I seldom have clients who are simply filled with excitement about getting to limit spending in one area or another. At least when it comes to discretionary spending. No one has ever argued with me if I told them they should only pay the minimum payment on a credit card. But cut personal spending and the concerns or discussions will be lively. Personal spending is fun and they feel the impact.
The amounts adjusted down are usually the areas of fuel, groceries, entertainment, eating out, clothing, insurance, and the miscellaneous money in our pockets when we are just out and about living our lives. These are the areas that usually get cut. Most of the time I am adding to the budget for an emergency fund, 401(k), college savings, home repairs and most importantly-debt reduction. So to balance out the budget and start moving forward financially, a person almost always need to curtail the cash money or debit card purchases.
Like our government, many people have cash flow issues each month. Unlike our government, if we are not careful about too much debt we will soon find ourselves in a position of insolvency and will have a major emergency with which to deal. Once we have all these payments of debt, the end result becomes that the other spending (what I call debit card spending) has to be reduced.
I am going to just share one concept for each to consider. It has been very productive for many, many people. That idea is LIMIT THE CHECKING ACCOUNT. I believe that most of us view checking accounts as money available to spend. We may put the funds in the checking account with the idea that $400 of that will go toward my mortgage payment next pay period. However, we nickel and dime our selves with debit card NECESSITIES to the extent that by the time the next pay period comes around, we only have $87 of that planned $400 remaining.
The solution is THE ENVELOPE SYSTEM. Taught by countless individuals, including my mother, the envelope systems says, plan how much you are spending for gasoline for the week and put it in an envelope labeled gasoline. No gasoline is paid for by debit card or cash in pocket or from any other envelope. You then put the grocery money in an envelope marked-"groceries". Spending only from this envelope for grocery purchases. You also make an "eat out" envelope, a "spending money" envelope (this includes your lunches and debit card purchases of the past) Now you pay cash. You will set up envelopes for "clothing", "vacation", for any other household goal.
The important part will be to use only the envelope money to pay for those particular items.
I'll address this subject more on future blogs.....but this "Envelope System" does work!