Wealthy Habits Now

Do you spend your money or allocate it?
The greatest habit you can develop on your road to creating wealth is the habit of allocating your money. Wealthy people allocate their money, people with financial problems spend their money. The difference between the two habits is tremendous. Allocating your money gives it purpose. Allocating your money gives it power. You must chose, today, to allocate every dollar of income that comes into your possession. Allocating your income must begin before you receive it. If you do, you lessen the likelihood of spending money that can be allocated towards your financial goals. When you spend your money, you are giving away your money and possibly postponing your goals. For example, your goal may be to become debt-free. Yet when you receive your income, you eat out several times a week (spending money), you buy some neat items online(spending money) and the next thing you know, your debt amount has not budged. When you allocate your money with purpose, you can allocate a specified amount to reducing your debts while also allocating a portion of your income for food and entertainment.

How to make sure you stick to your budget

How many times has this happened to you? You realize your spending habits are a bit out of control and decide that using a written budget would be the best way to manage your income. So you start by listing your income and your monthly expenses. You are filled with excitement because you have finally moved in the right direction to improve your financial situation.

A while later you realize that you have slipped back into your old spending ways and become frustrated with the entire process. Developing a written budget is one of the first steps to improving your finances but a budget is of no use unless you are able to stick to it. Here are some tips on how you can stick to your budget.

Prepare yourself

Budgeting is the financial equivalent of going on a diet. This means you will have to make important lifestyle changes on how you allocate your money. You should have a conversation with yourself about the costs of going on a budget. Make sure you truly understand that you will not be able to make frivolous purchases on a whim like the good old days. Your money will now have purpose. You will have to make certain every dollar fulfills its intended purpose if you are to stick to your spending plan. Invest the time to mentally prepare yourself before your budget is created. By taking the time in the beginning to set your priorities, you will be more likely to stick to your budget even during the difficult moments.

Link your budget to your goals

Think long term when you create your budget. Why do you want to track your income? Is it because you want to eliminate debt? Do you want to save up for a special vacation getaway? If you want to stick to your spending plan, you must connect your budget to something meaningful for you. Set high priorities which you will use to keep you focused. When you have clear ideas as to why you are following a budget, you will more easily be able to maintain the motivation you need to keep going.

Be Realistic

The absolute worst thing that you can do to sabotage your budget is to restrict your spending so drastically that you set yourself up for failure. If you normally spend $300 a month on groceries, it would be absurd to allocate a budget $100 a month of groceries in hopes of saving money. Instead, look for non-essential areas such as eating out and entertainment where you can trim the fat. These are the things that you can most honestly do without. Take an honest look at your budget before finalizing it, make sure that you have created a realistic spending plan that you can stick to.

Budget for emergencies

The easiest way to blow your budget is by having to pay for an emergency expense that you had no idea was coming. You can not prepare for every emergency that comes your way, but you can set aside a certain amount monthly specifically for life’s little surprises. As you write down your budget, make certain that every dollar left over after paying expenses is allocated to a category including emergencies and other non-routine expenses. You can even create categories for once a year spending like Christmas gifts and birthdays. By doing this, you will not be faced with having to chose between sticking to your budget, or paying for an unplanned expense.

Review often

The absolute best way to stick to your budget is to make sure you review it often. Review your spending weekly, or better yet, daily to track your performance. If you review your budget often, you can catch minor slip ups early and have time to adjust your budget accordingly before the overspending becomes too great. When you constantly review your written budget against what was actually spent, you will have a tighter control on your spending. If you develop the habit of reviewing your budget often, you will not have to worry about asking yourself “what went wrong” if your budgeting plan does not turn out as expected.

Use Envelope Budgeting!
I learned of the envelope system of spending while I was attending a pre-marital couples counseling. The teachers were a husband wife team who spoke directly from their experiences. They were a young couple with several young children and the wife was a stay at home mom.

The envelope method helps you control your spending by clearly showing you how much money you have to spend in a certain category. Each time you receive pay you take out money for expenditures such as groceries, gas, clothes, tolls, etc. Place the money in each category in a specific envelope. As you spend on an item, only use the money that you budgeted from that item from its particular envelope. When you envelope is empty, you stop spending in that category.

AVOID dipping into other envelopes at all costs. My counselor told the class that when she would shop at a superstore, she would have the cashier ring up clothes separately from food. This way she would clearly know how well she was doing on her spending. The envelope system allows us to establish boundaries that help move us down the road of wealth at a much faster rate.