I think that it is extremely important to budget and stick to a budget every month for a variety of reasons. You can track your spending and see exactly where your money goes. It is critical to maintain a set budget so that financial issues like credit card debt does not sneak up on you. While it may not make you wealthy, tracking your budget and staying within your means will allow you to stay out of real financial trouble.
For those reasons, it is extremely important to watch your spending to make sure you aren’t mindlessly wasting money. Extra trips to Target, Chipotle, or Amazon Add-Ons can create leaks in your budget. It is important to stop those before they become giant holes in your budget creating real problems.
Stop Mindless Spending
Before I tracked my spending and had a budget, this was a huge issue for me. I would never ‘overspend’ or keep a credit card balance, but I just spent stupidly. I would eat fast food, buy an extra vinyl album (or 7), or books/movies/clothes/things because they were on sale. This was all whether I needed it or not.
All of that silly spending has led to tons of extra ‘stuff’ around our house. This has led to a massive de-cluttering effort around our home. Imagine all of the more valuable things we could have purchased, the trips we could have taken, and the memories we could have created if we didn’t spend on random items.
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This type of spending can also create bad habits and lasting issues. If it becomes a trend, then maybe the savings that goes to your emergency fund gets cut or you don’t have quite enough money to cover everything one month. You tell yourself you will do better next month, but without a plan or purpose this spending can get out of control.
If you happen to have a real emergency or start carrying a credit card balance, this type of spending can lead you down a path of long term financial problems. You can always ‘wish’ you didn’t spend the money on extra ‘things’. You may tell yourself you will do better, but without a plan then the problem won’t resolve itself.
Start Spending with a Purpose
Other than tracking your spending a keeping a budget, spending with a purpose is a great way to stay in line. Understand where you want to spend your money every month. Not only does this allow you to afford the luxuries you want, but you can splurge on experiences or items that truly make you happy in life.
For example, we live within walking distance to Chipotle. We love Chipotle. E-Coli and credit card hacks do not sway us from enjoying the food there. When we go, it is usually a $27 meal, and at least one of the workers will know me by name.
It was not uncommon for us to go twice a week, meaning we were spending over $200 a month at Chipotle. Now this was fine to us because it was in our budget and we could afford it. Things started to change we thought about the other experiences we could have with that money.
We started to cut back an eat more at home, but for our much smaller budget we can either find a hole in the wall restaurant, or have one nicer meal a month. These give us more enjoyment, a fun memory, or crazy experience. These life moments provide much more value for the money than just mindlessly going to Chipotle because it is convenient.
How to Spend with a Purpose:
There are definitely many ways a person can start to reevaluate spending. Some of these tips are also easy to implement. Anything that helps stop the carefree spending is a step in the right direction. Here are the top steps to take to avoid budget leaks:
Track Spending and Keep a Budget
Knowing where your money goes is the first step in eliminating bad habits. You may find you spend way more than $200 on Chipotle, or the late-night Amazon binges are causing you to overspend in many areas. It is eye opening to track ALL of your spending for an entire month.
The next step is to build a budget. It can be as simple or complex as you want, but having one is the important part. At the start of the month, having a plan for your money will help you avoid errant spending. It will also allow you to plan for longer term goals, build an emergency fund, or save up for big ticket items.
Have an Accountability Partner
The main point of this is to keep your budget as a priority and keep yourself accountable. Your partner can be a spouse or friend to always remind you of your goals, your budget, and why you are spending.
Your accountability partner can even be your own conscience. When I am walking through Home Depot or Target, I see many things on sale that I think I want to buy. Lego sets for my son and awesome new tools can be a weakness for me. When I realize they could put me over budget then I get a queasy feeling in my stomach.
I know my wife would be disappointed in my overspending, and we would fall behind on other goals. Find someone or something in your life that can help you stop the mindless spending.
Save for Splurges
Having a plan for splurging on items or experiences is the fun part of personal finance. If you track your money, live within your means, and have long term goals taken care of, then why not enjoy life a little now?
Let’s say you want to go on a weekend getaway, eat at a high-end restaurant, or buy a quality Brioni or Hickey Freeman suit. Then build this into your monthly budget! If the price is $1000 and you can afford to put away $100 dollars a month, then in a short 10 months you will have that splurge item paid for and won’t dip into credit to buy it.
As long as the item doesn’t sacrifice long term goals like retirement, or kill your emergency fund, then living in your means to save for something like this is completely acceptable to me. As long as you truly value that item/experience, then go for it. Having time to think about this purchase will also help you avoid buyer’s remorse. If you are still excited about this purchase after saving for months, you will know it is worth buying. If you have second thoughts, then you have a nice stockpile of money to buy something you will enjoy!
When it comes to monthly spending and everyday living, ‘pennies’ and small spending can add up and create major problems. It is important to stop these budget leaks before they become a major financial issue.
As long as you are living within your means, and have long term goals like retirement and paying down debt accounted for, then budgeting and splurging on valuable items is completely acceptable. Carefree spending and having no accountability for your purchases is where people get into trouble.
Creating more memorable experiences and having a less stressful financial life should be reason enough to spend wise. Find the things that will remind you to spend better and splurge on parts of life you want to enjoy.
What things create ‘budget leaks’ and mindless spending for you? How are you able to avoid these small things from adding up? Thanks as always for reading!