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Creating Healthy Spending Habits

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Other than the size of your paycheck, nothing has a greater impact on your finances than how you choose to spend your money. Billions of dollars are spent per year to help encourage you to spend your paycheck on everything from new cars to expensive shampoos, so it’s extremely important to develop healthy spending habits as soon as possible – like now. Even millionaires can go broke by spending beyond their means, so an important first step is to figure out what you need versus what you want. The best way to do this is to create a simple monthly budget and to track your spending over time.

A budget is a spending plan that is based on your expenses and income. A written plan helps you stay on track, day to day and month to month, for meeting your financial plans. When creating a budget, some people try to minimize expenses so much that their budget is set up for failure from the start. The key to successful budgeting is to be realistic but not irresponsible. You work hard and deserve an occasional treat. Going out for a meal or movie is fine, but not if it’s at the expense of managing existing debts or reaching your long-term goals (like saving for retirement).

The first thing you'll need to do is figure out approximately how much money you'll have each month. Total all sources of income, including both full-time and part-time jobs. Next, calculate your expenses, including both fixed expenses (like rent or student loan payments) and variable expenses (like entertainment or food). By subtracting your expenses from your income, you’ll see your cash flow - the amount of money you are making or losing per month. If you come up with a negative number, your cash flow is negative and you’ll want to make adjustments in your spending habits or earn additional income. If your cash flow is positive, then you’ll want to determine your savings or debt-reduction priorities.

A budget is not something you do just once – you’ll need to continually adjust your spending plan by comparing it with how you actually spend your money.