This is part of a series called How We Saved Enough Money to Change Our Lives and How You Can, Too. Click here to get all the posts delivered directly to your email inbox or feed reader. You’ll want the inside scoop on how we saved $75,000 for the adventure of a lifetime!
Back in my spending heyday, it was nothing for me to drop $300 on a pair of boots, plan a weekend trip to New York, and then wonder how I was going to fit in my car payment and electric bill – all in the same week. Ridiculous, isn’t it? (Side note: I’m still not sure why I’m confessing all my bad habits to you.)
In hindsight, I can see that my spending habits were a reflection of my state of mind at the time. As a newly divorced woman, I was excited and overwhelmed by all the options in front of me and routinely made as many bad decisions as I did good ones. It was a time of great highs and lows in my life, and my bank balance and debt level followed that pattern.
Does this sound familiar to you?
You may not be going through a life transition like marriage, divorce, or a big move, but I’ll bet that your spending habits mirror what is going on in your personal life.
Do you recognize any of these situations?
- Sad: When I was sad, I bought things to make me happy.
- Scared: I once applied for and received a Pier One credit card and bought a dining table and chairs to comfort myself the same day I got a notice that my main credit card was going to be suspended.
- Smothered: I used to plan trips and excursions to get out from under the people and situations that were smothering me.
- Restless: I once bought eyeglasses and a big rug on the same day, and I didn’t need either one. Not being able to focus extended to my spending.
- Bored: Ever go shopping because you have nothing better to do? Yeah, I did that, too. And I lived next door to a mall for a time. Yikes.
Think about how your spending and saving habits reflect your life. It will be hard to rein in the spending and contribute to savings if these things are still out of kilter. That is one of the beautiful things about latching on to a dream and then starting your savings plan. You have focus, hope for the future, and workable plan right in front of you for inspiration. You may find, as I did, that having a dream was all I needed to get my act together financially and emotionally.
How to Set Up a Budget
Now that you know what your dream costs as well as what you are spending, you can move forward to create your budget. Below are two posts that will help you in both setting up a budget and finding agreement with your partner if you share finances with another person.
- Evaluate all of your existing expenses and look at them with a fresh eye. Do you get an equal or greater value from the item/service than you would from using the money toward savings or debt reduction to follow your big dream? In the instance of water and heat, the answer would be yes. But things like a gym membership, deluxe cable package, and daily lunches out may have cheaper alternatives (exercising outside or at home, Netflix, and cooking on Sundays for a week of healthy bagged lunches) that allow you to still reap the benefit while adding to your savings or decreasing your debt. Look at everything as if you were your own financial advisor – because you ARE! (We’ll talk more about necessary and unnecessary expenses in a future post.)
- Think about the one or two things you do that bring you comfort and joy and make sure you keep some form of that product or service in your life. For example, we love to socialize and had to keep that activity in the budget. We changed dinner dates to happy hours, added low-cost potlucks and dinner party clubs to our social calendar, and ate lunch at home before a matinee movie instead of our usual dinner-and-a-movie dates. We also kept wine in the budget because we like to drink it with dinner, so we now spend just as much time scouring the reviews for good wines at bargain prices as we did just looking for the good stuff before (and I can’t tell you how cool it is to find a delicious bottle of wine for $8 – like a pot of gold at the end of the rainbow!)
Now that you have evaluated all your expenses and trimmed the fat, and then reevaluated those cuts to make sure you left in a little bit of good living, you are ready to fine-tune your budget.
Using this Budget spreadsheet or a similar one, add in your income, budget amounts by category, and your planned savings/debt reduction money for each month.
Evaluating your New Budget
How much money do you have in the savings or debt reduction category?
Is the plan livable?
Is this in line with the amount you need to save/pay off to hit your dream deadline?
If so, congratulations! You are now in control of your finances and on track to reach your dream, at least financially. If not, you will have to make adjustments, either by decreasing your spending or changing your timeline. Remember, this up to you and you have to be able to live with it.
If you are having trouble adjusting to a tighter budget, consider doing it in waves. Cut out 10% of your budget for the first 3 months, followed by another 10%, and so on until you get to the savings level you need. The gradual adjustment will make it easier to stick with the plan.
Saving money is a lot like exercising and dieting; just as you wouldn’t run a marathon without any training, you shouldn’t go on a strict budget without preparation or you will surely fail.
Stay tuned for our next post where we will go into greater depth on Exercise 1 and talk about necessary and unnecessary expenses and how to make livable adjustments to your spending. If you are new to the series and want to start at the beginning, click here.
Man vs. Debt by Adam Baker. Baker and his wife saved up their money, sold most of their possessions and took off for New Zealand with their young daughter to live the life they wanted (they are like us, except with fewer wrinkles and small human companion). You can read their personal finance blog to get the skinny on their continuing battle with debt vs. living the dream as well as enjoy occasional tidbits about their new life.
The Simple Dollar by Trent Hamm is one of the most comprehensive personal finance sites out there, and Trent writes from personal experience. He eliminated his debt, quit his job to pursue writing full-time, and now has a book deal. You’ll find solid, practical information on personal finance from Trent’s blog, though I do sometimes cringe at his level of yard sale consumption (probably more my issue than his, given our plans.)