do you need to out once a week you know?

            Comment

            Working...
            X