It is every one dream being a millionaire and retiring with a healthy bank account, but how many people can actually achieve it? So few. This is largely due to lack of discipline in building up their retirement fund and poor spending habits. While building a retirement fund requires time, you can accelerate the process by making incremental but positive changes in your spending habits. Here are seven ways that you can change your daily lifestyle for more positive results in your spending habits:
1. Have you ever noticed how much time you spend sitting in front of the television? The longer you sit, the worse it is for your blood circulation. Besides, the time you free up can be used for more useful tasks such as teaching your kids or learning a new skill.
2. If you are an avid reader, use the public library whenever possible. There is no need to buy the latest books from bookstores like Borders unless it is in a category that does not fit into a public library. The public library will usually acquire popular titles after some times. Learn to be patient.
3. If you are a smoker, start reducing the number of cigarettes you smoke each day. Over time, you may be able to quit smoking completely. Besides saving money by not buying any more cigarettes, your health will also improve and this means a huge saving in your medical bills.
4. Use a bicycle if the destination is within 30 minutes by car. This helps promote blood circulation in your body and also reduces environmental pollution. You can also save on gasoline and parking fees.
5. Dine at home more frequently. You can experiment with different recipes and save some money at the same time. In addition, you are honing your cooking skills and this could be very useful for the home dining experience.
6. Bring your own coffee to office. Many people like to drop by a Starbucks or similar coffee outlet and end up spending a few dollars or more on a cup of coffee. You can potentially save many dollars each week just by making your own coffee at home and bringing it to your work place in a Thermos. Besides, who knows, it may taste better than the coffee from Starbucks! If you really cannot live without Starbucks coffee, consider getting a Starbucks rebate card. You can use the rebates to redeem free Starbucks coffee after you have accumulated enough points.
7. Do more walking than driving. If you can reach your destination within ten minutes by car, consider leaving the car behind and walk instead. You will save money on gasoline and parking fees. This can easily add up to a few thousand dollars a year.
These seven ways are a good start for changing unhealthy spending habits. However, you should continue to research and incorporate more healthy habits that contribute to the building of your retirement fund. By re-investing the money saved from using these tips, you will be many steps ahead of your peers and closer to your retirement goals.
This is probably the most requested topic that I receive, normally after someone gets a large unexpected expense, or they start thinking about retirement and realize that they have saved a woefully inadequate amount of money.
I recommend using a monthly time-frame to look at your cash inflows and outflows, because most bills are monthly and four weeks is a short planning period that most people can manage. The first thing to do is determine your monthly after-tax income. Usually, this is the amount of money from your paycheck that gets deposited into your checking account. If your income is variable, then use an average of the last three months. (Any savings account interest income would be a bonus.) Next, list out your fixed monthly expenses, such as rent, mortgage, car payment, phone, electric bill, etc. All of these numbers can be changed in the long-term, but first you need to determine a baseline budget of where you are right now.
Make sure you include all of your utilities; some are only paid quarterly or annually, like car insurance, the water bill, or an association fee. Take these expenses and calculate what they would be on a monthly basis. For example, if your water bill comes quarterly, divide it by 3. If you have semi-annual car insurance, then divide it by 6.
So now you have your fixed monthly income and your fixed monthly expenses. Deduct one from the other, and you have the variable amount of money that you are free to spend any way you want for the remainder of the month. From this remaining amount of money, start listing out your main categories of variable spending: groceries, entertainment, medical expenses, clothing, dry cleaning, personal care (haircut, nails, etc.), and gifts. Take each of these variable expenses and put an amount next to them that you think represents your average monthly spending for that category.
Make as many subcategories as you need to make an accurate estimate. The more precise it is for your spending habits, the more effective it will be for you. For example, food can be broken down by grocery store/fast food/dining out/work lunch/etc. Then go through the last few months of your checkbook and credit card statement looking for any spending that hasn’t been covered so far that you need to include for your situation.
Now you should have a total number for your monthly income, total monthly fixed expenses, and total monthly variable expenses. The moment of truth is when you deduct the two expenses from your income to see if there is anything left over. Don’t panic if it is a negative number – it is far better to discover this out now, rather than building up credit card debt later. Most people comment somewhere along this process, “Oh, so that is where my money is going. I had no idea I spent so much on that!”
Seeing all the numbers in black & white can help you prioritize (and negotiate with all the other spenders in the family). From this beginning budget, you can start to set monthly targets for spending categories, you can focus on reducing the largest expenses, and find areas where you should start doing some price-comparison shopping. And did I mention that saving a 5-15% of your income should be an additional fixed expense? Yes, you need to pay yourself first!
Having a budget is the critical first tool in managing your money. Wielding this tool allows you to finally start making financial decisions based on the facts instead of fiction. You can plan for expenses instead of being caught by surprise. And most importantly, figure out how to move forward with goals like a big vacation, a new car, or investing.
So you’ve made your budget and it looks good on paper. Great! Now it is time to implement it. But are you ready to follow the budget you’ve developed? Here are some helpful tips to keep you on track with your budget.
1. Determine why you made a budget. There is a reason you have put time into developing your budget, now you need to put into writing what your goals are. Do you want to be debt free, live on one income, or save for retirement? Make this into your personal or family financial mission statement. Write it down or type it up nicely and then have it laminated and display it in a prominent place where you can see it often. Many times we just need a reminder to ourselves for why we are doing a particular thing, and that can be just enough incentive when things get tough.
