You're at the start of your journey to sort out your finances. You've added up your debts and you have a few of months worth of records tracking your income and expenses. You've calculated the difference and you know that there's a shortfall of $165 every month. It should be simple: cut back a little bit on everything and there should be enough to cover that shortfall next month. Another week passes and you notice that you haven't cut back on any of your spending. What do you do now?
Recognize that your first approach didn't work because...
Your plan of action was too vague. Wanting to cut back by $165 isn't enough to take action. Without smaller and clearly defined steps on how to start cutting back you rely blindly on your willpower to help you cut back on your spending as you go.
You tried to cut back on everything at once. Changing all of your habits in one go is overwhelming. Have you ever met someone who managed to achieve all 10 of their New Year's resolutions? How many have you met that have achieved their one New Year's resolution? By overwhelming yourself with so much change at once means you'll exhaust your willpower and it'll feel much easier to slip back into old, comfortable habits.
What to do next: Look at the expenses that you've tracked so far and use the data to identify patterns in your spending. Do you get breakfast before you head out to university or work? Are you always picking up a magazine to read on your commute? Patterns in spending indicate two things:
1) Fixed costs. Most of us have rent or a mortgage to pay every month, as well as bills.
2) Unconscious spending on items that provide immediate gratification e.g. a cup of coffee on your way out in the morning to help wake you up before work.
Consider how you can reduce one of your fixed costs by looking at living somewhere more affordable, flat-sharing or moving back to your parents home (if you can). You could also look at comparison websites to compare energy providers and see if there are any cheaper energy tariffs.
If you feel you can't cut back on any of your fixed costs, then look at your unconscious spending and pick one area to focus on e.g. eating out, buying magazines, picking up a new pair of shoes or buying an accessory for your latest gadget.
The important thing to remember is that by picking just area of spending, you can focus your energy and willpower on this one area without worrying about the rest of your expenses. You may not make up that $165 shortfall immediately, but you have created a solid foundation on which to build positive and sustainable habits.
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All information provided at Life-Life Balance is for informational purposes only. MM is not a qualified financial advisor. Before making any decisions on your finances you should seek advice from a qualified advisor.
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