Overspending

If you keep a household budget, the story of your life can be read in its line items. Mortgage, rent, utilities, insurance, groceries, savings, etc., are itemized to guide you through the year prudently. The problem arises when temptation creeps in. Suddenly your budget is buried in “miscellaneous” purchases. These are impulse purchases and the goal is to avoid these splurges and keep your money in your pocket.

There are telltale signs of overspending. Your credit cards are maxed out to compensate for the negative cash flow. You can only afford the minimum payment on credit card balances. Your spending habits leave little cash to pay your monthly expenses. And a big one, the stress of it all is damaging your health, mentally and physically. The financial and emotional damages are reversible. Here are a few simple steps to save your credit score and put you well on your way to financial freedom.

If you haven’t already, create a budget. If you have one, take some time to make improvements if it’s not working. Take one month to analyze where your money is going. In addition to your monthly expenses, track every purchase. Be sure to include take-out dinners, social events, and your daily coffee run.

Compare the actual costs to your budgeted line items and assess the variances. You may find you need to cut back on entertainment to make bigger payments on credit card balances. Knowledge is power; utilize your budget to improve your spending habits.

Use the cash-only method. Pay yourself a fixed amount in cash on a weekly basis. This is your spending money to be stretched as far is it could go over a seven-day period. Each payday, fund just enough to your checking account to cover your expenses, including necessities such as fuel and groceries. Use your debit card to pay for these items. You’ll know what you need from your budget. Every dollar should be allocated to an expense.

Your goal is to get your checking account down to zero (or as low as you can without accruing bank fees) until the next payday. At the end of the month, if a surplus is left after paying your bills, transfer it to your savings. The goal is to spend only what you need. If there’s no cash available, you won’t spend it.

Consider leaving credit cards at home. You’ll find once your credit card balances are paid off, you’ll have the freedom to make cash purchases. You’ll also see your savings grow at a faster pace.

Practice delayed gratification. Small rewards at scheduled intervals will help motivate you to keep your new spending habits going strong. If you have your eye on that new lawn mower, work it into your budget. Break down the cost into monthly installments over a short period of time. Saving this way will allow you to make the purchase in cash while paying down your debt. You can work any future purchases into a budget be it next year’s vacation, dining out once a month, or a day at the spa.

A little planning, self-discipline, and structured spending will go a long way. When you review your budget at the end of the year, you’ll notice a significant savings and a decrease in debt. Your actual totals, with a slight increase, will be your budget for the following year. The difference being, you’ll have already conquered your habit of overspending.