Maintaining a budget is essential to keeping your finances in order, but for some people, once their monthly expenses are met they lose track of where their discretionary dollars go —falling into the trap of overspending.
Overspending isn’t always a direct result of financial irresponsibility. The reasons behind it might be psychological in that having purchasing power satisfies some unmet emotional need, or it could be a matter of “keeping up with the Joneses” and choosing to overextend finances for appearance’s sake. Getting clear on why you overspend is the first step toward getting out of an undesirable habit and starting a new, healthy one: saving.
Make positive changes
Redirecting the motivation behind overspending requires taking action:
Track your purchases. Your bank statement is a valuable tool as it gives you a list of where you committed your money on a monthly basis. What it doesn’t tell you, however, is what exactly you’re spending your money on. That trip to the vending machine or that morning drive-through coffee seems like a negligible spend every day, but have you done the math on a weekly or monthly basis? It adds up quickly, and more to the point, is it really necessary? With a little thought and pre-planning, you could implement some budget-friendly solutions for convenience purchases that ultimately save time and money.
Use cash. In the age of debit cards and pay-now apps, this suggestion may seem a little old school, but it works. Put a set amount of cash in your pocket, and limit your spending to that amount. By setting parameters around your buying power, you’ll consider your purchases more carefully — a check-and-balance much less prevalent when using a simple card swipe. Plus, if you run out of cash you have to go to an ATM which is both inconvenient and gives you time to reflect on if what you’re buying is actually a “need” or a “want.” In most cases, the answer may surprise you.
Commit to a budget. You may have set a budget, but it takes some effort to stick with it. Begin at the beginning: How much money do I have? How much do I need to cover my obligations? Once you have the necessities covered, take a look at what’s left over. Use that amount to set a few mini-goals for yourself, like setting aside a set amount for a larger future purchase or saving for vacation. Don’t forget to earmark a small amount to spend on fun, like hobbies or dining out.
Planning is the key to budgeting your money and finding leaks that could be tripping you up. Be proactive in decision-making and you’ll likely find extra money in your budget that you can use to start saving for retirement or supplement your existing contributions. You may even be able to make the added savings work even harder for your retirement by taking advantage of employer matches, certain tax deductions and the like. After all, the more you save, the faster you can stop working and enjoy your retirement.
Knowing you’re planning for the future means you can truly enjoy the smart purchases you make now. Contact a PAi consultant to talk through your options. Using tools like the CoPilot Years of Retirement feature, we’ll show you how putting away even an extra $50 or $100 compounds over time in a 401(k) plan, and can grow to a substantial amount of retirement savings.
Nicholas Crary, CPFA - Financial Services Representative - firstname.lastname@example.org - 800-236-7400 x3381
Nick is a subject matter expert on 401(k), retirement savings, participant advice, small business 401(k), investments, education on options.