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How to Estimate your Spending

Your awareness of your money and your behavior with money is sharpened, allowing you to make changes to improve your financial situation.  So now, instead of thinking of a budget as a restriction, think of it as an estimate of how you will spend your money for the next period, week, biweekly, monthly.  And the better your spending estimate, the better your budget, and hopefully, you will be more likely to stick to it. 

When you hear or read the word budget, what do you think?  I think for most of us, we think about being restricted – a negative connotation.  That is why I like to use or call it a spending plan because, in budgeting, you are planning to spend your money. 

Spending plans are a funny animal; you may not get them right the first time.  And just when you think you got it about right, some life situation or circumstance changes, and the spending plan must be adjusted. 

When you think about it, a spending plan is just an estimate or plan of how you are going to spend your money, and you must and need to be prepared to change it when needed.  Two interesting things about estimates:

  • Estimates change – Estimates change based on circumstances.  For example, let’s say you had an emergency that you did not budget for, maybe your AC went out, and you will now have to change your budget. 
  • Estimates can be better – You can have good estimates, and then you can have a better estimate. 

For example, let’s say you estimate that you will spend three hundred dollars at the grocery this month.  And three weeks into the month, you realize that you have spent four hundred dollars on groceries.  The estimate was probably not that good.  On the other hand, let’s say that you tracked your grocery spending for three average months, and it looked something like this:

Month one            $300

Month two            $400               

Month three          $350

                             $1050.00

$1050.00 / 3= $350.00 grocery estimate

Now you have three months of grocery spending history that you can average together, $350 per month, and now have a better spending estimate for your groceries for the next average month. 

Now, just because you have a better estimate does not mean that it still will not have to be changed at some time because a situation comes up or a circumstance change.  However, what you do have is a better opportunity to stick to a spending plan estimate because it is a better estimate built on past spending history.  

It is the tracking of spending that allows for you to have a better spending plan estimate. 

So how do you go about tracking your spending? 

Get into the habit of consistently recording your expenses in some way. 

The most important thing is to use some type of log to record the expense. Whatever it is that you use, a log, a piece of paper, some type of register, or a spreadsheet, every time you spend money, you should record it in the log. 

Tracking your spending helps to make your money, and you’re spending more real.  You will begin to see your money as a tool to help you achieve your goals and that will give you a sense of control over your money. 

Your awareness of your money and your behavior with money is sharpened, allowing you to make changes to improve your financial situation.  So now, instead of thinking of a budget as a restriction, think of it as an estimate of how you will spend your money for the next period, week, biweekly, monthly.  And the better your spending estimate, the better your budget, and hopefully, you will be more likely to stick to it.  What other tips can you think of to help stick to a spending plan?  Comment below and let us know. 

How Healthy is Your Financial Behavior?

For example, daily coffee at $4.00 a day at 5 days a week, 52 weeks a year is $1040.   Suppose you save that money, what could you do with $1040?  A mini emergency fund perhaps.  

Financial behavior is the human behavior that is relevant to money management. It is how you manage money and can be healthy or unhealthy.  

If you do not have one, creating a spending plan or budget is good financial behavior that can lead to better financial management. 

The unhealthy can help us lose track of our spending plan. Avoiding unhealthy financial behaviors can reduce financial stress and help you to win with your finances.   Below are some unhealthy financial behaviors to avoid: 

Carrying a balance on a credit card.  Carrying a balance on a credit card is unhealthy financial behavior.  A balance on your credit card can cost you significantly in interest payments, as well as affect your credit score. 

I know this blog is about your spending plan and not credit, per se, and a little off-topic.  However, credit is nonetheless important in the family finance discussion.  We may talk about credit more in the coming months.   

Thirty percent of your credit score is based on the balances you carry, so it is important to pay the balance down by either paying it in full or paying more than the minimum due each month. 

Additionally, this will minimize the expense of using credit. 

If you are paying your balance in full each month, focus on making sure you’re not missing out on all the benefits your card offers. 

If your credit card company charges annual fees, make sure the benefits (rewards points, cashback options, gas rewards, or frequent flier miles, for example) outweigh the cost of those annual fees for you. 

