You cannot get ahead financially until you make a habit of spending less than you earn.
Never in the history of this planet has it been harder to follow this most basic rule of personal finance. Between social media and the internet, we are immersed in messages to spend. And then there’s the pandemic, which has resulted in pent up demand to buy things, inflation and job losses for some.
I’m starting the newsletter in 2022 with an eight-part back to basics series and you’ll find more explainers and stories on personal finance basics in The Globe as a whole in the coming weeks. To start, let’s look at getting your spending under control so you can save and invest for the future.
If you regularly have nothing left over to save from paycheque to paycheque, then track where your money is going. Banks are increasingly offering customers free tools to monitor their spending – log into your chequing account to see what’s available. There are also free budgeting apps like Mint and PocketGuard, and a higher-level app called YNAB – for You Need A Budget – that offers a free trial and then costs US$14.99 per month or $98.99 annually.
Use the information you get from this and look at your spending to find areas to cut back. Small expenses are the easiest to address, but it will take a bunch of them to make a meaningful difference in your spending. An idea for a big spending cut: focus your energy on repaying a credit card balance, car loan, student loan or line of credit. Then, redirect the amount of your former loan payments into savings or investments.
Harsh spending cuts are hard to live with, so think about scaling back rather than eliminating things. Restaurants a couple of times a month, rather than once or twice weekly. Family vacations every summer, rather than twice a year. Buying a less exclusive brand of vehicle.
A few other ideas:
- Debit cards over credit cards: it’s easier to control spending when the money comes right out of your account
- Try the 24-hour rule: for splurges, wait 24 hours before buying to see if your enthusiasm fades.
- Check your subscriptions: a lot of us accumulated a bunch of subs in the pandemic, maybe more than we’re actually using.