2. Set small range goals so you can see progress. It can be very difficult to keep up the discipline necessary to stay on budget if you can’t see any measurable progress. Develop some short term goals that you can celebrate meeting. If your goal has been to reduce your grocery spending by $100 per month, then your weekly goal would be to cut grocery costs by $25. Likewise, if your goal is to pay off debt, make a chart to show how much you’ve paid off. Reward charts just aren’t for children! Use a type of chart where you can color in a bar to show your progress, and then color it in every time you make a payment so you can see the progress you are making. Put it up on your refrigerator or bathroom mirror as a reminder that your hard work is paying off!
3. Identify your weak spots and develop a plan to battle them. In sticking to your budget, you need a clear idea of where you may be tempted to break the budget. If you are prone to impulse spending, then you must remove that temptation from yourself. If you go window shopping, leave your credit cards and check book at home! Especially in the early days of sticking to your budget, it is important to re-train yourself to curb spending.
Making a budget is really the easy part in financial management. It is sticking to the budget and making your spending match your plan that is the difficult process. By disciplining yourself and retraining your spending habits, you can achieve your budget goals.
Do you run out of money before you run out of month? Do you wonder where your money goes each month? Do you struggle to find money to invest for retirement, emergencies and other financial goals? Here are 10 tips to cut your spending and stretch your dollar to the max:
1. Consider dropping your home telephone line. Your cell phone is probably all you really need, and most likely it has free long distance. You could save $30 or more per month by dropping your “land line”.
2. Cut back on trips to Starbucks or other premium coffee shops. Often called the “latte factor”, spending several dollars per day on luxuries like premium coffee can really add up. For example, if you spend $4 for a cappuccino five times a week for 50 weeks out of the year (you’re on vacation the other two weeks), you would spend $1,000 in a year. Try treating your trip to Starbucks as a treat instead of a habit. You’ll save money and probably lose weight too!
3. Pay your mortgage payment bi-weekly instead of monthly. You’ll pay less interest and pay off your mortgage faster.
4. Carry cash instead of credit cards. Psychologically it’s harder to spend cash than it is to use the credit card. You’ll spend less and save on interest charges.
5. Use the “envelope system” for groceries, dining out, entertainment, and other discretionary spending categories. This will help you track how much you spend in these categories as well as prioritizing your spending.
6. Raise the deductible on your homeowners and auto insurance policies. It’s not wise to file claims for small losses anyway (insurance companies love to raise rates after you file a claim), so a higher deductible will save you money now and in the future.
7. Buy regular gas instead of premium. Most cars don’t need premium gasoline. Also, take public transportation if it’s available in your area. Take advantage of “park and ride” and carpooling options.
8. Plan your purchases to avoid impulse buying. Take a list with you to the grocery store and stick with it. Studies show that impulse buying can add $10-50 to your grocery bill – ouch!
9. Go to the library instead of the bookstore. If you’re an avid reader, give yourself a book budget for books that you will want to keep, and go to the library for everything else.
10. Take a vacation at home. Check out all the local sites and happenings. You’ll rediscover your hometown and save on travel and hotel costs.
These are just a handful of ways you can cut spending and stretch your dollars, but if you follow these tips you’ll discover you have more money at the end of each month to apply to other financial goals, such as saving for college, retirement or just for a rainy day.
The fight for financial freedom isn’t fair. No matter what kind of spin you try to put on it, the path to comfortable living seems either impossible or too long to attempt. Many people these days are spending copious amounts of money going to see professional financial planners for advice on how to get their money situation under control. But let’s be honest, while a financial planner can show you how to prioritize your spending and how to go about consolidating your debt, surely there must be a way to plan your finances that doesn’t cost you visits to a professional? This article has been written to open some people’s eyes to the fact that it is possible to properly plan your finances from the comfort of your own home.
The main aim when planning your finances is to make everything as simple as possible. There is nothing worse than sinking so far into depression that you can’t see a way out. Whether you are in debt and looking to get out of it of if you are simply looking for a way to keep a little more spending money aside each month, the simpler you make your planning the better the result you will get. From the beginning, you need to be realistic. I’ll start with the example of a single income situation, firstly you need to calculate what your net pay is per month. If you’re self employed or not on a regular pay, always calculate the worst-case-scenario, what is the lowest you might get paid. Then go through your monthly bills and write down the ones that are a fixed amount. Do the same for all other bills but use the worst-case-scenario again, what is your estimation of the most that those bills might be. Add everything up and subtract it from your net income total.
Next onto the incidental expenses you might run into on a monthly basis. These might include petrol, car upkeep, public transport fares, food etc. make a list of all the little expenses you might need money for in a month. Even things that you’re not sure you might need to buy. Don’t add general spending money to the list, be specific. Always add more to the totals if you’re not sure as you can fine tune it later. Again, subtract your total from the money left over from your bills. Don’t worry if you’ve gone into the negative figures here, we can fix it.
Once you’ve got your expenses total in front of you, obviously any money that is left over is your profit for the month. In the event that you have nothing left or have gone into the minus figures, the next step is to minimize your expenses. Pretty straight forward, huh? Any incidental expenses that you might not need, remove them. And any expenses you know you will have, like food and petrol for example, really get down to the lowest spend on them. How much do you really need to spend on them? Your aim should be to save at least $50 per month after spending money. All that extra builds up and gives you a nice petty cash at the end of a few months!
If you are in a multiple-income situation, the same process applies. You need to start building up that petty cash tin. There will always be unexpected expenses, everyone knows that. In truth, the basis of comfortable living is really the knowledge that you can afford to pay for something unexpected.
To finish, all of this can be done on a piece of paper if you want to invest a little time, or you can lay it all out on an Excel spreadsheet. The way that saves the most time is to use a Financial Planning software program, you enter the numbers and the program gives you an automatic monthly planner. Whatever way you choose to go, always remember to keep it as simple as possible. When you’re following a plan, the pressure on you will decrease. What more could there be to comfortable living?