Bankrate.com is one site that offers comparison for credit cards based on rewards, fees, interest rates, balance transfers, cash back rewards, and many other features or terms.

Purchasing single-serve items.  Are you in the habit of purchasing a daily coffee from the coffee shop or snacks and soda from a vending machine?  It does not seem like much but over time these small expenses can add up. 

For example, daily coffee at $4.00 a day at 5 days a week, 52 weeks a year is $1040.   Suppose you save that money, what could you do with $1040?  A mini emergency fund perhaps.  

As you can see, it may be more cost-effective to purchase items in bulk and then make your coffee at home.  Do the same with soda or snacks.  What other ideas or tips do you have for a grocery spending plan? 

Do nothing.  After reading these tips take some action.  Brainstorm ideas set some goals and apply what you’ve read.  Hopefully, you’re ready to apply some of these tips to your situation.  Maybe you still have questions or would like to research more financial tips. 

Maybe you feel like you need to speak with a financial coach or counselor. 

What is important is that you understand that you can improve your financial health and start taking steps in that direction.  The sooner you take action to improve your financial health the better.

Are some of your financial behaviors unhealthy?  Take a serious look at them and determine if they are.  The first step in solving a problem is finding the problem.  These are just a few tips.  Can you think more?

A Spending Plan: Help in More Ways Than One

Americans raised at the top and bottom of the income ladder are likely to remain there themselves as adults. This lack of mobility is referred to as “stickiness at the ends,” as the people born on both ends of the income distribution are more likely to stay over a generation.

According to Pew Charitable Trust, 43% of Americans whose childhood homes are in the bottom economic quintile remain as adults.  Those children grow up in a lower economic bracket, and they tend to stay there. 

Financial statistics show that people who are born poor are more likely to remain poor throughout their lives. Only 4% of children born at or into the bottom, economically, rise to the top.

In contrast, 40% of people born in the top quintile remain there for the rest of their lives.  These children born in a higher economic bracket tend to stay in that higher bracket. 

Americans raised at the top and bottom of the income ladder are likely to remain there, themselves as adults. This lack of mobility is referred to as “stickiness at the ends,” as the people born on both ends of the income distribution are more likely to stay in the bracket they were born into.

People born in the middle income bracket have a 50-50 chance of ending up in a higher or lower income bracket.

A spending plan isn’t always a comfortable topic, especially for people dealing with debt and bills.  However, I believe that it is one strategy that can, among other things, change the stickiness dilemma.  

Regardless of your current financial position, a spending plan and an understanding of the financial landscape can provide interesting and valuable insight as you move along your journey toward a better financial situation.  It allows us to see where you are and the improvements that need to be made. A spending plan is the first step.

If you have never used a spending plan or budget you are not alone.  According to a Penny Hoarder survey, A little over 55% of Americans do not use a spending plan to manage their money.

Similarly, 56% of survey respondents said they didn’t know how much money they spent last month.

Those who kept a spending plan were more likely to know how much they spent and where they spent money.  They were also less likely to had squandered on something that deterred the ability to pay bills.

A spending plan or budget is extremely useful in helping people keep tabs on their spending and reach financial goals.

Nineteen percent of respondents said they didn’t use a spending plan or budget because they didn’t have the time or energy and another 19% chalked it up to lack of organization. And 6% of Americans said they don’t budget because they know they’ll overspend anyway.

Creating a spending plan is one of the goldenrule$ of managing money better. 

If you’ve never budgeted before, it can be difficult to know how to best go about it, but I encourage you to subscribe to my blog here and learn how a practical and well thought out spending plan can help you manage your money better and reach your financial goals.

Money Mindsets, How’s Yours?

 Do you see light at the end of the tunnel or the further you go; it seems like the longer the tunnel gets?

Do you see money as a tool to help you achieve goals or something that keeps you constantly working Harder for the Money?  

Do you see reflections of money in puddles and wish you hadn’t bought that new car last year?  Do you see light at the end of the tunnel or the further you go; it seems like the longer the tunnel gets?

Consider these mindsets that show a healthy attitude towards money affairs.

