Oftentimes, overspending is a gradual process. Your utility bills are a little high, you spent too much on entertainment last month, your car broke down, etc. The weight of your actions may not be obvious until you see the consequences on a bank statement. If you’re struggling to get back on track, follow the steps below. A few fixes could mean the difference between stability and disaster.
Step #1: Identify the culprits. Unless you are keeping up with the Joneses, overspending is usually limited to one or two areas. If you’ve gone off-budget lately, audit your bank statements to identify the culprits. Divide your spending into two categories. For example:
- Necessities, i.e., bills, groceries, utilities
- Entertainment, i.e., dining out, movies, etc.
How do your categories rank against one another? Are you using all your cash on bills, or have your entertainment expenses taken control of your budget? While some expenses are non-negotiable (e.g., rent), others come with a degree of flexibility. A good rule of thumb: when your lifestyle exceeds your income, it’s time to cut 15 percent from the bottom line. For example, if your light bill is $100 a month, switch to lower wattage bulbs to shave $15 off next month’s service. If you spend $300 a month on entertainment, summon your self-control and save $45. Tally your efforts in April and analyze the difference. You’re bound to notice a positive change.
Step #2: Talk to your lenders. Suppose overspending has saddled you with $4,500 in credit card debt. You pay your bills on time, but an 18 percent interest rate is killing your chances of eliminating the balance quickly. The average lender applies interest based on payment history and creditworthiness. If you have been a loyal customer, consider contacting them and asking for a lower rate. Highlight your months of faithful use and your commitment to paying off debt. When all else fails, hint that you are thinking of transferring the balance to another provider. A little conversation could help you score big savings.
Step #3: Look at your budget. When I say “look at,” I don’t mean once every six months. Unless you have struggled with unemployment, medical debt or other expense, avoidance is the likely cause of your troubles. The solution? Develop a relationship with your finances. Download our free budget template and allow it to work for you. Although it provides monthly cover, consider managing your finances on a weekly basis, at least for now. Pay attention to your spending triggers, make note of every purchase and use credit for specific purchases (e.g., groceries) only. Changing your perspective is a tall order, but it’s vital if you want to avoid credit damage. Leave the Joneses to their lifestyle and focus on yours.