5 Tactful Ways to Stop Spending More Than You Earn
Are you living paycheck-to-paycheck? Do you live in fear that an emergency will occur that requires access to money you do not have, such as an unexpected car repair, a household repair, or the need to replace an appliance? Are you having trouble paying for basic needs like utilities, food, and clothing? If so, you may be spending more than you earn.
It is easy to spend more than we earn. In fact, millions of Americans spend more than they earn each year. Revolving consumer credit debt reached $1.057 billion at the end of the first quarter of 2019. Americans routinely use credit cards, personal loans, consumer loans, and other types of credit to purchase items they cannot afford to buy with cash. While most of us cannot afford to purchase a home or vehicle without incurring debt, most consumers can do without many of the items they purchase with credit cards.
If you are spending more than you earn, are there ways that you can reduce your expenses? Can you reign in spending by just making a few changes to your money management strategies? John Scura, Partner at Scura Attorneys at Law, believes that you can take control of your spending and increase your financial well-being in five steps.
Five Steps to Stop Spending More Than You Earn
If you are ready to take control of your finances, five important steps that you should consider taking right now are:
- Identify Your Spending Habits
The first step is to identify your spending habits. Do you overspend because of your mood, stress, lifestyle, peer pressure, or other reasons? When and where are you likely to spend money? What do you spend your money on each month? Before you can stop spending more than you earn, you need to know where your money is going each month.
One of the best ways to identify your spending habits is to track your spending for a couple of months. You can use an app on your cell phone, an online tool, or your bank records to track every expense for several months. Once you have your expenses, you need to organize those expenses into budget categories. Free online tools like Mint, Wally, or YNAB can help you organize your expenses into categories so that you can analyze where your money is going each month.
- Create a Realistic Budget
The second step is to create a realistic budget based on your income. Begin budgeting with the necessities — housing, utilities, food, transportation, clothing, insurance, etc. These items are the things that you cannot live without each month. When you subtract these expenses from your net income for the month, you should have a positive amount. If the amount is negative, you need to consider how you can trim these costs. Do you need to move to a smaller home? Can you reduce your utilities by eliminating cable television or reducing your cell phone bill? Can you shop for groceries at a discount store instead of an organic, whole foods store?
- Review Spending on Luxury Items
If you have a positive dollar amount after subtracting your necessary spending from your net income, the next step is to review your spending on luxury items. Luxury items are any items that are not a necessity. For example, eating out, purchasing gourmet coffee, going to the movies, gym memberships, and clothing that is not needed.
If you are overspending on these items, you need to search for ways to reduce overspending. Can you do without the gym membership, can you go to an earlier movie that is less expensive, are you willing to change to basic cable services, or can you begin taking your lunch to work? Small changes in your spending can add up to big savings at the end of the month.
- Plan to Pay Down Debt
If you have consumer debt, you need a realistic plan to pay down your debt. There are several methods for paying down debt. The “avalanche” method is a common choice for many individuals who have several debt accounts. You pay the minimum payments on all debt accounts except for the account with the highest interest rate. That account receives as much extra money as possible each month. When that account is paid in full, you use the money you paid toward that debt on the debt account with the next highest interest rate. You continue the “avalanche” method until you pay all debts in full.
It may be necessary to incur debt at certain times. Whenever you incur debt, try to limit the amount borrowed to an amount that fits comfortably within your budget and pay the debt in full as soon as possible.
- Continue Tracking Your Spending and Make Saving a Priority
Continue tracking your spending and updating your personal budget each month. Do not become discouraged if you have a misstep. Correct errors and continue moving forward. Do not be shy about telling friends and family members “no” if a trip or expense does not fit within your budget.
Also, make sure that you place money in an emergency savings account, and a regular savings account as part of your budget. When unexpected expenses arise, you may not need to incur debt to handle the expense, and the expense will not harm your budget. As much as possible, stick to your budget each month. The longer you practice good budgeting skills, the better you become at spending less than you earn and saving more money for the things that you want.
Written by John J Scura III, Esq.
Partner, Scura, Wigfield, Heyer, Stevens & Cammarota, LLP
John has been Certified by The Supreme Court of New Jersey as a Civil Trial Attorney. Whether it is a personal injury case, bankruptcy case, litigation case or other type of matter, John wants his clients to participate in the decision making process toward solving their problem in the best way possible.