The phrases “cutting back” or “tightening the belt” can elicit a sense of fear; the tendency is to equate frugality with going without. Clearly, topics of money and budgeting raise a number of questions and create a number of responses. Fortunately, it is possible to be financially conscious and budget-savvy without feeling deprived.
Developing a Personal Budget
The recession has launched a myriad of news stories and blogs about people suddenly unable to maintain their accustomed lifestyles. News programs frequently feature stories about families forced to trim spending and offer suggestions on budgeting and money management strategies.
Household budgets are not a subject that needs to be restricted to tough economic times. A healthy relationship with money in the long term can have positive impacts regardless of the economic cycle and can help minimize problems when business cycles are in a downturn.
There are a few simple steps that can be followed to build a healthy relationship with money and spending.
Set Personal Financial Goals and Spending Priorities
Financial goals can range from major purchases such as houses or cars, a college education, and planning for children, to simply the next latte. Once goals have been established, the next step is to determine spending priorities. These priorities will likely change over time, necessitating appropriate changes in money management habits as well.
It is also important to ensure that other family members are aware of these priorities; support from families can be invaluable to making these plans work, while resistance can certainly cause a plan to fail.
Think Before Buying
It is important to think carefully about purchases before conducting the transaction. There are a few simple considerations: is this purchase necessary; does a less expensive option exist; or can the purchase be deferred until the next paycheck? This by no means prohibits one from buying a new iPhone; however, ensuring that the means are available and that there is no major conflict with overall goals is a key part of the decision-making process
The same conscious thoughts can apply to the most simple purchases, including buying weekly groceries and dining out. Regardless of one’s financial status – rich, getting by, or poor – the same process can apply. Balancing long-term and short-term priorities to make an informed decision can help allay feelings of guilt while helping to maintain a consistent budget.
Check Bank Balances Frequently
There are many software programs that provide access to multiple bank and credit card accounts; many also include tracking functions for spending and upcoming bill payments. In addition, there are free online tools that offer the same or similar services without the initial cost. Online applications have the added benefit of enabling access from any computer without the need to log into multiple bank and credit card accounts.
Making it a habit to track bank balances and review upcoming bills is an easy way to remain focused on budgets and helps to minimize overdrafts. It also eliminates prolonged once-a-month bank statement reconciliations and questions about where the money went.
Selecting a Method for Budgeting
There are hundreds of books and budgeting systems available; local bookstores are a great place to start researching. Most big bookstores – and a lot of smaller ones – have chairs and tables available that make it possible to review books before buying them. The local library can also be an excellent source and may have the same books without the purchase price.
Of course, if library fees are a problem, purchasing the book may be the best decision in the long term; used bookstores may have the same book for a lower cost, too.
Finally, the Internet offers many suggestions and systems; the important thing is to find a workable system and align it with personal goals and overall spending priorities.
Eliminate High-interest Credit Cards
This may be easier said than done in the current financial market. However, some banks or credit unions may offer consolidation loans at a lower interest rate. It is also possible to directly contact credit card companies to negotiate for a reduced rate.
A careful review of monthly credit card statements will show how much of the minimum payment is credited towards the principle. Sending in the minimum payment each month keeps the account up-to-date but doesn’t necessarily get the card paid off. Paying above the minimum will help to reduce the balance and may decrease future monthly payments.
Forgive Spending Mistakes
Having a healthy relationship with money may not be easy, but it’s certainly attainable. Not every system will work for everyone and it may take a while to find the right combination of tools and motivation to build a personal budgeting system. Even once the plan is in place, mistakes are inevitable.
The key is to not abandon the plan altogether because of occasional mistakes. In fact, these can be great opportunities to review the goals and reasoning behind the spending plan. Keeping these priorities in mind will help keep the plan on track and make the goals reachable.