Six steps to take control of your spending
A little while ago I wrote a blog post call the Financial Birds and the Bees. It was a simple introduction to teaching your kids about budgeting. It was also well received as an introduction for those of us who were never taught about budgeting when we were kids. This is a deeper dive on managing spending
One of the hardest parts of building a budget is being truthful about our spending. When people create budgets they are often an ideal that people believe they are spending. The reality is that most people are unaware of how much they actually spend and what they are spending it on. Thus why we have such a high number of people "avoiding" looking at their bank statements.
I am hear to tell you that when you know exactly what your money is being spent on and where your money is going it is easier to stay on budget and reach those goals. So here are some helpful tips to get you through the daunting task of seeing the truth of your spending so you can get can on track with achieving your goals.
STEP ONE: PICK 3, 6 OR 12 MONTHS
If this is your first go at really reviewing your bank statements... stick with three months. If you have done this a couple of times before then increase the number of months you look at. Three months captures most monthly spending but six and twelve months will capture large, one off purchases or expenses like winter tires and travel. Do this with both Credit Card statements and Bank Account statements
STEP TWO: COLOR CODING IS EVERYTHING
I use four colors but feel free to use more or less. GREEN for any income and deposits into the account. RED for fixed expenses like bills, loan payments and savings amounts. YELLOW for variable need expenses like groceries and gas and finally ORANGE for variable want expenses like wine, books and Doctor Who collectibles. If you are someone who prefers to deal in cash you will want a different color for those transactions.
STEP THREE: DO THE MATH
Add each color up separately and then add all the expenses together. Do this for each month. Minus all the expenses from your income. In a perfect world your expenses aren't higher than your income...but they probably are. Give your head a shake...being an adult is expensive.
STEP FOUR: DO THE RESEARCH
If you are spending more than you are bringing in you have an issue. This is where the individual color totals come in handy. Start with the ORANGE (variable want expenses) as this one is usually the culprit. Go through all the ORANGE expenses, divide and conquer. Within those expenses what is costing you the most? Usually it is eating at restaurants *cough cough i mean liquor* but could very well be anything. You would be surprised at how much people spend at Tim Horton's and Starbucks or the LB if you live in SK. Ask yourself....how important is this expense to you and can you cut back on it?
Repeat this until you have gotten your spending in line with your income. If you run out of ORANGE expenses to cut...you move to YELLOW, maybe you need to look at generic vs brand names. If you need to start looking at the RED column then I urge you to go to your financial institution and seek their advice. Maybe your loan payments can be adjusted or you qualify for a consolidation loan.
STEP FIVE: TAKE ACTION
Once you have established that you don't need to spend $300.00 a month at the coffee shop... you need to take action. How can you cut back? Maybe you can make coffee at home and take it in a thermos. Maybe you can start packing a lunch instead of buying it everyday. Maybe you could borrow books from the library or ask for Doctor Who stuff at Christmas and your birthday. Maybe you can buy boxed wine instead of bottles...honestly you are saving the environment with less packaging.
STEP SIX: KEEP TRACK
Finally you need to keep track by continuing to monitor your accounts. Track spending to make sure that you are staying on target and that this is actually making a difference. It is one thing to say you are going to do it and another to actually do it.
I have gone through this task with many clients and it is an eye opening experience and very difficult to realize the truth of what you spend your money on but it is necessary if you want to take back control of it.
What has been your experience when reviewing your bank statements? Is it easy or hard? Share it in the comment section below!!