  • You are in control of your money instead of it controlling you. 
  • Your money is working for you instead of you working for it.
  • Your money is just not for needs but it also enriches life in constructive ways.
  • Money is not the end goal but a tool to help you achieve your end goals.
  • Sometimes you freely spend money without feeling guilty afterward.
  • You have concluded the money or more money will not solve all your problems.
  • You stick and adhere to your values about money.
  • You know how you utilize to use money and what it represents to you.

Based on the 8 mindsets have you achieved peace with your money?  I am a Financial Coach, and I can help you.  Contact me for assistance.

5 Steps to a Better Spending Plan

Before you receive any money from a paycheck or any other income for the pay period, you want to sit down and “plan to spend” your money.  On purpose, you want to plan out where all your paycheck will be spent.  Often, we do not plan to spend our money and we end up letting others spend our money for us as we buy things that we did not plan to. 

Creating and working your spending plan is the way that you can manage your money better and stop living paycheck to paycheck. 

There are many benefits to creating a spending plan. 

Financial management success is one, however, for all the pitfalls and changes that come when creating and working with a spending plan, here are some steps to make it better.     

Step 1.   Call your budget a spending plan.

Instead of calling it a budget, call it a spending plan.  I do not know what it is but when most of us hear the word budget, we think of bad things, control, things we can’t do. 

So instead, call it a spending plan and think of it as a way to be a better steward of your money.  Just planning to spend your money, a spending plan, sounds like you are doing better.

Before you receive any money from a paycheck or any other income for the pay period, you want to sit down and “plan to spend” your money.  On purpose, you want to plan out where all your paycheck will be spent.  Often, we do not plan to spend our money and we end up letting others spend our money for us as we buy things that we did not plan to. 

Step 2. Track where your money is going.

You cannot effectively manage your money if you do not know where it is going.  Tracking your spending lets you know exactly where every dollar is going.  From the grocery store to the gas pump, tracking your spending will tell you where your money went.  Tracking allows you to have a more accurate spending plan.

 Sit down once a week or so with your receipts and write down where, how much, and what the money was spent for. 

Two things will happen.  First, you will see patterns in your spending that you did not notice before.  Second, you will see patterns in your spending that you will want to change, and that is the key to managing money better, changing behavior.

Step 3. Cut your expenses.

Once you track your expenses for a while, you will have a much better understanding of how, where, and what you are spending your money on.  You are not ready and able to cut unnecessary expenses. 

Go into deal mode and use coupons to save money.  Make a list for all shopping trips and never, never, never go shopping hungry.  Business is very adept at getting you to spend your money, therefore, maybe you stay at home and read a book, exercise, or do some yard works to keep your mind elsewhere.  Even try car polling and taking your lunch to work.   

Take a good hard look at all your spending and see where you can cut.     

Set up some financial goals for yourself like an emergency fund or a Christmas savings account.  Find a way to keep your goals in front of you.  Tape them to your bathroom mirror.  Take them with you when you are out and about.  Refer to them often, they will help you stay on track and prevent impulse buying.      

Step 4. If need be, increase income.

If you have less money coming in than going out, and after cutting expenses, you still have month left after the money is gone, you may want to try and increase your income.  A second job to help pay off debt is not a bad thing in the short term. 

Be sure to have a plan or goal for the money that you make at a second job and stick to the plan. 

Maybe you start a small business doing something that you like to do or do well for extra income.  The possibilities are endless.    

Step 5. Use spending plan tools to help you manage money better.

So, you ask, “What are spending plan tools?”  A spending plan tool is something that helps manage the budget or spending plan. 

Probably one of the oldest and best tools is the envelope system. 

Basically, in the envelope system you develop a spending plan, cash your check and you distribute your paycheck funds into different envelopes with your spending categories labeled on envelopes.  When the envelope is empty – it’s empty and no more spending in that category.  There are other tools such as calendars and some people use spreadsheets to track their different spending categories. 

Whether you use all these steps or none of them, do something different to manage your finances.  Do not keep doing the same thing and expecting a different result.  How do you manage your spending plan or budget?  Comment below and subscribe to my blog to get weekly spending plan and financial management tips.