When it comes to not living up to a promise, new year resolutions probably top the list. A close second is sticking to a budget, or rather not sticking to it. Everyone knows how important a budget is and will try to apply one at some point in their life. Then, the spending goes haywire and the budget comes a pesky hindrance rather than a smart tool to help you manage money and save significantly. This post discusses tips on how to stick to a budget, to help you get back on the savings bandwagon.
How to stick to a budget?
Prepare a realistic budget
Most people fail to stick to a budget simply because their budget are unrealistic in the first place. Budgets are usually put in place all of a sudden, when someone realizes that they have been spending too much money. When that happens, they go overboard with spending cuts, thinking that setting aggressive savings target will make them cut spending a lot.
However, almost the reverse happens. When budgets are too stringent, people try, get frustrated and sometimes end up spending more than what they would normally spend!
The analogy is similar to suddenly switching from a bad diet to an extreme weight loss diet like a fruit juice diet. Most people can’t stand the hunger pangs and end up binge eating comfort foods that pack double the calories of food that they would have normally eaten.
When first preparing a budget, keep the cut backs reasonable. Even a 10% cut back on your spending is a start. You can maybe go with 20% to 30% cutbacks to start with and then reevaluate your budget a month later. If you find yourself managing to stay abreast of your budget, go for more aggressive targets. This way, you will stay motivated to stick to a budget and it will actually make working sense.
Know where, on what and how you spend your money
The second culprit when it comes to budget breakers is not knowing where your money is being spent. If you use a combination of cards and cash, chances are that you will tend to forget at lest a few expenses here and there. Everything has to be accounted for. Everything!
There are many apps like Mint that allow you to keep track of all your expenses. But then, you will have to manually enter certain expenses if the app can’t keep track of it automatically. If you slip up, your budget becomes irrelevant.
Set aside a certain time before you sleep to account all your expenses. You can do it on your phone, a scrap book or whatever, but it needs to be done. Classify your expenses and categorize them under major expense heads like eating out, travel, entertainment etc. Then, once every week or fortnight or monthly, you must check your expenses against your budget and see how you are doing, to stay under budget.
Knowing when to stop spending
This is perhaps what people find most difficult when it comes to sticking to a budget. The best way to know when you have spent too much is to physically not have anything to spend. You can’t do it with cards as the card is always there in your wallet. Cash on the other hand will physically disappear if you use it, unless you keep refilling your wallet with it.
At Money Looms, we used this concept and came up with the Money Looms 7 day cash only challenge, where you use various sleeves in your wallet to keep cash for various expenses. You use only the cash available in those sleeves for those particular expense heads. You run out, you stop spending. Simple as that. You could also maybe borrow from the other sleeves but then you will run out sooner there as well.
The point here is that a physically dwindling cash pile will make sticking to a budget a much more transparent and real-time process.
The 10 minute wait rule before a purchase
If impulsive purchases and shopping sprees are making it impossible for you to stick to your budget, try the 10 minute wait rule before making a purchase. Whether it is shopping online or walking around a mall, walk away from something you want to buy for just 10 minutes. Give the purchase some thought. Do you really need it. If after 10 minutes you are still convinced about the purchase, go ahead and buy it.
Even scientifically concluded research has shown that just a brief time to consider a purchase allows a buyer to make a very rational purchase, many a time leading to skipping of said purchase, because they didn’t see it as a very wise decision after all.
Drop the brand mentality
Big brands give you great quality. True. But, do they always give you value for money. In most cases, the answer is not at all. Consider smaller players in the market who offer great quality as well. Just because a company isn’t spending millions or billions in marketing doesn’t mean that it doesn’t have high quality products and services.
Buying products or services from such companies can give you big savings. What more, the quality of the product or service offering could be just as good and in some cases, even better than higher priced branded products or services.
Brands are all over the place. Some studies have indicated that the human mind is exposed to almost 5,000 advertisements in a day, the majority of them in a subconscious manner. This constant and repetitive exposure eventually takes a toll, programming us to buy.
We have a need to own something out of thin air. It has suddenly become such a compulsion. How does that happen? Think about it for a minute. Starbucks is one prime example of a brand whose product is terribly overpriced. With one coffee costing almost $4, even an investment in a $200 high quality coffee maker will pay itself off after just 50 visits to Starbucks. Beyond that, it is just savings all the way!
Always look for a way to save money
No matter what expense you come across, there will always be at least a couple of ways to save money on said purchase. It won’t be practical to explore all savings options all the time, as it will take time. But then, you shouldn’t ignore it all the time either.
This is particularly true of expenses that are recurring. If you can once figure out a way to save money on a purchase that you repeatedly make, why pass up on the hundreds or even thousands that you will possibly save over a lifetime?
Understand the power of savings with time
Saving $4 on a Starbucks coffee might not sound like a lot. What can $4 get you, after all? But, if you bought that $4 coffee 23 times a month and decided to not buy it on half of those 23 days, you are looking at $46 in savings a month.
Now, if you are 30 years old, putting this $46 in saved Starbucks money into equity markets earning 8% a year, for your retirement, and then withdrawing it at age 65, 35 years after first starting to save on Starbucks coffee, will leave you with a massive $161,657. Can’t believe it? Check it out for yourself, using this reverse engineered retirement savings tool.
You will find a few more tips on how to stick to your budget in our budgeting section of Money Looms. From saving money on groceries, college and even utility bills, there are plenty of ways to make your budget work for you!