FinanciallYou

It is March, when many of us realize once again that we have failed in our new years resolution made in the heady, early days of Jan 2012. For many, that would be sticking to a budget.  As a financial planner I often hear “I can’t (save, pay off debt insert as appropriate).  I never have any money left over.”  Next I get the inevitable question “what’s the secret?” Of course there isn’t any secret.  You just have to spend less than you make.

If you can’t do that naturally, then you have to trick yourself.  For budgeting the trick is to make yourself feel poorer than you really are and track how much you spend.

Now how do you make yourself feel poorer you ask?

You are not richer than you think  – How much do you make?  It is not the number on your job contract.   It is actually the amount you take home, the amount that shows up in your bank account every paycheck.

Now take it a step further,  subtract from the net paycheck the costs in your life that are non-negotiable such as rent/mortgage, utilities, insurance (health, home and car), debt payments.  Now how much do you have left?  That is all that you can spend each month- your living allowance.  Your 50K a year job has now just become a 25k a year job.  You are not as rich as you thought.

Now go around shopping with that number in your head and you’ll find that you make choices differently. It sounds obvious but try it, the difference it will have on your choices will be profound.

Track, Track, Track – Now that you know how much your are actually worth (feel poorer yet?) you need to track your spending. Just like any good diet program you need to enter your daily calories.  There are lots of budget tools out there that will help you such as mint. com.

However, I prefer something much simpler … an old fashioned spreadsheet.  On a weekly basis subtract how much money you spent from your living allowance. You don’t have to keep receipts; you don’t even have to track daily, because that would be a chore and you won’t do it.  Spend 15 minutes weekly (Mondays?) and update your totals from your credit and bank accounts and subtract them from your living allowance.  For credit cards you should use your new balances.  For your bank account use your total cash out flows (called debit), usually your bank have a handy summary at the top or bottom of your account details page.  This way you will always know how much you have left to spend for the remainder of the month.

Now before someone says “what about setting your budget and the different pots of money…. ” I say it doesn’t matter.  While detailed categorization of your spending will help you understand your spending patterns, this level of detail doesn’t help if your goal is to avoid overspending.  All that matters is that your spending never exceed your living allowance.  Whether you spent $400 on groceries or on a pair of shoes is irrelevant if you don’t have $400 to spend.

If you do these two things and make them a habit, you’ll find that you will be able to keep your spending under control.  I have been doing this for years and have managed to do well on this system.  However, once in a while I stop tracking for a month to see what happens.  What happens is that I spend way too much.  Last time I experimented, I spent twice my living allowance.  So back I go to tracking.

And that leads to my third trick.

Don’t give up – we all know it takes multiple attempts to quite a bad habit before succeeding and living within a buget is the same. You need to keep trying. Just because you overspent one month doesn’t mean you can’t stay on track the next month.  Just think of each month as a fresh new start.

So now that it’s March and you haven’t been sticking to your budget … it doesn’t mean you have failed for 2012, it just means you get to try again for March.

Good Luck.