Life experiences should play a huge part in your overall quality of life, and sanity for that matter, that they should not be completely jeopardized when you are focusing on reducing the money going out compared to what is coming in. There are certain aspects when it comes to spending that could easily be avoided in order to still see your favorite band, team, or the family vacation that you need each year. With a few tips, you can still be financially responsible but lead an affordable lifestyle at the same time. After all, what is the point of saving every dollar you have, being trapped in your house, instead of enjoying the many great restaurants, tourist destinations, and enjoying life with family and friends.
Create a Budget
The only way you will be able to get a grip on what goes in and goes out is to actually see what you have been spending on bills, food, gas, entertainment, and savings, see what appropriate realistically to spend on each, and allocate funds out to support that. The goal would be to, at worst, break even at the end of the month, and adjust from there, trying to gain additional leftover funds each month. If you are spending too much, you are allowing yourself to continue into debt. Sticking to a budget will be the tough part, as most fail, but if you care about your financial future, start to adjust your life to stick to a budget.
Start an Emergency Fund
Now that you are stuck on a budget, it doesn’t allow for many extra dollars being available each month, and by design. So, what happens if you have an expected charge that comes up? Would you be able to afford if you need to get a new refrigerator for a thousand dollars? Probably not, so what happens is you put it on a credit card and take months to pay it back, ruining your budget in the meantime and sacrificing in other areas, most likely your savings. A great way to avoid this hardship would be to create an emergency fund of roughly a few months of expenses, to have available in case you need it quickly. You don’t want to overload this account as it will just be sitting there, but it is good to have what it would cost for an unexpected auto repair, home improvement, or even to be able to float you for a few months if there was an unexpected job loss.
Reduce Unnecessary Spending
The point where most fail when it comes to a budget is, of course, spending money. There is necessary spending such as bills, utilities, food, and gas, but the unnecessary spending is sort of a grey area. Clothes are a necessity, but excessive shopping is not. Food is a need, but grocery shopping should trump going out to eat, especially if you find yourself going out to eat more than a few times a week. Just think about how much you would save if you at all meals at home, a save going out maybe once a week. Add that up over the course of a month and it would be huge savings.
Contribute to Retirement
Much of the focus is on what you need to spend money on as opposed to what you shouldn’t, but saving for the future should be just as much of a priority. How much you contribute will have to do with how much you can afford. If your company offers matching 401(k) you should at least find the means to contribute at least that, as otherwise that would be leaving free money on the table every paycheck. Beyond that, the goal would be that every free dollar you open up from reducing unnecessary spending should go towards retirement, increasing the percent of contributions every year.
Continuously Evaluate
As you progress, or regress, into your finances, you should continuously evaluate your entire situation. Review current debt (and payoff plan), how much you are spending in each area, where you stand at your goals, and what you can do to improve. When it comes to spending, try taking your last credit card or bank statement, go through line by line. Circle all of the necessary charges with one color, and look at all of the items that could have been avoided, add them up, and see how much extra could be sitting in your bank account now that could be better suited somewhere else instead of an impulse purchase.