Nothing creates chaos faster than having bills left over at the end of your paycheck. It’s a sure formula for sleepless nights, late notices and harassing phone calls from obnoxious bill collectors.
You can manage the chaos with a simple budget that allows for your rent/mortgage, utilities, food, clothing, phone and other regular expenses AND to put a dent in your debt (or curb runaway spending). You can use systems like YNAB.com (You Need A Budget), Mvelopes.com, Mint.com, or FirstStepCashManagement.com to name a few. You’ll need to gather your information and set up your budget—then it’s all about tracking.
Think of it like losing weight, training for a marathon or saving for a big important goal. Monitoring is a huge part of success and is actually quite satisfying to most people.
Or, you can just kill your cash flow in six easy steps
- Ignore your credit card spending—as long as the plastic is handy, it can be very easy to lose track of how much you’re actually spending. When the monthly bill comes in, you might find that you’ve put yourself into a hole that is no fun crawling out of.
- Forget that you’re responsible for some of your health care expenses. Every health plan on the planet comes complete with deductibles, co-insurance and out-of-network limits on coverage that you just might have forgotten when setting up your budget. That unexpected medical bill just might be enough to throw your plan into complete collapse.
- Fail to set up an ample emergency fund. Yes, you KNOW how important an emergency fund is. You KNOW that it’s a source for unexpected expenses. But do you resist this step because you’d rather put the money “to work” in a long-term investment plan than earning next to nothing in a savings account? Sure that makes sense if the markets work in your favor and you don’t need to tap into your investments when the markets are down. But it’s more likely a double whammy that punctures your financial spare.
- Neglect to consider whether you’ll owe the government at tax time. What—you received a refund last year? Great! But that doesn’t guarantee you won’t owe Uncle next April 15. Lots of things can happen to jack your liability into the red. A raise, a bonus, capital gains, loss of deductions, changes in tax law and even unemployment benefits can shift your bracket and leave you with a bill that will not wait to be satisfied by a forgiving Uncle.
- Engage in retail therapy. Feeling stressed? Need a change, shift, new look, or just a feeling that you “can” afford to go out on a shopping spree? These unexpected and unwelcome expenses can leave your wallet and your stomach feeling queasy.
- Allow guilt to guide your spending. Your neighbors just bought this great new wooden swing set for their kids when they came back from a Disney Cruise. You can almost hear your kids thinking “LOSER” as their little downcast eyes sear your soul. How can you be such a terrible parent? Of COURSE you’ll get that swing set, go on a vacation and have a really great tree house built to make your neighbors cringe. Yeah, you’ll show them!
It’s not difficult to create a savvy spending and savings plan, but it’s easier to destroy your happiness by falling into those six easy traps. Resist the cash flow killers.
Choosing to take the more challenging, but satisfying, road of living within your means, saving prudently and building financial security means you’re just going to have to do the work. But it means you get to live your values and create your version of happy. How sweet is that?