"Making day-to-day decisions on spending money is one of the biggest challenges consumers face in keeping their financial lives in order," according to the Consumer Financial Protection Bureau. Larger purchases such as televisions and motor vehicles are often deliberate and planned. It is smaller, impulse purchases and special occasions which are far more likely to blow out the budget and eat away at savings.
Think about it for a moment.
Your television is starting to show signs of age. Updates are no longer supported. It has difficulty connecting to your preferred streaming application. It doesn't always recognize your wi-fi. You are probably starting to search out reviews for new TVs, scan Consumer Reports, and price out some options. You are careful about your expenditure. You want something that will perform for a few years. You also want a television that has a crisp picture and vibrant sound quality. Finally, the on-board operating system needs to support your preferred streaming applications. Looking good in your home is plus.
You find the best deal, allocated the appropriate funds, and order the TV.
Your task completed; you head out to your local Target to pick up some socks. (A shirt? Bananas? Toothpaste? You are there to purchase whatever you usually buy there.)
What's that? Pumpkin Creme Nitro Cold Brew?! You order one. After all, you're celebrating the deal you found on that new TV.
Oh, hey! Check out the cool Halloween decorations they have in the "special buys" bins. Clap-on ghosts? Only $2? Pop those in the cart!
Do you see what is happening? You are barely into the store. Yet, you have spent around $5 for a "celebratory" drink. There is an additional $2 of merchandise sitting in your cart. What other clearance deals, savings, or must-haves will you come across before or after you even get to your intended item?
Sound familiar? You're not alone. The majority of shoppers report purchasing items that were not on their shopping lists (BusinessNewsDaily.com).
Here are five tips to help you save your money and stay on budget.
Pay in Cash
While all of the "big studies" point to a slow trend away from cash, physical currency is one of your best options for staying on budget. Consumers are more likely to spend 12-18% more when they use a card instead of cash, according to a study performed by Dun & Bradstreet.
Another study showed consumers offered something potentially desirable, such as tickets to a sporting event, were willing to spend significantly more money (Forbes).
The issue is the immediacy of loss. When spending cash, the loss of funds is a physical interaction which triggers a reaction akin to pain and sadness. Use of credit and debit cards makes the loss less immediate, removing the friction caused by the expense.
Application: Convert your food and entertainment budgets to cash. The act of spending the money will help you put more thought into your purchases. And, when the money runs out, it's gone.
If you don't have one of the many budget apps such as Mint or PocketMoney, you may want to consider grabbing one. One of the most useful features of these applications is the ability to set up alerts when you have spent money from each portion of your budget.
Application: Keeping regular track of how much money you spend is yet another way to make the loss of funds more immediate. As with using cash, the feeling associated with visually seeing your money disappear can help you stay on track.
Schedule Time to Review Your Finances
Most people don't like to think about their money. However, setting aside time to review budgets, expenses, and general finances can lead to better financial health.
Application: Seeing how you and your household handle incoming and outgoing funds will help you be more aware of your money. It will also help keep your goals fresh in mind to face the next few days before your next review period.
Identify Habits that are Costing You Money
In addition to helping keep you on track, a regular review of your finances will also give you clues to bad habits - the kind that are costing you extra money. Maybe you are stopping by the grocery store several times every week for items you forgot on your main run. Perhaps you get a little decoration happy around Halloween. How can you tackle these habits to help you stay on track?
Application: When you notice a trend of extra spending, determine whether it is something you should account for in your budget or a habit that should be changed. If the former go back to your plans and make corrections to fit. If the latter, determine how to adjust. If the issue is overspending on return trips to the grocery store, some additional at-home planning such as a complete list or even a meal plan could be helpful.
Remember, your household budget should be a living document to help you achieve your financial goals. Sometimes sacrifices must be made, but sacrificing too many things that make you happy is a sure-fire way to kill your budget.
Track Your Goals Progress
One of the most motivating things in life is to have a goal in mind. But it is easy to lose sight of your goals when they are as expansive as paying off debt or saving for retirement. Setting micro-goals within your larger objective can help make big ambitions seem more achievable.
Application: Split a larger target such as paying off debt into individual steps such as lowering a specific debt below a certain dollar amount, then eliminating that particular debt. Celebrate your wins! Maybe that Pumpkin Creme Cold Brew? From your allotted entertainment budget, of course.
Don't fall into the money trap stores have waiting for you. Boost your fortitude by keeping sight of your goals, recognizing pitfalls, and creating a higher level of awareness of your expenditures. Stores want you to spend your money. Spend it on your terms.