Got the Budget, Now What?

So what did you find out? What insights did you get into your spending habits? Did you find at least a few places where you might save some dough?

This is the fourth post in this series, if you missed any of the others visit to see all posts, or just click here for post #1, click here for post #2, and click here for post #3.

Well, you’re probably discovering that your finances fall into one of three categories:
1) a deficit position, that is, you’re spending less than you make, and are in debt, and that debt is growing,
2) a break-even position, no debt and spending everything that you make, or
3) a surplus position, there’s more money at the end of the month.

No matter which position you’re in, it can be improved upon. Now the mistake most people make who are in category #1 or #2 is thinking that the answer is to:

Make more money

They think that all they have to do to move out of the #1 or #2 slot is to earn more money. WRONG!!!

People in deficit and break even positions have what is called a bad habit. A habit of spending more that they make, or the habit of spending everything that they make. We are all creatures of habit. And habits, good or bad, become part of us by definition. Check out the definition of habit: A settled or regular tendency or practice, esp. one that is hard to give up.

Making more money is fine, but do not think that making more money will solve all your financial problems. So, what will solve the problems? The answer is to make new habits. How? You don’t try to force the bad habits out the back door, that’s too much work, and it focuses your attention on the bad habit.

No, you identify the bad habit and then replace it with it’s polar opposite, a good new habit. For example, if your identified bad habit is that you don’t take advantage of specials and coupons, the new habit is to be conscious of specials on things you wish to buy, and be on the lookout for coupons for things you spend money on.

Action Step #1: Look at your budget, your current spending patterns and write down the ones where you can see a benefit in creating a new habit with. Just get them on paper for now.

Action Step #2: Rate them in order of ease of dealing with, maybe 1 to 10, 1 being best. Then rate them in order of which ones will have the greatest financial impact for you, again from 1 to 10.

Action Step #3: Assess for yourself which have the greatest financial impact and have a fairly high rating on the ease factor. Remember, we are trying to create new habits here. Don’t overwhelm yourself and try to fix everything today. Also if one would be, in your opinion right now, very difficult to implement for you mentally, emotionally or physically, leave that one for later. If it’s too hard you may give up the whole process. Even small habit changes, when added together with other small changes will yield results far greater than the individual parts. Remember from post #1, little things really add up.

It can take from 21 days to a couple of months to change a habit and make it permanent so just work on those for now. You’ll start seeing results and more money in the bank. You’ll start feeling better about yourself and have less financial worry. At that point you will be impelled to attack the tougher bad habits with confidence and fearlessness. Slow and steady wins the race.

Here’s a bonus action step. Go back to your budget and right at the top of the list of expenses put, “Pay Myself First” and enter the figure of 10% of your income. Now, if you just don’t make enough or have cut your spending down quite yet, start with a smaller number but ultimately shoot for 10%. The habit is what we’re trying to develop so even $5 a week will be habit forming.

Now open up an investment account at your bank, brokerage firm or online account like ETrade and invest the money there and DON’T TOUCH IT!!! Just invest it and watch it grow. It is not to be spent. This will become clear in a later article.

Another thing along these lines is to get a piggy bank, one that’s impossible to get into and put $1 or $5 or $10 or your spare change into it each day. Again, this develops a habit of saving the money we might otherwise piddle away on something we can’t even remember at the end of the day. Then at the end of three months, open it up, count it out and see how much you’ve saved. Now take 10% or 20% of it and just go out and blow it as frivolously as you wish. Take the rest and put it into your investment account. You can play with the percentages, the key here not only to build more cash, but to reward yourself for doing the program.

Some people always come back and say, “I can’t do this.” “I can’t” almost always translates into “I won’t.” Just try it for 60 days, test drive it, if it doesn’t work you can always go back to the old way but, if you’ve read this far, the old way has probably not been satisfactory for you.

Robert W. Craig, E.A.

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