by Peter Anderson
BrokeSucks.com Editor
Why is it that the more we earn, the more it seems that we spend? I have a little theory, its called autopilot spending.
When we want something we either rationalize its cost or don't think about the price at all. After all, the new plasma TV would look better on our wall than an extra $3,000 on our bank statement.
Like me you may feel a little disconnected with your spending and your bottom line. It is very difficult for me to know how much money I will make in one month, let alone how much I will have left over after both living and business expenses. Obviously I am not going to figure those numbers every time I buy groceries or eat at a restaurant.
They key to controlling your spending is budgeting and self awareness.
First I will start with self awareness. This is the process of conscientiously thinking about what you are buying. Dollar for dollar how much enjoyment will this purchase bring you? Will buying something less put you in a bad position? (e.g. a cheap car that always breaks down.) Could buying something "less" actually be better? (e.g. healthy food from the grocery store verse expensive unhealthy food at a restaurant)
I make myself a list called the "to buy" list. I started it two years ago. I tell myself, I won't buy this today or even tomorrow. Instead I will wait until I know I have the money to buy it. Nine times out of ten when that time rolls around I do not want to buy that thing anymore!
Why is this?
Sales is a process. Its a good thing in that it makes either your business or the person you work for money. Its a bad thing in that many people end up buying stuff they don't need.
A sale consists not just of an end action but of entire process leading up to that purchase. When you pull yourself out of that process (by waiting) you are able to look back and make a more rational decision at a later time.
Here is a real life example. Are you thinking about buying a car? Don't just go straight to the dealorship but rather get an idea about what you like, and then run your numbers to see how much it will impact your financial position.
The biggest part of controlling your spending is setting a budget telling you how much you have to spend.
Most budgets are set up to allocate a certain amount of money to fixed expenses as well as variable ones. Instead make a budget of what you absolutely must spend to each month to get by. This includes:
Rent/Mortgage
Utilities
Insurance
Any other recurring bills like car payments or phone
Food
Gas
This list does not include clothing, entertainment, or other extra expenses. If this list comes very close to, or exceeds your income you are in trouble! Chances are you are adding on debt month by month, not to mention what will happen when tax time rolls around. If this describes you, your problems are much deeper than simply spending. You need to slash you overall living expenses and increase your income.
Ideally you should have a big padding between these expenses and your income. Ideally, 50% or less. Between taxes and your other expenses you need that pad not just to save and invest but to avoid running aground.
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