Saving money often comes down to not overspending, and not overspending often comes down to keeping good records and knowing exactly where your money goes. That’s where nothing beats simple sorting and the will to stick to a spending regimen.
The devil is truly in the details for overspenders, said advisor Anthea Perkinson in the workshop “What Are You Saving For?” during the Financial Planning Day, a pro bono event from theFinancial Planning Association of New York. “When you use a debit card, the eventual statement only says you spent $46 at Target. “I ask people what they spent $46 on at Target. They say, ‘I dunno.’”
Perkinson, an advisor with Blueprint Financial Planning in Hoboken, N.J., said you can detail your outflow with a spending plan that uses methods from simple paper to separate and designated accounts at an online bank.
Among methods from FPA materials that she suggested for setting up a spending plan:
Envelope: Label envelopes with such categories as utilities, rent, groceries or entertainment. When you get your paycheck, put cash into separate envelopes.
For spending in a particular category, use money from that envelope. Once you empty an envelope, spend no more in that category and do not borrow from an envelope to spend in categories outside your plan.
Register: Write all your spending in a notebook that you carry with you at all times. You can also create a notebook with separate columns for your spending plan categories so you can quickly see how much you spent in that category.
Regularly compare your spending (and those of your other family members) against your plan. Adjust your future spending accordingly.
If a one person in your family just can’t stick to the spending plan, make him or her a separate category (for example, note every time you give your child an allowance).
Receipts: Keep receipts for everything you buy. If you didn’t get a receipt for a purchase, make your own record on a piece of paper. Try writing on the receipt what category the expense goes to. Put all of your receipts into a receipt box at the end of the day.
Periodically total the receipts in each category and compare the totals with your plan. Again, adjust spending accordingly and stick rigidly to the review schedule.
Calendar: On a calendar with space to write, note each paycheck you will receive and each bill you need to pay. Whenever you receive a paycheck, check it off, then look at all the bills due before the next paycheck and set aside the money for them right away.
Check off each bill as you pay it. For bills that aren’t monthly, make a partial payment each month. For example, if your car insurance premium is $300 every six months, set aside $50 each month. Also treat your savings like a bill; set aside money every month to save.
If you have a checking account just for paying bills, ask your bank to automatically transfer the amount you need from your paycheck into your bill-paying account each month. The bill-paying money doesn’t mix with your daily expenses money and will be there when the bills are due.
Some bills, such as heating costs, fluctuate. Estimate what you need to set aside monthly based on past bills or ask your utility to calculate the average so that you pay the same amount each month.
Leftover: Ask your bank to automatically route pre-set amounts from your paycheck into separate accounts for bill payments and savings. What’s left over in your regular checking account is all you can then spend, eliminating need for you to track daily transactions. This method works best if do not overspend day to day but need help building savings.
Whatever method you use, review the system regularly. “Your budget always changes with your life,” Perkinson said.
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