The biggest observation I’ve made as a financial planner is that 99 percent of us have a finite amount of money to work with each month. The second biggest observation I’ve made is that we all have vices that drain some of these financial resources. We may not know exactly where our money is going, but we are all pretty cognizant that too much of our monthly spending is going toward our problem areas.
A financial vice can be spending too much money on anything you don’t need. The number one example of this that I come across is going out to eat. In our culture, we use dining out as our primary social outlet, and it’s usually not a cheap one, either! Thanks to $10 glasses of wine and the high culinary quality our inner foodies demand in our dining experiences, this financial vice can quickly become a financial strain if it’s not put in check.
People also commonly overspend on clothing, sporting gear, travel, and big box store hunting. Even those free of these common trouble areas typically have at least one category where their level of spending falls into the vice zone. When discussing this concept with my mother, she claimed that she didn’t have any vices. I pointed out, though, that she most certainly spent too much money on mail-order supplements, and her shelves filled with them were proof!
We all have overspending vices, so instead of falling into a shame or denial spiral, start making an effort to to control yours. Before taking action, begin with awareness. Think about what your financial vices are and jot down your top three. Then, choose a course of action from these three strategies.
Strategy 1: Track
If your monthly cash flow situation is not dire (i.e. you’re not living paycheck-to-paycheck), then the first step is to track your vices. You can do this either with the help of budgeting software like You Need a Budget — making sure each category has its own line item — or you can keep track in a spreadsheet or notebook. Tracking for at least a month can help you understand just how much of your spending is going toward these vices. If the results are a little shocking, this strategy alone may help you make different decisions.
Strategy 2: Limit
Once you have identified your overspending problem areas, begin limiting the money you spend on them. The three best ways to limit spending are using lists to shop, utilizing budgeting software, and using a cash envelope system. This last method is both super simple and super effective. Let’s say you want to limit your clothing spending to $100 each month. At the beginning of the month, put $100 cash in an envelope. When it’s gone, you’re done with clothes shopping for the month. If you don’t spend it all, the balance rolls over to the following month when you add another $100 to the envelope. The limiting strategy is similar if you are using software, except it is the software, and not the empty envelope, that alerts you that you are done spending for the month. Though the limiting step often comes after tracking, you can also start limiting yourself immediately.
Strategy 3: Cease
If you are racking up credit card debt, have no savings, are not saving for future goals, or are living paycheck to paycheck, it’s time to cease all vice spending. Put a moratorium on all discretionary spending, or make it next to nothing. When you cease, you can immediately begin to funnel that spending toward savings and paying down debt.
Take some time to assess your vices on paper. By concentrating solely on them, you will get the biggest “bang for your buck” in getting your money to work for you, instead of against you.
Addie McHale is a member of the DailyWorth Connect Program. Read more about the program here.