No matter how much money you make, you can't stay financially healthy if you don't control spending. Even some lottery winners wind up in financial trouble because they manage their winnings badly. By overspending, you risk ruining your credit, losing your house or filing bankruptcy. If you've never attempted to set a budget or asked whether you're confusing luxuries with necessities, reining in spending may look impossible. To succeed, you need not only a plan but a commitment to live by your new rules.
Record everything you spend for a couple of months to find out exactly where your money goes. If you rely on credit or debit cards, review the statements and write down all your purchases you placed on the cards. If you like to hit the ATM and spend cash, write down what you spend the money on as soon as you spend it.
Analyze your spending to see if any patterns emerge. If your big budget-buster habits are eating out at four-star restaurants six nights a week or buying cool tech toys whenever there's a sale, controlling those weaknesses may be enough to fix your budget woes. Just becoming aware of the ways you waste money may be enough to make you stop.
Create a budget. Include the spending that's absolutely essential -- rent, car payments, student loans, etc. -- the fun, indulgent spending, and any savings and investments you have. Decide what you have to cut to reduce your spending and increase your saving to a financially healthy level.
Prevent yourself from spending money. If you know you can't resist putting new clothes on your credit cards, carry cash and lock the cards away somewhere you can't get at them easily. If you tend to splurge your cash as well, only carry a limited amount so you can't make impulse purchases.
Place your budgeted money for the week's or month's nonessential or variable expenses in a set of envelopes: One for clothing, one for food shopping, one for gas and so on. When you empty an envelope, stop spending in that category until the next budget period rolls around.
- When you draw up your budget, don't try to make yourself miserable. If you spend money on quality coffee or 3D movies because you love them, it's OK to keep doing that -- but only if you cut down your other spending until your passions become affordable.
- No system will work if you don't live by it. If you use the envelope system but add in more cash after the envelope is empty, it's not going to help.
- If your spending is the result of personal or emotional stress, you may need mental-health counseling rather than just a tight budget. Bipolar disorder, for example, can trigger manic spending sprees.