It’s no secret that the average American is pretty bad with money. In fact, a whopping 84% of us make financial mistakes that cost us dearly in the long run. But don’t worry – below is a SIMPLE and EFFECTIVE process to get your finances back on track, so you can start saving for your future! No gimmicks. Just a simplified version of a time-tested process.
But first, the mistake that 84% of us make is underestimating our spending on subscriptions and living expenses. Worse, we are WAY off. According to a report by the Waterstone Management Group, Americans underestimate spending on subscriptions or living expenses by $126 per month which is $1,512 annually. Yikes! Anyways, here’s how to avoid this and make real changes that save real money.
Identify living expenses and subscriptions
Identifying spending on living expenses or subscriptions is an important first step to creating a usable budget. Living expenses are things like your rent or mortgage, car payments, groceries, and utility bills. Subscriptions can be anything from streaming services to gym memberships. Both of these types of spending repeat automatically and can add up to a big piece of your overall budget.
Using a subscription management tool is often free and a great start to quickly identify which subscriptions are charging your accounts. We recommend WellPaid (getwellpaid.com) which is simple to use and free.
Alternatively, you can do sort and track spending manually by downloading your bank and card statements into a spreadsheet to identify consistent charges. Honestly, it is far easier to start with a free program to quickly see all possible bills, when they happen, and how much you tend to pay. It's much easier than trying to remember everything.
Organize other spend categories
Now that you have identified major living expenses and subscriptions, you can categorize the rest of your spending. A budget can be made for every dollar you plan to spend or you can track a few problem areas.
Either way, you'll need to look over the last 3-6 months for an average monthly spend by category and any savings or loan payments. We recommend either using your bank and card statements or a free tool like Mint.com or WellPaid.
This might be painful, but resist the urge to rule out every "one-time expense." Getting married is one thing, but that vacation or furniture purchase likely isn't your last big-ticket item. It's always something, right?
Turn off or split subscriptions
Turning off or splitting the cost of subscriptions is by far the easiest change you can make for big savings. Turning off a subscription, downgrading a plan, or splitting the cost with someone can reduce this overspend for the whole year with just a few minutes of effort.
Common subscriptions and bills that people forget include streaming TV, dating apps, cable and internet packages, streaming music, and gym memberships. The free trials or first-year discounts can also be a killer. See options for sharing or canceling top subscriptions at services.getwellpaid.com.
Look at each service and think if you could turn off, pause, split with someone, or downgrade. Any of these might take a couple of minutes to accomplish and is a great quick win to start a budget.
Set reasonable budget goals
Now that you have a few easy wins from managing subscriptions and living expenses, it is time to set a plan for the rest of your spending. Set a budget plan by category or for a few key hotspots, but know where you want to go.
Building new spending habits takes time and requires commitment. Start by making small changes, such as cutting back on an afternoon coffee or switching from name-brand products to generics for just a few weeks. Once you get into the habit, you won’t miss it.
Small changes made consistently can add up to big savings. Fun fact: if you saved $5 on lunch and $2 on coffee during the workweek by meal prepping and making coffee at home, you will save $1,750 a year. Now imagine what you could save by cutting out a few Ubers or eating out a little less.
Track progress consistently
Tracking your progress sounds like work. And… it is. Just like going to the gym, it takes a little effort and consistency to make progress.
Fortunately, there are online budgeting tools that can help and simplify tracking for you. Some advanced tools, like You Need A Budget, can cost $12/mo and might be overkill for what you need. There are paid options, like Truebill, that are closer to $3-5/mo. Finally, you could use the free categorization tools, like Mint.com or WellPaid, and just track your progress yourself.
It is good to compare yourself to your goals at least once per month. Don’t sweat the small misses or bumps in the road, but the goal is to get to some consistency. Even if you don’t shop for clothing the same amount every month.
Ultimately, the New Year is a great opportunity for you to take charge of your financial life. Affirmations and lofty goals are fine, but making progress requires a little effort and a good process. Remember to get organized, allocate spending to living expenses, trim unneeded subscriptions, and set reasonable goals to stick to this year. New year, new you. Best of luck and happy New Year!