Does money trickle out of your wallet like a lazy river, a babbling brook, or rushing white water rapids? Government figures show that many households with a total income of $50,000 or less are spending more than they bring in thanks to the liberal availability of credit. This doesn’t make you an automatic candidate for bankruptcy, but it’s definitely a sign you need to make some serious spending cuts.
A budget is the only practical way to get a grip on your spending. Creating a budget requires that you:
- Identify how your money is spent today.
- Evaluate your spending.
- Set goals that take into account your financial objective.
- Track your ongoing spending to make sure it stays within your established guidelines.
- Here’s how to put a dam on your uncontrolled cash flow:
- Watch out for cash leakage. If withdrawals from the ATM evaporate from your pocket without apparent explanation, keep a careful record of petty cash expenses to find out where that money is going. In general, any time cash expenses exceed 5 percent of your total spending, they need to be checked.
- Beware of luxuries dressed as necessities. If your income doesn’t cover your costs, then some of your spending is probably for luxuries, even if you’ve been considering them to be filling a real need.
- Tithe yourself. Aim to spend no more than 90 percent of your income. That way, you’ll have the other 10 percent left to save for your big-picture items.
- Don’t count on windfalls. When projecting the amount of money you can live on, don’t include dollars that you can’t be sure you’ll receive, such as year-end bonuses, tax refunds, or investment gains.
- Beware of spending creep. As your annual income climbs from raises, promotions, and smart investments, don’t start spending for luxuries until you’re sure that you’re staying ahead of inflation.