Money is a complicated issue. It can be a source of happiness when used to do things we love. It can be a source of stress when we don’t have enough. In today’s world, it’s necessary to our survival.
So when it comes to spending it, at what point do you know: have you spent too much money? Spending money (on things that aren’t necessary) can be a problem when it starts to interfere with other aspects of your life. If you’re struggling to pay bills, feeling guilty, or trying to hide your spending habits from others – especially your loved ones, you may need to stop and take a look at the bigger picture.
Like with everything, there is a balance. If you’re feeling like the scales are tipping too far in one direction, there are some steps you can take to help rebalance your finances.
STEP 1: RECOGNIZE THE PROBLEM.
You have to recognize the problem in order to fix it. If you spend more than you make, struggle to afford bills, and don’t have financial priorities, these are red flags.
STEP 2: FIGURE OUT WHERE YOUR MONEY IS GOING.
If you’re not sure what your spending habits are, keep track. Keep receipts, check online banking statements, or carry a notebook for the next two to four weeks.
Then ask: Do you spend more than you make? Does the majority of your paycheck go to non-essentials, i.e. dinners out, entertainment, subscriptions/memberships, junk foods, etc.?
Over-spending on non-essentials may be hurting your financial health.
STEP 3: MAKE ADJUSTMENTS
THE EXPERTS RECOMMEND THE 50/20/30 BREAKDOWN.
Can you account for your spending in these three categories? I recommend writing this out to help visualize where all of your spending fits in. If your budget is in the positive, GREAT! If you need to make adjustments so that everything fits, try trimming some of the “extras.” Tip: The best places to cut are in fixed costs or flexible spending. Cutting in the financial goals category will hurt you in the long run.
50% Fixed Costs – The expenses that don’t change much from month to month, like rent, mortgage, utilities, car payment, gym memberships, Netflix, other subscriptions.
20% Financial Goals – This part of your budget helps you secure a solid financial foundation, for example, paying down credit card debt, or other debt, saving for retirement and building an emergency fund.
30% Flexible Spending – These are day-to-day expenses that can vary from month to month, like eating out, groceries, shopping, hobbies, entertainment, or gas. You can add any miscellaneous expenses in this part of your budget, just be aware that it must account for only 30% of your budget.
STEP 4: ACCOUNT FOR ALL SPENDING IN YOUR BUDGET
Make sure all of your spending is accounted for in your budget! Doing this will ensure that you don’t dip into other important parts of your budget.
If you want further help with your budget and feeling balanced in your spending, call Casco Federal Credit Union! We’d love to help you! 207-839-5588.