Author: Emily Tierney

We all want to have enough money so that we don’t have to worry.  When you look closely at wealthy individuals, you may be surprised to find that they don’t spend like they are wealthy.

This is generally how they became wealthy to begin with – by consistently living below their means.  While their means may be greater than yours, their spending secrets can teach us a lot about how to reduce spending, leave room for saving, and achieve financial independence.  Here are some ideas:

1. Review last months’ spending

Review last months’ spending by going over your online bank history or bank statement and ask these questions:  Where did your money go last month?  Was there any leftover at month end?  Are there places to cut back?  Are there services you could eliminate?  Are your total housing costs less than the recommended 28% of  gross income?  Are your total debt payments less than the recommended 36% of  gross income?

2. Create a spending plan for the next 30 days.

Once you have a clear picture of the past 30 days’ spending, keep that picture in your mind when creating this spending plan.  Remember that no spending plan fits every month because every month is different.  This 30 day plan is not meant to be an overall, one-size-fits-all-months spending plan.  You are just trying to take control of the next 30 days.

Take your total expected net income (i.e. your paycheck, pension, Social Security, etc.) for the next 30 days and subtract the most important expenses: rent/mortgage and utilities, prescriptions, insurance, etc.  Then total the discretionary items such as cable television, subscriptions, clothing, eating out, etc.

Now look ahead by reviewing your calendar and make certain you have considered any extra expenses you may have coming up in the next months: car insurance,  Mom’s birthday, vacations, trip to the salon, etc.  Take a step back and look at your spending plan.

Do you have enough income to meet your needs?  Are there places you could scale back?  Did your plan work? Is there more income than expenses? If so, immediately transfer your expected surplus into savings. Looking ahead, what places in the plan need to change for next month? At the end of 30 days, create a new plan for the next 30 days, and then repeat again!

3. Use cash envelopes to restrain spending.

For everything that isn’t paid by check or online payment, use cash and organize it in to different envelopes.  The envelopes could be for “eating out”, “groceries”, “clothing money”, “gas”, “fun money”, or other usual spending needs.  Divide your money in to the envelopes and use the cash  versus your debit or credit card.  Using  cash money  is a great way to curb spending.

Handing over hard earned cash is a bit more difficult for some people than just swiping a piece of plastic.  Using cash to pay for things also eliminates recordkeeping by cutting down on balancing your checkbook and credit card statements. Cash envelopes also put a “brake” on spending.  When the envelope is empty, you’re done spending!

4. Avoid using debt.

As a wealth management firm, we counsel clients to eliminate debt.  Using debt as leverage to purchase expensive items is sometimes attractive, but it is not always the best strategy.  If not managed, interest can skyrocket debts to out of control proportions.  This is how credit card companies stay in business!

Using credit cards for purchases is fine if you pay off the credit card bill in full each month and afford what you are purchasing.  Carrying balances over month-to-month can quickly double or even triple the amount that was originally owed.  To avoid relying on debt to pay for daily expenses, try establishing an emergency fund.

5. Make good purchasing decisions.

Do you really need that or do you want it?  If you aren’t sure, first wait at least thirty days before making the purchase.  If you still need (or want) the item after thirty days, make a list of pros and cons of how it impacts you and your financial situation.

If it passes this test, it’s time to  do your consumer research.  After you’ve done your research, shop around and shop within your spending plan.  Save until you can buy with cash versus making payments and paying interest.

6. Keep educating yourself.

Money won’t just come to you, you have to work to earn it and work to save it.  Keep yourself motivated by researching creative ways people save money, budget, spend money, and how they keep themselves on track.

The more you know, the more you are likely to find a plan that sticks and works for you.

 

This blog is provided by Windward Private Wealth Management Inc. (“Windward” or the “Firm”) for informational purposes only. Investing involves the risk of loss and investors should be prepared to bear potential losses. No portion of this blog is to be construed as a solicitation to buy or sell a security or the provision of personalized investment, tax or legal advice. Certain information contained in the individual blog posts will be derived from sources that Windward believes to be reliable; however, the Firm does not guarantee the accuracy or timeliness of such information and assumes no liability for any resulting damages.

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